ChargePoint (CHPT) stock price: good in theory, bad in practice

ChargePoint (NASDAQ: CHPT) stock price has been in a freefall in 2023 and is hovering near its lowest level on record. The shares were trading at $2.68 on Monday, a few points above its all-time low of $1.77. They have slipped by over 94% from their all-time high while the company has issued a going concern warning.

ChargePoint’s stock collapse is not alone as other EV charging companies like EvGo and Blink Charging have also plummeted. As shown below, CHPT, EvGo, and Blink Charging stocks have plummeted by over 60% in the past three years.

ChargePoint’s business model is quite good in theory but all signs are that it is horrible in practice. The company installs EV charging stations and then starts making money from them right away. Unlike gas stations, these stations do not need a staff on duty, meaning that the company can save money on workers. 

The other good thing is that demand for EV charging has jumped as the number of EVs in the US has risen. In the US, tesla is on pace to sell more than 1.8 million vehicles this year, with a good number being in the US. 

Other companies like General Motors, Rivian, Lucid, and VinFast are also selling many EVs in the US. While the pace of growth is slowing, the reality is that the nominal number of EVs is rising.

This growth can be seen in the company’s revenue metrics. Total revenue rose from over $83 million in 2019 to over $448 million in the past financial year. 

The other benefit is that the government is providing billions of dollars in subsidies as it seeks to increase the number of stations. Companies like ChargePoint and EvGo can claim a tax credit for all stations that they install. 

Therefore, the EV charging business has several positives, including that its market size is growing and that charging speeds are falling. The company is also growing its fleet or commercial business, which is set to provide regular income.

Most importantly, the company makes money easily. It does this by marking up its power costs to the customers.

The challenge for ChargePoint is that its business has a few flaws. First, while the company does not need workers on site, it needs employees to do repairs and maintenance. The cost of travel can be high, especially when many stations are faulty. This is a common occurrence, as shown below.

EV charging stations statistics

Second, ChargePoint’s stations tend to depreciate at a relatively faster rate than initially expected. According to McKinsey, a typical charging station offering 15 charges per day should generate about $265k in annual revenue. 

It would then depreciate by about $85k while annual costs would be over $220k. This means that a charging station would lose over $40k without subsidies.

The other challenge is that it takes a longer time to complete a complete charge takes longer than filing gas. In most cases, it takes more than 30 minutes to charge a car and less than five minutes to fill gas.

Additionally, the company needs to install charging stations across the US. As a result, some stations will often have low utilization rate even as the company pays for their leases and other operations.

All these factors explain why ChargePoint has been increasing its losses in the past few years. Its total loss jumped from over $108 million in 2019 to over $441 million in the trailing twelve months (TTM).

CHPT chart by TradingView

Therefore, I believe that ChargePoint stock is still quite risky to buy. Specifically, I suspect that the company will need additional cash in the coming months, which will lead to more dilution. ChargePoint ended last quarter with over $397 million in cash and short-term investments.

It also has no maturities until 2028, which is a good thing. The challenge is that its cash burn is continuing while the total outstanding shares have jumped to over 348 million from 11 million in 2020. There is a chance that the company sell additional shares to raise cash by selling shares. In a recent note, an analyst at B Riley said:

“We don’t see enough near-term catalysts to stay Buy Rated on the stock as we believe it will take a few quarters before visibility on growth returns and the new management team can build credibility in its plans and execution of opex reduction.”

I suspect that the ChargePoint share price will drop to at least $1 in the coming months. The risk to this thesis is that it could have a short squeeze since the company has a short interest of over 25%.

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