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Shares of ChargePoint (CHPT 4.27%) have declined since their peak in late 2020 and may now be reaching a value point if the operating results turn around. The $750 million market cap and 2023 revenue of $506.6 million puts the price-to-sales multiple at just 1.5 times, the lowest level since the company came public.
ChargePoint''s strategy has long been to grow its installed base of chargers and make high-margin subscription revenue that grows as electric vehicle (EV) adoption increases. But that strategy has turned out to be flawed.
The sale of EV chargers, or Networked Charging Systems, is ChargePoint''s primary source of revenue -- and that''s a problem because it''s a money-losing endeavor so far. In 2023, the company generated $360.8 million in revenue from chargers and spent $386.1 million to build them. On top of the losses, revenue was down 1%, so this hasn''t been a great business.
Subscription revenue was up 41.2% to $120.4 million, and the gross margin was a fairly impressive 39%. But that came nowhere near enough to cover $480.1 million in operating expenses, which is why the company had a $457.6 million loss for the year.
In the fourth-quarter 2023 earnings report, management was confident they could reach non-GAAP adjusted EBITDA breakeven by the end of 2024. This compares to a loss of $45.3 million in Q4 2023 and $272.7 million for the whole year.
Some trends will make that challenging. First, U.S. automakers are moving to the NACS charging standard, further commoditizing chargers. Second, EV sales growth is slowing, and 2024 may be a year when buyers and manufacturers pull back. That''s not a good environment for charger demand.
For ChargePoint to survive, it needs to start making money by selling chargers. The subscription business is nice, but chargers are the core business, and they have to be profitable to survive.
Operating expenses also need to be much lower to reach profitability. Right now, operating expenses are nearly equal to sales and should be more like 15% or 20% of sales for a hardware company.
The fundamental problem is the competitive nature of EV chargers. They''re effectively the same regardless of manufacturer, making it tough for ChargePoint to make much margin.
To make matters worse, the industry is coalescing around NACS, which means the charger will be the same for all manufacturers. How do you differentiate in that environment?
I think the future for ChargePoint is bleak given these competitive dynamics. The company has $327.4 million in cash, similar to the $328.9 million in operating cash burned in 2023. As the stock falls, offerings like the $287.2 million raised in 2023 will be harder to pull off.
Without a sale to another charger company, automaker, or utility, I don''t see how ChargePoint will survive as a stand-alone company. That''s the harsh reality for charger companies today.
Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Three years ago, ChargePoint (CHPT 4.27%) was worth over $8 billion and was seen as one of the big winners in the electric vehicle (EV) revolution. Now the company is worth just under $600 million, and the stock is dropping so fast that options are running out for financing the future.
It''s not hard to see the operational challenges ChargePoint is facing. The company makes most of its money selling EV chargers, not electricity or services, and the demand for chargers is down. You can see the revenue decline over the past year, and the losses are piling up.
What will change this dynamic? Management can''t lean on pricing power because EV chargers are essentially a commodity, and the industry is moving to the North American Charging Standard (NACS), which will further commoditize chargers.
The balance sheet is also in real trouble. If you look at the cash on the balance sheet and the current rate of cash burn, the company has about a year''s worth of cash left. But raising capital will be a challenge with $286 million in debt already on the balance sheet and a stock price approaching $1 per share.
Given the state of the balance sheet and cash flows, I think ChargePoint is running out of time to turn its business around. The company needs to find an alternative, like a strategic buyer or a company that wants to build a huge EV charging network on its own.
An automaker like General Motors or Ford that''s expanding EV sales could be a buyer, although they''re going to the standard NACS plug, and having a proprietary network may not make sense.
A company like Blink Charging (NASDAQ: BLNK) could also buy ChargePoint to consolidate the supply of EV chargers. But remember that Blink and ChargePoint make most of their money selling chargers, not electricity, so the network effect from these chargers may not be as strong as hoped.
ChargePoint could also focus on operational efficiency, as it did with its recently announced layoff of 15% of staff and its partnership with LG Electronics that will offload manufacturing to LG and allow ChargePoint to focus on hardware. But these moves may be too little, too late.
I don''t see any path to ChargePoint being a stand-alone company in five years. The company is burning too much cash and doesn''t have a path to a profitable business model.
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