ChargePoint (NYSE: CHPT) was one of the hottest stocks when it went public in 2021 through a special purpose acquisition company (SPAC). Investor enthusiasm for electric vehicle (EV) stocks was at a fever pitch, and many rushed to buy the charging station company in pursuit of a hundred-billion-dollar market opportunity.
The stock reached as high as $38.50 following its merger but hasn’t come close to that price ever since. The company faces significant headwinds from slowing EV demand, and its cash burn is a primary concern among investors. Although the stock is down 95% from its post-merger high, investors should consider the following before scooping up shares of the stock.
ChargePoint has suffered from slowing demand
According to data from the U.S. Department of Energy last year, ChargePoint operates 31,000 charging stations with 56,000 ports, making it the largest EV public charging network in the U.S., ahead of Tesla and Blink Charging.
The company seems well-positioned in an industry ripe for growth. According to the consulting firm PwC, the electric vehicle supply equipment market where ChargePoint operates could be worth over $100 billion by 2040. In other words, the industry has the potential to grow at 15% compounded annually over the next decade and a half.
However, the company has faced significant headwinds recently. Demand for EVs has slowed down across North America and Europe, leading many automakers to scale back the production of new EVs. As a result, ChargePoint has struggled with slower sales and delayed deliveries of commercial vehicles, which has weighed on demand for its charging stations.
In its first quarter (which ended April 30), ChargePoint’s total revenue fell by 18%, as its sales of network charging stations plummeted 34% to $65 million. The company also struggles with profitability, losing $72 million in the quarter and bringing its net loss over the past year to $450 million on $484 million in revenue.
CHPT Revenue (TTM) data by YCharts
Competition in the EV charging space is heating up
ChargePoint faces another problem: increasing competition across the charging station space. While the company has the largest charging station network in the U.S., many are older level 2 chargers, which can take up to 8 hours to charge a battery fully. On the other hand, Tesla has 20,000 fast-charging ports, twice as many as ChargePoint, EVgo, and Electrify America combined.
Image source: Getty Images.
In 2022, Tesla opened up its charging technology, the North American Charging Standard (NACS), to other automakers. Since then, Ford, General Motors, Volkswagen, and other major automakers have partnered with Tesla to license its NACS ports on their vehicles. As a result, ChargePoint has had to update its charging stations with Tesla-compatible NACS connectors.
Buy, sell, or hold ChargePoint?
ChargePoint has made several changes to senior leadership over the past year as it seeks to rein in costs and improve its margins. The company has made modest progress but continues to struggle with slow growth and mounting losses.
When it reports its second-quarter earnings in early September, ChargePoint projects revenue of $108 million to $118 million, a 25% decline at the midpoint compared to last year’s second quarter.
ChargePoint has its work cut out for it. The company got a head start in the EV charging market but has failed to generate a profit and faces intense competition from Tesla along the way. Therefore, most investors should probably sell or avoid the stock until a path to profitability becomes more realistic.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
