Much of America's interstate highway system and seemingly limitless number of gas stations have been around for so long it's easy to take them for granted. Folks that drive electric vehicles (EVs) aren't so lucky. EV charging stations can be few and far between, and vary drastically in their charging speed and cost. If EVs are the future, there's going to need to be a lot more infrastructure to support them.
ChargePoint (CHPT 13.06%), one of the few publicly traded EV charging businesses, could be worth following for investors interested in sustainable infrastructure. Here's a breakdown of the company and what to look for heading into its Q1 fiscal year 2022 earnings release on Thursday.
EV infrastructure is becoming a key topic of debate
Infrastructure talks are back in the spotlight. Just last week, President Biden reduced his original $2.3 trillion proposition down to $1.7 trillion to garner bipartisan support. A counterproposal of $928 billion was submitted by the GOP on Thursday, largely leaving out items like healthcare and much of Biden's proposed renewable investments. While Biden's infrastructure plan could mean big things for renewable stocks, it shouldn't be the main reason to invest in a company.
A primer on the EV charging industry
Unlike gas stations, which mostly sell the same fuel grades and fill your tank at similar speeds, EV charging stations offer drastically different services. Understanding the various types of EV chargers will help us determine the role ChargePoint plays in the industry and its value as a potential investment.
The standard U.S. wall outlet supplies 120-volt AC power. That's called Level 1 charging. Level 2 charging is 240-volt AC power. Most of the public charging stations you've probably seen at retail outlets or business parks have Level 2 chargers. Depending on the vehicle, they can supply around 25 miles of range in an hour.
Then there's supercharging. Devices with batteries like smartphones or EVs have rectifiers that convert AC power to DC power. But EVs can charge a lot faster from a DC source. Tesla's (TSLA 4.67%) superchargers, for example, supply 480-volt DC power. Theoretically, a Tesla vehicle can achieve a max charge rate of 250kW at a V3 supercharger, or up to 200 miles in 15 minutes. However, not all models have the batteries necessary to charge at that speed.
Level 2 AC charging is quite a bit slower than higher voltage DC charging. But it's sufficient in cases where a car is parked for an extended period of time -- like when you're at work, shopping, or hanging out at a coffee shop.
ChargePoint's market-leading position
ChargePoint is North America's market leader in Level 2 charging. As of the end of its FY 2021, which ended Jan. 31, ChargePoint had over 132,000 public and private places to charge (159,000 through roaming integrations) in Europe and North America. For comparison, Tesla has over 25,000 superchargers around the world.
ChargePoint makes money mainly from commercial customers, such as offices or stores, that install its charging stations to attract business or provide a perk for their employees. Seventy percent of ChargePoint's FY 2021 billings came from its commercial customers, while 11% came from fleet, 14% from residential, and 5% from other. It's worth understanding that ChargePoint doesn't generate revenue by selling electricity. It isn't a utility or a gas station that makes money by selling fuel. Rather, ChargePoint makes money by selling charging stations and servicing those stations.
Despite its entrenched position in Level 2 charging, ChargePoint has two DC fast charging solutions, the Express 250 and the Express Plus (which can achieve a charge rate up to 500 kW). These solutions are better suited for road trips or situations where customers need a faster charge. However, the company is still fairly early into making these options widespread. As of the time of this writing, ChargePoint has over 1,600 DC charging points in North America and around 620 in Europe -- representing around 2% of its total chargers.
Risks worth watching
The biggest cons with ChargePoint are its slowing growth, lack of profit, and danger of being commoditized.
ChargePoint's business took a big hit in 2020, and it recorded only a 1% increase in revenue in FY 2021, not to mention a GAAP net loss of $197 million. However, the company expects that an upswing in the business cycle could help it return to growth this year. Its most recent guidance suggests a 37% increase in revenue in FY 2022, but investors are likely to get a more updated figure when earnings are released on Thursday.
Another fear is that charging will largely be commoditized as more independent providers flood the market with at-home and public charging solutions. Similar to Tesla, we could see traditional automakers offer EV charging at dealerships as they look to decarbonize their fleets. Competition could pressure ChargePoint's margin, putting long-term profitability into question.
Worth the risk
Just a few years ago, the closest thing to a U.S.-based publicly traded EV charging stock was Tesla. Today, we are seeing a few more companies enter the mix. Unlike Europe, where there is a lot more competition among EV charging companies, North America is a relatively younger market. Ninety-three percent of ChargePoint's FY21 revenue came from North America, a good sign the company is continuing to focus its efforts in a region with less competition.
Given the uncertainty in the space, going with a market leader like ChargePoint seems to be the best bet. It could take several years for the investment thesis to play out, but the company's established business model, success with commercial customers, and growing DC offerings should help it stay ahead of competitors.