Please ensure Javascript is enabled for purposes of website accessibility

Does ChargePoint's Future Depend On a Biden Infrastructure Bill?

By Daniel Foelber – Sep 14, 2021 at 8:47AM

Key Points

  • Federal support to expand electric charging networks could boost ChargePoint’s industry-leading North American position.
  • The transition toward EVs is supported by increased consumer interest, corporate ESG objectives, and national carbon-neutral goals.
  • ChargePoint’s revenue forecasts are based on the number of EVs on the road, not public policy.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This electric vehicle stock could get a much-needed jolt from federal funding.

The electric vehicle (EV) space is bursting with potential. Lower battery prices, the push toward environmental, social, and governance (ESG) investing, and carbon-neutral targets by companies and countries all bode well for increased EV adoption.

When scanning the market for EV stocks, the first group that comes to mind is probably automakers like Tesla, Ford, and GM. However, an even easier way to invest in EVs could be through charging infrastructure companies like ChargePoint (CHPT 7.72%).

ChargePoint benefits as more passenger and commercial EVs hit the road, no matter who makes them. Although it's the industry leader, one glance at the growth stock's valuation makes it clear that the company has some very big shoes to fill. This begs the question: Does ChargePoint's future depend on a Biden infrastructure bill, or can it succeed without federal support? Let's break down the company's fundamentals to determine if ChargePoint is a buy now.

A car overlaid on a binary cyber network.

Image source: Getty Images.

How federal support could help ChargePoint

In its Sep. 1 second-quarter fiscal year (FY) 2022 earnings call, ChargePoint called out the benefits of proposed U.S., Canadian, and E.U. vehicle and emissions policies. In the U.S. specifically, the version of the infrastructure bill that was recently passed by the Senate includes $7.5 billion toward expanding hydrogen, natural gas, and electric charging infrastructure.

The current version of the Infrastructure Investment and Jobs Act calls for $300 million in charging and fueling grants in U.S. FY 2022, followed by $400 million in FY 2023, $500 million in FY 2024, $600 million in FY 2025, and $700 million in FY 2026. 

President Biden also passed an Executive Order that calls for half of all new vehicle sales by 2030 to be zero-emission. California's plan is to make all new passenger car sales zero-emission by 2035. California is an example of how state subsidies and incentives can accelerate EV adoption. Federal grants to support EV charging could have a similar effect.

ChargePoint's growth depends on increased EV adoption. The more EVs that are on the road, the more charging ports will be needed. However, even without federal support, the numbers suggest that EVs are rapidly comprising a larger share of the passenger vehicle market.

According to the Bloomberg New Energy Finance (NEF) Electric Vehicle Outlook 2021, there are 12 million passenger EVs and one million commercial EVs on the road globally. Also, according to Bloomberg NEF, year-over-year North American EV sales grew 97% in the first half of 2021 and European EV sales grew 153%.

This is all to say that EV numbers in ChargePoint's two primary markets (U.S. and Europe) continue to rise at rapid rates thanks to increased demand and strong existing subsidies. U.S. EV federal tax credits for eligible manufacturers, and projects like the European Battery Innovation that grants support for European battery manufacturing independent of Asian imports, are just two examples of existing government support for EVs.

Revenue forecasts

ChargePoint models its revenue forecasts based on the number of EVs on the road, not public policy. The financial outlook contained in its December 2020 investor presentation looks extremely bullish, calling for revenue growth at a 60% compound annual growth rate (CAGR) between FY 2022 and FY 2026.

 

FY 2022

FY 2023

FY 2024

FY 2025

FY 2026

FY 2027

Revenue estimate

$225 million to $235 million

$346 million

$602 million

$984 million

$1.43 billion

$2.07 billion

Data source: ChargePoint. 

ChargePoint is showing that it can hit its shorter-term targets. Its original FY 2022 revenue forecast was $195 million to $205 million. The company updated that forecast to $225 million to $235 million in its Q2 FY 2022 release. However, the further ChargePoint's forecasts go out, the more they are subject to uncertainty. The company's projections could be derailed for a number of factors, many outside its control. 

In addition to organic growth, ChargePoint's acquisitions of ViriCiti and has-to-be drastically expand its fleet software offering and number of European ports. ChargePoint finished Q2 FY 2022 with 118,000 active ports, only 5,400 of which are in Europe. Once ChargePoint closes its has-to-be acquisition, it will integrate around 40,000 ports into Europe, making Europe a much bigger part of its portfolio. 

Takeaways

ChargePoint's "Land and Expand" business model is centered around gaining as many customers as possible, as quickly as possible, and as early as possible -- trusting that profitability will follow suit as the company scales. Management has been open about its intent to give revenue preferential treatment over gross margins or profit. Given that both North America and Europe remain in the early innings of their respective transition to EV vehicles, ChargePoint's strategy would be effective if it can retain its current customer base and build a reputation as an industry leader as demand for charging grows.

Even if ChargePoint executes its revenue-focused strategy, the company could face difficulties transitioning to profitability as it attempts to disrupt a low-margin, commoditized industry where price is usually the differentiating factor between competitors. 

A Biden infrastructure bill could do wonders to accelerate EV infrastructure, and add a jolt to ChargePoint's growth. But even without the bill, there's strong corporate support for ESG objectives and carbon-neutral goals. Add it all up, and there's reason to believe ChargePoint can succeed even without a Biden infrastructure bill.

Daniel Foelber has the following options: long January 2023 $10 calls on Ford and short January 2023 $12 calls on Ford. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

ChargePoint Holdings Inc. Stock Quote
ChargePoint Holdings Inc.
CHPT
$12.42 (7.72%) $0.89
Ford Motor Stock Quote
Ford Motor
F
$13.90 (1.09%) $0.15
Tesla Stock Quote
Tesla
TSLA
$194.70 (7.67%) $13.87
General Motors Stock Quote
General Motors
GM
$40.56 (2.04%) $0.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.