Electric vehicle charging stocks were among the hottest on the market in 2020, but that's changed in 2021. Shares of Blink Charging (BLNK -1.28%), ChargePoint Holdings (CHPT 0.50%), and EVgo (EVGO 2.24%) are down sharply over the last six months, and show no sign of turning around. 

There are reasons to be excited about electric vehicle charging as a growth business, but there are also challenges ahead. And charging companies may not be making money in the way you think. 

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How EV charging companies make money

Each of these charging companies is growing quickly, but is revenue growth sustainable, recurring, and high-margin? It might not be. 

Let's start with Chargepoint. The company generated $40.9 million of its $56.1 million in revenue in the second quarter of 2021 from "Networked Charging Systems". What does that include? This is from the company's SEC filings:

Networked Charging Systems revenue includes revenue related to the deliveries of EV charging system infrastructure, which include lower priced Level 1 home chargers typically sold to drivers, Level 2 AC chargers for commercial use and Level 3 DC fast charging systems for urban/corridor charging and for fleet operators.

In other words, a vast majority of Chargepoint's revenue is from selling chargers. That might be a decent business someday, but it's a commodity, it's non-recurring, and there's no reason to think that chargers will ever be a high-margin business. And it's definitely not the kind of high-margin business we would expect from a stock trading for 31 times sales. 

Blink Charging calls its hardware sales "product sales", which accounted for $3.3 million of the company's $4.3 billion in revenue in the second quarter of 2021. Again, this is mostly hardware sales from a company trading for 100 times sales.

EVgo generates its revenue from charging vehicles, which should be a recurring revenue source. But its operations seem equally flawed. Management said that it costs $110,000 to build a single charging stall (what?), and there's another $6,000 to $7,000 in non-energy fixed costs. They also say that 2021 revenue is expected to be $20 million, with adjusted EBITDA (a proxy for cash flow) of negative $58 million.

Electric vehicle being charged.

Image source: Getty Images.

Strategically, charging companies are in a weak position

Short-term, it's likely that demand for chargers and electricity from charging stations will rise. As a result, charging companies will see revenue rise rapidly. But despite the fact that electric vehicle sales are growing and charger needs will rise, charging companies don't hold much bargaining power in the market. They don't have a technology advantage or proprietary plug that differentiates them from the competition. In fact, companies with large charging networks have an incentive to use industry-standard plugs so they work with most vehicles, making each charging network substitutable with every other. 

This means that charging plugs are effectively a commodity for users and EV manufacturers. General Motors showed it had more power than charging companies in signing an agreement with seven charging companies to create a network for its EV buyers. But it's GM that will integrate maps and payments, effectively making the charging network owners a white-label service provider. That's not a strong position to be in for any company. 

Each of the companies mentioned above has a market cap of over $1 billion and is losing money. Worse yet, very little revenue is generated from recurring charging revenue, with most revenue coming from the one-time sale of chargers. I think this will ultimately be a low-margin business long-term, and these stocks will struggle as the market comes to that realization.