According to a report by the International Energy Agency (IEA), electric car sales reached 6.6 million in 2021 compared to 3 million in 2020 and 2.2 million in 2019. That brings electric car global market share to 9% compared to just 2.5% in 2019.
Selling more cars is one thing, but supporting those cars through a safe and reliable network of electric vehicle (EV) charging stations is vital for mass consumer adoption. ChargePoint Holdings (CHPT 2.12%) has a dense network of charging stations in North America and Europe. Let's determine if the stock is a good buy on sale or if investors are better off following the company from the sidelines.
Image source: Getty Images.
An investment for those looking to the future
Howard Smith (Bull): There's no question that ChargePoint is a high-risk investment. It's not one to be made with a time horizon of only five years or so. One should enter with a 10- or even 20-year time frame. That's because the amount of growth expected for the EV market will take that long to play out.
The IEA has put together two scenarios as automakers work to supply the expected demand for EVs. The first scenario is based on currently stated policies as leaders work to help battle climate change impacts from the transportation sector. The second assumes more aggressive government action in developing sustainable solutions. As seen in the table below, both result in massive growth in EV ownership over the next decade.
| Metric | 2020 | 2030 Scenario 1* | 2030 Scenario 2* |
|---|---|---|---|
| Global EV Sales | 3.1 million | 25.8 million | 46.8 million |
Data source: International Energy Agency. *Estimate
It should also be noted that even in the more aggressive scenario, electric vehicles would still represent less than one-third of all road vehicle sales in 2030. This helps highlight the long-term perspective one should have with an investment in ChargePoint.
In addition to the positive trends for its addressable market, ChargePoint is the leader among its peers. It already has more than 163,000 active charging ports installed, with more than one-quarter of them in Europe, where it is also focusing on expansion outside North America.
ChargePoint has increased its full-year revenue guidance twice since September 2021. It is scheduled to provide its next financial update on March 2. Investors should watch to see if management continues to see strong revenue growth again in 2022.
ChargePoint is in growth mode, but questions remain
Daniel Foelber (Bear): ChargePoint is my favorite EV charging stock, and I think Howard makes a compelling case for buying the stock now. Given that the stock is down over 60% from its high and hovering around a 52-week low, there's nothing wrong with opening a starter position in ChargePoint.
NYSE: CHPT
Key Data Points
However, given industry challenges and rising interest rates, most investors may be better off taking a wait-and-see approach to ChargePoint at this time. Expectations are high for the growth company's March 2 results and shareholders hope to see not only significantly higher revenue than fiscal 2021 but also that ChargePoint can sustain that momentum heading into fiscal 2023.
Last quarter, ChargePoint raised its fiscal 2022 revenue guidance to between $235 million and $240 million, including a forecast for record quarterly revenue in Q4 of $73 million to $78 million. As we've seen over the last month of earnings announcements, Wall Street is showing no patience for anything less than perfection. Companies that have reported blowout results have little to show for it over their short-term stock moves. Companies that miss or forecast disappointing guidance have seen their stocks decimated. This isn't to say that investors should approach ChargePoint as a short-term investment. It's more of a word of caution that Wall Street has been unforgiving, and it's going to take a lot for ChargePoint to earn its favor.
Despite the market's flinch reaction to ChargePoint's report, for better or for worse, long-term investors should pay close attention to ChargePoint's performance, its guidance, and management's commentary.
ChargePoint's management has been adamant about growing market share and its top line, giving these performance indicators preferential treatment over positive cash flow or earnings. It will be interesting to see if management keeps this gung-ho tune in the face of higher competition or if we'll get an updated path toward profitability.
The next big point worth watching is the company's growth in DC fast charging. Level 1 charging stations use the standard electric wall outlet found in a home. Level 2 charging runs at a higher voltage. You’ve probably seen Level 2 stations on the side of a street or in a parking lot. But both Level 1 and Level 2 stations provide AC electricity that your EV converts into DC. DC fast charging takes it to a whole new level by converting AC to DC in the charging station itself and supplying DC power directly to the electric vehicle. ChargePoint has the largest Level 2 charging network in North America, but adding fast charging to its portfolio could give it a competitive advantage. Less than a year ago, DC fast charging made up around just 2% of ChargePoint's total ports. Now it's over 7%.
Finally, I'd be interested in seeing how ChargePoint has responded to rising costs due to inflation and ongoing supply chain issues. Given that charging is ultimately a commoditized price-taker industry, it wouldn't be surprising if ChargePoint has been severely impacted by inflation.
Given all of these unknowns, it doesn't seem like a bad idea to simply wait for the report to make a buying decision rather than diving headfirst into ChargePoint now.
A crucial element that supports widespread EV growth
EV charging companies will play a big role in the rapid rise of EV adoption around the world. Legacy and newer automakers are building their own charging networks or partnering with third parties. The biggest advantage of investing in EV charging companies is that they are brand-agnostic and can succeed with the general tailwinds of the EV industry. The main disadvantage is that they lack differentiation as customers are likely to go with the best value. Just like today's gas stations, customers will pay little to no premium for one brand over another. And we could see the same dynamic with EV charging companies as the industry grows over time.
