Despite the recent stock market rebound, share prices of electric-vehicle (EV) charging stocks ChargePoint Holdings (CHPT) and EVgo (EVGO 0.58%) are down 60% and 46%, respectively, from their all-time highs.
The EV charging industry is chock-full of exciting growth stocks that have yet to achieve profitability -- which is the exact kind of company that Wall Street doesn't like right now. The steep sell-off in smaller, less established growth names has created a buying opportunity in the EV charging industry. Here's why ChargePoint and EVgo stand out as two of the best in the business.
Image source: Getty Images.
Thinking about the big picture
Daniel Foelber (ChargePoint): If you have tuned in to recent earnings calls by major automakers, chances are you've heard a lot of talk about supply-chain shortages -- mainly the global chip shortage. Companies are struggling to procure things as mundane as carpets and glass, as well as critical commodities like lithium and nickel.
Despite these short- to medium-term challenges, the consensus among automakers is that the consumer has spoken and widespread EV adoption is an inevitable trend that will eventually overtake demand for internal-combustion engine (ICE) vehicles. For legacy automakers to successfully compete in the EV field, or for newcomers to catch up, they need to ramp up spending even during a rising-interest rate environment. It's expensive to invest in research and development, scale production, fund in-house battery production, or find affordable and reliable suppliers. In short, the automakers are showing no signs of deviating from their long-term goals despite the slew of headwinds they are facing in 2022 and may continue to face in 2023.
This long-term mindset bodes well for industry-leading EV infrastructure company ChargePoint. ChargePoint isn't backing down from its relentless global expansion -- even if it means rapidly depleting its cash reserves. ChargePoint's market share-orientated strategy is predicated on laying a foundation now so that it can capture customers early and stay with them as they increase their business with ChargePoint.
ChargePoint's customers include residential folks who want to install a ChargePoint station in their garage. But the lion's share of its sales come from companies looking to install charging stations to attract business or as a perk for employees. Business also comes from apartment complexes, malls, or other retail businesses that see the benefits of offering EV charging.
In early March, ChargePoint reported its Q4 and 2022 results for the fiscal year ended Jan. 31. Revenue rose by 65% in 2022 from a year earlier and it projected revenue growth in 2023 of 96%. ChargePoint finished the fiscal year with over 174,000 network charging ports, a 64% increase from fiscal 2021. In fiscal 2023, ChargePoint plans to invest in new charging stations, grow its DC fast-charging footprint, and continue its expansion into Europe (29% of its network ports are in Europe).
Add it all up, and ChargePoint offers a hypergrowth option for investors with a long-term mindset who are looking for exposure to the EV industry.
Growing a fast-charging network
Howard Smith (EVgo): Similar to ChargePoint, EVgo is in growth mode working to expand its network and sales before it focuses on profitability. For the first nine months of 2021, the revenue rose 52% from the prior-year period. Management expects growth to continue accelerating, and it raised its full-year 2021 revenue projection by up to 10% more than earlier estimates when it reported its third-quarter financial results. Investors will hear more from the company when it reports full-year results on Wednesday, March 23.
Image source: EVgo.
Since its last financial update, EVgo has announced several new partnerships to expand its network. It has increased its customer count each quarter throughout 2021. After adding about 19,000 new customers in the first quarter of last year, it added almost 35,000 more in the second quarter and more than 36,000 in the third quarter.
Those additions are coming from partnerships to add its DC fast chargers to locations of retailers like convenience and grocery stores, as well as with automotive original equipment manufacturers (OEMs).
It has expanded an earlier agreement with General Motors and now expects that program to result in a total of 3,250 DC charging stations by 2025. It also announced a new program with Toyota to offer customers of the carmaker's new Toyota bZ4X electric SUV complimentary charging at public stalls for one year. It has also been named as the preferred charging partner by Subaru's U.S. division as that company begins to offer its electric vehicle lineup.
EVgo is also serious about sustainability and touts its goal for 100% renewable energy to power its chargers as it purchases renewable energy credits (RECs) for all the power it supplies. Though the company will need to continue to grow to achieve profitability, it should be in good enough financial shape to support that. It spent less than $40 million on capital improvements in the first nine months of 2021 and ended the third quarter with $521 million in cash and equivalents.
Investors will need to be patient with a long-term time horizon, but EVgo looks to have a good foundation in place to continue to be a leading fast-charging network supplier as EV sales continue to grow.
A long runway for EV charging companies
Both ChargePoint and EVgo are expensive stocks by traditional valuation metrics like price to sales. And since neither is profitable, they don't even have price-to-earnings ratios. However, both companies look inexpensive when you think about their market capitalizations relative to their growth rates and the trajectory of the industry.
ChargePoint is burning through cash at a breakneck pace. But it thinks the strategy is worth it as it expects to achieve break-even cash flow by fiscal 2025. EVgo has a relatively better balance sheet than ChargePoint, and in many ways, is a less risky option, with some solid partnerships.
Despite the industrywide opportunity, there is no telling which EV charging companies will emerge as tomorrow's leaders. Given that charging is a commoditized industry, it could very well be the companies that achieve the lowest cost basis and the largest global footprint end up buying competitors as the industry likely consolidates over time.
Risk-averse investors may be better off waiting for the industry to mature before investing now. But those with a higher risk tolerance could consider picking up shares of ChargePoint or EVgo.
