With more than 174,000 electric vehicle (EV) charging ports, ChargePoint (CHPT 8.60%) is one of the largest EV charging companies in the world. It boasts more than 4,000 commercial and fleet customers.
It is estimated that nearly half of the cars on the road in the U.S. will be electric by 2050. Let's see how the expected growth in electric vehicles could drive ChargePoint's growth.
ChargePoint's growth is related to EV penetration
ChargePoint's sales of EV charging ports have been growing steadily over the years in line with the growth in EV sales in the U.S.
As the above chart shows, ChargePoint's annual port sales in units in North America grew proportionally with that of U.S. EV sales. Though the pandemic impacted ChargePoint's sales in the company's fiscal year 2021 (ending Jan. 31, 2021), the sales rebounded in fiscal year 2022.
Passenger EV sales in the U.S. are expected to grow at a compound annual growth rate (CAGR) of 41% from 2020 to 2026. ChargePoint expects similar growth in its port sales during this period. What's more, port sales aren't the only revenue source for ChargePoint.
ChargePoint's growth strategy
In addition to port sales, ChargePoint earns revenue from its software subscription and warranty services. ChargePoint's software subscription is especially useful for commercial and fleet customers as it enables them to manage charging in their parking lots or yards.
ChargePoint's software service includes several functionalities, such as station and site-host management. This function allows commercial customers to make charging accessible to public or select users, manage multiple sites and their charging policies, access analytics, report utilization, perform remote diagnosis, and execute updates with the latest software features. Another functionality is host pricing and payment remittance, which enables site hosts to set pricing using analytics, such as demand variation during specific times of day. It also allows remittance of payments to one or more accounts.
Other functionalities include energy management and driver-management tools, such as reserving a place for charging. The software can also integrate with route-planning systems for fleets.
Subscription revenue accounted for 22% of ChargePoint's revenue last year. The company expects its subscription revenue to grow over time.
The above chart illustrates how recurring software and warranty revenue adds up to nearly half of total revenue from a typical ChargePoint port over time. In the first year, upfront revenue from hardware sales forms the major chunk of total revenue. However, the unit generates recurring revenue over the years, which adds up to nearly the same amount as received upfront in year one.
Increasing EV penetration will not only drive ChargePoint's hardware revenue; it will also add to its recurring software revenue. Software subscriptions typically generate higher margins than that generated from hardware sales. So, ChargePoint's focus on growing software revenue should bode well for its bottom line. Overall, ChargePoint's growth strategy looks sound and should help it become sustainably profitable.