The Inflation Reduction Act does several things, but the biggest provision is likely the massive $369 billion in climate-related subsidies. In addition, the Bipartisan Infrastructure bill signed back in 2021 contains some $7.5 billion to build out an electric charging infrastructure throughout the country.
Two companies that stand to benefit are electric-vehicle (EV) charging companies ChargePoint (CHPT -1.43%) and Blink Charging (BLNK -0.84%). But which is the better buy today?
Business model and size differences
Both companies sell various kinds of EV charging stations, but their business models differ in one big way: ChargePoint prefers not to own its chargers, instead opting to make money on charger sales, along with fixed recurring cloud software and warranty subscriptions from the owners. That's opposed to Blink Charging, which aims to own as many of its charging stations as possible. When a company owns the charging station, it generates high-margin electric charging fees as the station is utilized more.
Why would ChargePoint eschew this high-margin revenue? The company believes by letting its customers own and benefit from utilization, it can generate network effects, benefit from economies of scale, and invest more in new technology.
That seems to hold water, since ChargePoint is far and away the leader in EV charging stations today. As of the second quarter, ChargePoint had deployed over 200,000 charging ports, which management believes has given the company more than 65% market share. Last quarter, ChargePoint generated $108.3 million in total revenue, consisting of $84.1 million in charger sales, $20.2 million in subscription sales, and $3.9 million in "other" revenue, which consists mostly of environmental credit sales.
That's nearly 10 times the revenue of Blink, which generated only $11.5 million in revenue last quarter, consisting of $8.8 million in charger sales, $1.5 million in electric charging services revenue, and the remainder spread across network, warranty, and other fees. Blink also operates a subscription-based EV ride-sharing service in Los Angeles, which contributed $279,000 in revenue, but is losing money.
But here's why Blink may be more attractive in the long term
While Blink is definitely the smaller challenger, it could have more upside. That's because while it may take more up-front cost and effort to own and operate stations, Blink's charging revenue is higher-margin than ChargePoint's flat subscription fees.
In the second quarter, Blink's $1.5 million in charging service revenue carried a 76.5% gross margin and was up 155% over last year. By comparison, ChargePoint's recurring subscription revenue had just a 34.4% gross margin, growing 68.2%.
It may seem strange to just look at charging or subscription revenue, given that subscription revenue made up only 18.6% of ChargePoint's Q2 revenue, and charging fees amounted to only 13% of Blink's revenue. However, hardware sales are fairly low-margin, with ChargePoint's charger sales gross margin at just 12%, and Blink's at just 28%. Moreover, while we are still early in the EV charger buildout, eventually the growth rate of charger station sales should slow. Thus, it seems as if a lot of these companies' future profits will come from the higher-margin services parts of the business.
On its recent conference call with analysts, Blink management stressed the difference:
Our competitors, which, none them own and operate the charging infrastructure after it's sold. They build equipment with upgrades built in. That's their model. I mean, like a cell phone. We look at our equipment like a hot water heater or a refrigerator, and we want it to last many, many, many years without upgrade cycles. ... Our [owned] and operated model has a much more robust potential for revenues than just having a charging station that we sold to a third party and it's on our network; we get a few dollars a month for it. So again, we believe long-term, as more and more EVs on the road, utilization picks up. And as that happens, these charging stations become potentially very, very, very profitable.
Of course, ChargePoint's management believes in the business model as well. It allows the company to invest in technology and scale more quickly with less capital and effort. It's probably still up for debate which business model will prove the winner, or if there's room for more than one.
Another potential upside for Blink
Besides the more aggressive business model, Blink also just closed on two different acquisitions in the second quarter, those being Electric Blue, a U.K.-based charger company, for $19 million, and SemaConnect, a U.S. competitor, for $200.5 million.
The more consequential is SemaConnect, which brings with it technology and low-cost manufacturing. Blink's management believes vertical integration with SemaConnect can shave 30% off it manufacturing costs, which will improve its margins even more. Furthermore, SemaConnect has a charger model with a credit card reader built into it, which will be a requirement for all charging stations in California starting in 2023.
These acquisitions just closed late in the last quarter, so the benefits aren't apparent yet. While any acquisition carries risk, Blink's economics could improve in a big way if management's projections come to fruition.
Upside or safety?
Since both companies are currently losing a fair amount on their bottom lines, it may be a comfort to go with ChargePoint. It has over $470 million in cash on its balance sheet, although that was recently bolstered by a $300 million convertible debt sale. Blink has just $89 million in cash left, and another $44 million to go to finish paying off the SemaConnect acquisition over time.
In addition to having more cash, ChargePoint is also the cheaper stock, at 17.5 times sales, versus 26.2 for Blink.
On the other hand, if Blink can continue to grow and improve its margins as planned from SemaConnect, there is likely more upside here, should charger utilization accelerate.
Since both companies are losing money and therefore risky in the current rising rate environment, investors should probably be using these investments as high-risk, high-upside bets anyway. Therefore, I'd tend to favor the upside of Blink. Just be careful about position sizing with both stocks, as the EV transition is likely to be a bumpy ride.
