In 2022, global electric vehicle sales are estimated to rise by nearly 60% to 10.6 million vehicles. The growth of EVs should be beneficial for EV charging companies. But the positive development has not been impacting stock prices of electric vehicle stocks or EV charging companies.
Major EV charging stocks have corrected significantly during the year. Shares of leading EV charging company ChargePoint (CHPT -2.33%) is down 44% as of this writing. Can it recover in 2023?
ChargePoint's distinctive business model
ChargePoint has the largest network of level 2 charging stations in North America with roughly 70% market share. The company generates revenue by selling charging infrastructure to individuals, businesses, and governments. ChargePoint's primary focus is on commercial and fleet customers. A portion of its revenue comes from upselling cloud-based subscriptions. The company also generates revenue by offering an extended maintenance service to its customers.
ChargePoint's business model differs from that of its competition. Companies like Blink Charging, EVgo, and Volta operate on a station ownership model. These businesses are primarily concerned with generating long-term recurring revenue with little revenue generated upfront. As the companies don't generate much upfront revenue, this strategy needs a massive amount of external capital until there is enough revenue to sustain the business.
This is where ChargePoint stands apart. The company does not typically own its stations, so its capital investments are comparatively less than others'.
CHPT Net PP&E (Quarterly) data by YCharts
The net property, plant, and equipment expenditure for EVgo and Volta is quite high compared to ChargePoint, as ChargePoint doesn't own most of its stations. ChargePoint's strategy allows it to grow using an asset-light approach, and that has helped it in expanding its network rapidly.
Cash flow breakeven in 2024
On its recent third-quarter FY 2023 earnings call, ChargePoint's management reiterated its commitment to become cash flow positive by the fourth quarter of 2024. In addition to revenue growth, the company is focused on keeping its operational expenditures in check to achieve this target. In Q3 FY 2023, ChargePoint's operating expenses were $79 million. These amounted to 63% of its revenue for the quarter. The operating expenses were 103% of ChargePoint's revenue in Q1 and 74% of revenue in Q2 of FY 2023. So, there is a positive development on this front.
ChargePoint continues to add customers at a rapid pace. The company counts 80% of 2021 Fortune 50 companies and 24% of 2021 Fortune 500 companies as its customers. The cumulative spending of its top 25 customers between Q1 FY17 and Q4 FY22 has grown over 10 times.
ChargePoint's annual North America port sales growth has been in line with U.S. EV sales. Although North American port sales growth was hampered by COVID-19, the company anticipates a growing trend in the future. It expects passenger EV sales to grow by a compound annual rate of 51% between 2020 and 2026.
Strong growth ahead
The U.S. government's Inflation Reduction Act aims to increase EV sales by extending tax incentives on EV purchases. Strict policies are also implemented to limit CO2 emissions. These new regulatory improvements will hasten EV adoption in the U.S. Further, as part of President Biden's Bipartisan Infrastructure Law, the Nationwide Electric Vehicle Infrastructure initiative provides $5 billion to establish a national EV charging network to boost EV adoption across the U.S. So, the longer-term outlook for ChargePoint looks positive.
ChargePoint's geographical reach, large client base, and distinctive business model make it a top stock in the EV charging space. Given the macroeconomic uncertainties, the broader markets may continue to be under pressure in 2023, which in turn may impact ChargePoint stock as well. But the company looks well placed to grow in the long term.
It is important to note that the company is not yet profitable, and is yet to prove its business model, which makes an investment in ChargePoint suitable only for investors with a high appetite for risk.
