Demand for electric vehicles is rising fast and an estimated 60% of new vehicles sold in 2030 will be EVs. The coming influx of electric-powered vehicles means that countries will soon need to significantly expand their charging infrastructure.
And that's where ChargePoint Holdings (CHPT 1.59%) comes in. The company has the largest charging network in the U.S. and is building charging stations across Europe as well.
The company's share price has been cut in half over the past year, which has many investors wondering if now might be a good time to pick up shares of the stock. While the company is certainly tapping into a fast-growing trend, I think investors would do better to hold off on buying ChargePoint right now. Here's why.
Image source: Getty Images.
Electrified growth at a cost
There are a few things that are going right for ChargePoint right now. For one, the company's sales expanded by 93% in the fourth quarter to $153 million. It ended the quarter with 225,000 active charging ports across the U.S. and Europe, up 29% from the year-ago quarter.
ChargePoint's rapidly expanding sales, coupled with the company's impressive 70% market share for high-speed charging in North America, shows that ChargePoint has been good at addressing its customers' needs for EV chargers.
But all of that growth has come at a hefty cost. In the fourth quarter, ChargePoint's operating loss was $78 million, an improvement of just 1.1% from the year-ago quarter.
And if we look back over the past three years, the company's financial picture doesn't look great. Here's how ChargePoint's operating losses have expanded over the past three years.
| Metric | 2020 | 2021 | 2022 |
|---|---|---|---|
| Operating loss | $121 million | $266 million | $341 million |
Data source: ChargePoint.https://investors.chargepoint.com/news/news-details/2023/ChargePoint-reports-fourth-quarter-and-full-fiscal-year-2023-financial-results/default.aspx
One of the reasons for the company's recent widening losses is that its gross margin isn't doing all that well. While ChargePoint's margin under generally accepted accounting principles (GAAP) increased sequentially in the fourth quarter to 22%, it was still flat on a year-over-year basis.
Making matters worse for ChargePoint is the fact that competition in the EV charging space is heating up. Much larger companies with deeper pockets -- including automotive component maker Eaton, oil giant Shell, and the German conglomerate Siemens -- all have their own EV charging products.
A flood of EV charging devices could eventually erode ChargePoint's market share, making it even more difficult for the company to earn a profit.
A difficult time to be unprofitable
Investors have lost a lot of patience with companies that are increasing sales quickly at the cost of earning a profit. Making matters worse for ChargePoint is the fact that it also has less cash on hand than it used to -- $264 million at the end of 2022, down from $315 million in the same period last year.
That's not a fantastic position to be in, especially as inflation is still elevated, materials costs are high, and some investors are still planning for a recession. Even if an economic slowdown never materializes, ChargePoint's past growth came at a time of easy money and lots of optimism in EV stocks -- neither of which define the current market conditions.
While ChargePoint could eventually be in a good position to benefit from the EV industry's growth, the company is simply too unprofitable right now to justify taking on the risk.
