The electric vehicle (EV) industry has been under intense pressure due to a combination of macroeconomic and industry-specific headwinds. Rising interest rates make it more expensive for consumers to finance car purchases, and higher EV investment by legacy automakers and new players adds competition for entrenched EV leaders.
But no matter how you slice it, the EV industry is well-positioned to grow over the next five to 10 years thanks to automotive industry buy-in, favorable government policy, and tax credits around the world.
Tesla (TSLA -1.06%) and ChargePoint Holdings (CHPT -6.67%) are front-runners in the EV charging industry based on their range of product offerings and existing installed capacity. Here's what makes each stock a great buy now.
Image source: Tesla.
Buy what you know
Howard Smith (Tesla): When Tesla went to market with its EV offerings, it knew the global infrastructure wasn't yet in place to make powering them convenient for buyers. So it developed and grew its own EV charging network in parallel with its vehicle production. Tesla now has almost 5,000 charging stations with more than 43,000 open Supercharger stalls throughout the world. The company also recognized that consumers would want fast chargers. By comparison, ChargePoint has fewer than half as many fast direct-current charging ports.
Of course, Tesla isn't typically seen as a charging company. But while its network of Superchargers is an important selling point for its cars, it also is a revenue generator for the company. Tesla includes paid supercharging as part of its services segment. That segment recorded record profit and sales in 2022, and accounted for 7.5% of the company's total revenue.
Now the EV leader aims to leverage its Supercharger footprint to bring in additional revenue by allowing non-Tesla vehicles access. It began a pilot program late last year in the U.S. to add "magic docks" that accommodate competitors' charging cable plugs.
Some may point out that the downside to that is that increased wait times at those formerly dedicated chargers could take away one advantage of owning a Tesla. But the company can charge more for non-Tesla charging to maintain consumer preference.
Also, the Inflation Reduction Act passed in 2022 includes billions in government incentives for companies that build out infrastructure for EVs, and the magic docks program will give Tesla an opportunity to receive some of those funds. It achieves those financial benefits while also advancing its mission to accelerate the transition to EVs and sustainable energy.
Investors looking for potential hypergrowth stocks in the EV charging sector shouldn't overlook this profitable leader in the industry. Tesla has proven its business is viable and profitable, and it might just be the best charging stock out there.
ChargePoint's long-term targets are in sight
Daniel Foelber (ChargePoint): ChargePoint went public a little over two years ago, and since then, it has done a masterful job of growing revenue and expanding its network of Level 2 chargers, as well as direct current (DC) fast chargers.
However, ChargePoint's revenues came in lower than expected for its Q4 and fiscal 2023, which ended Jan. 31. The following chart summarizes what the company is going through.
CHPT Revenue (Annual) data by YCharts.
Revenue is growing quickly, but so are losses. And the stock price has suffered accordingly, which has brought the price-to-sales ratio down.
Dig deeper, however, and you'll see that ChargePoint is continuing to do almost everything investors could want it to. It remains focused on its balance sheet and retaining a high cash position. On its fiscal Q4 earnings call, management stated it believes ChargePoint has the best balance sheet in the business.
However, ChargePoint's business model and balance sheet are a step below established energy and industrial companies that are investing in EV charging as an added revenue stream instead of a pure-play business model. European companies like ABB and Schneider Electric offer similar residential, commercial, and fleet charging solutions to ChargePoint. Meanwhile, Shell and other oil and gas companies are diversifying their retail segments by building Shell Recharge EV stations. Automotive suppliers like BorgWarner also have their own charging stations. Yet the biggest threat of all may be automakers themselves, many of which are investing in their own independent charging stations and are including charging offerings at dealerships.
The sooner ChargePoint becomes cash flow positive, the quicker it can stop burning through its cash or depending on its ability to raise more money in the capital markets. On the earnings call, management reiterated its goal to be cash flow positive in calendar 2024, a goal that ChargePoint first began talking about a year ago.
The company believes that the worst of the supply chain disruptions are behind it. Another point of good news from the earnings call was that about 30% of its revenue in the quarter came from new customers. That's good for ChargePoint because it shows that the company's land-and-expand strategy is working as planned. The strategy hinges upon attracting as many customers as possible early on in their EV adoption periods and then having those customers stay within the ChargePoint ecosystem as they require (hopefully) more chargers over time.
Demand for EV infrastructure could falter if a recession impacts consumer demand for new vehicles. However, ChargePoint remains the best pure-play company in the space, and its long-term goals are intact. As mentioned, the big risk for ChargePoint isn't necessarily other pure-play charging companies, but rather, larger companies with more resources to invest in charging and integrate charging solutions into a complementary product mix. The stock is not trading at a cheap price-to-sales ratio, but the company's growth rate and growth potential make it a worthy high-risk growth stock to consider.
Two stocks worth considering now
Tesla and ChargePoint offer unique ways to invest in the EV charging space.
While Tesla combines a leading role in EV production and charging, ChargePoint is a brand-agnostic pure-play way to invest in EV charging. However, Telsa generates a lot of free cash flow and is a high-margin and highly profitable business, whereas ChargePoint is still losing money.
For that reason, Tesla remains a lower-risk option than ChargePoint. But if ChargePoint can sustain its growth rate and reach consistent profitability, it could offer more upside than Tesla over the next three to five years.
