ChargePoint Holdings (CHPT 0.79%) is scheduled to host its Q2 fiscal 2024 earnings call on Sept. 6. The stock has undergone a sizable sell-off as investors question the long-term viability of pure-play electric vehicle (EV) charging stocks amid heightened competition and a difficult business climate.
ChargePoint's management has done an excellent job staying focused on its long-term strategy. But now more than ever, investors need improved clarity on the current state of the business because the long-term strategy may not matter if the growth company can't endure a prolonged downturn in the business cycle.
Here are five things to look for when ChargePoint holds its earnings call.
Image source: Getty Images.
1. The threat of commoditization
Early adopters have a lot of advantages in a new industry, such as high margins, thanks to pricing power. But the EV-charging industry has matured and the transition away from gas-powered cars has become more likely. In response, more companies are entering the fold and competition is rising.
Aside from slower-than-expected EV adoption, the biggest threat to ChargePoint is commoditization. Put another way, EV charging will become a price war and margins will continue to fall until only the strongest players survive.
Investors should listen closely to management's commentary on commoditization to see if it's taking it seriously. Does ChargePoint believe it has competitive advantages that could insulate it from this looming threat?
2. The Tesla Supercharger network
In mid-July, ChargePoint's CEO Pasquale Romano held a virtual fireside chat with an analyst from Oppenheimer, an investment bank. The chat came shortly after Tesla (TSLA -1.11%) opened up its DC Supercharger network to other automakers, which threatened the competitive advantage of ChargePoint's DC network.
On the call, Romano seemed to cheer the news because it helps reduce range anxiety and should give folks more confidence to buy an EV. He also stressed the point that DC charging is used in a small set of cases, and people are mostly using AC charging at home or work -- which is what ChargePoint specializes in. Investors should look for further comments on the threat of the Tesla Supercharger network.
3. The future of DC and AC charging
ChargePoint has invested heavily in its own DC charging network, which now includes over 20,000 ports. For context, the Supercharger network sports over 45,000 DC ports.
ChargePoint will almost certainly address its DC fast-charging position on the call. It will be interesting to see if ChargePoint decides to scale back its DC charging expansion and focus more on Level 2 AC charging -- or if the opening of the Supercharger network and automakers champing at the bit for access reaffirms the value of DC fast charging.
4. Reaching positive operating cash flow
For multiple earnings calls now, ChargePoint has reaffirmed its intention of reducing losses and reaching positive operating cash flow. On its last earnings call, which was for Q1 fiscal 2024, ChargePoint said it expects to reach positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and positive operating cash flow by Q4 of calendar 2024. This would match up with the end of ChargePoint's Q3 fiscal 2025 and the bulk of the company's Q4 fiscal 2025.
Each quarter, investors should check in to make sure ChargePoint is on track to hit this medium-term goal. Since ChargePoint is unprofitable, reaching positive cash flow is necessary to avoid having to take on more debt or do an equity raise in the future, which would dilute the value for existing shareholders.
5. ChargePoint's balance sheet
Going public gave ChargePoint much-needed cash. But the last few years have made an impact on its balance sheet. Today, ChargePoint has a net debt position on its balance sheet and has far less cash than it used to.
CHPT Net Total Long Term Debt (Quarterly) data by YCharts.
The declining cash position isn't necessarily a super short-term concern. But the clock is ticking, and that's why ChargePoint reaching positive cash flow by the end of calendar year 2024 is a big deal.
ChargePoint is at a tipping point
Despite being a well-established EV-charging provider, ChargePoint remains a "prove it" stock. The best way to decide if ChargePoint is worth investing in, holding, or selling is to hold the company accountable and go into earnings calls with a list of things to look for.
ChargePoint is hovering around its 52-week low. And with just a $2.6 billion market cap, it's a relatively small company with a high amount of risk but also a lot of potential to compound several fold.
For most investors, simply waiting for ChargePoint to become more of a steady business may be the best move. But for investors with a high risk tolerance, adding ChargePoint to a diversified portfolio of growth stocks makes sense, too.
