It hasn't been a good time for ChargePoint Holdings (CHPT 0.79%) investors as of late. The electric vehicle (EV) charging stock is down more than 50% in the past year and down over 80% from its all-time high.
Granted, it's been a challenging period for EV charging stocks in general. Many are not profitable and are banking on a strong and sustained transition away from gas-powered vehicles toward electric cars to grow revenue, benefit from scale, and become profitable over time.
ChargePoint's "land and expand" business model is an extremely aggressive strategy aimed at gaining and retaining customers early by becoming an industry leader. Let's take a closer look at the strategy to see if it still makes sense or if ChargePoint may need to consider a more conservative approach.
Image source: Getty Images.
ChargePoint's business in a nutshell
ChargePoint operates one of the largest charging networks in North America and Europe. As of its June 2023 investor presentation, it consists of over 240,000 activated ports, 20,000 of which are DC fast charging. The bulk of ChargePoint's revenue comes from selling charging systems to customers, while a smaller share comes from the software and subscriptions necessary to keep systems operational.
|
Metric |
Q1 Fiscal 2024 |
Q1 Fiscal 2023 |
|---|---|---|
|
Networked charging system revenue |
$98.32 million |
$59.55 million |
|
Subscription revenue |
$26.37 million |
$17.65 million |
|
Total revenue |
$130.03 million |
$81.63 million |
|
Networked charging system gross profit |
$17.4 million |
$3.29 million |
|
Subscription gross profit |
$11.56 million |
$7.02 million |
|
Networked charging system gross margin |
11.8% |
5.5% |
|
Subscription gross profit margin |
43.8% |
39.8% |
|
Total gross profit |
$30.54 million |
$12.12 million |
|
Total gross margin |
23.5% |
20.4% |
|
Operating expenses |
$110.46 million |
$101.94 million |
|
Operating loss |
($79.92 million) |
($89.83 million) |
Data source: ChargePoint
The data in the table shows ChargePoint's Q1 fiscal 2024, which is the three-month period ended April 30, compared to Q1 fiscal 2023. Most of the numbers are encouraging.
Revenue increased 59%, while gross profit soared by more than 250%. Subscription gross profit margin is much higher than networked charging system margin, which makes sense given there tend to be more costs associated with selling a physical product. Operating expenses were less than 10% higher than the prior period, despite much higher revenue. But the business still booked a sizable operating loss, albeit a smaller one than the prior period.
Land and expand is working, but it may not be enough
ChargePoint is at a crossroads. Its strategy is proving effective. And if it keeps on its pace, subscription revenue should gradually make up a greater percentage of total revenue while also boosting gross margin.
The issue is that ChargePoint is clearly a long way away from profitability. Declines in consumer spending could affect new car purchases, including EVs. Or maybe consumers will simply think better of buying a new car at a higher interest rate and prefer to wait it out.
To be successful, the land-and-expand model depends on a strong economic cycle and a low interest rate environment. To ChargePoint's credit, it is executing the strategy very well. But with mounting competition from other pure-play EV charging companies, as well as diversified industrials that are investing in charging, it may be better to scale back and focus on becoming profitable as soon as possible.
