What happened
Shares of ChargePoint (CHPT +2.03%) sank this week, falling roughly 15% at noon ET Friday, according to data from S&P Global Market Intelligence.
There wasn't much in the way of new company-specific news on this EV charging station producer this week, but some industry and financial markets events may have had a detrimental effect on the stock. First, there were some data points suggesting electric vehicle sales continued slowing in the third quarter. But perhaps more importantly, long-term bond yields surged, putting pressure on any stock with a questionable balance sheet that may need to raise money.
While ChargePoint is a leader in its space, its ongoing losses pose risks, especially if capital markets remain closed (or expensive).
NYSE: CHPT
Key Data Points
So what
This week saw a continuation of the rise in long-term Treasury bond yields, reaching over 4.8% at one point before settling into a 4.78% yield as of this writing. That's up from the low 4% range in early September and the low 3% range six months ago.
While rising yields may be a sign of a strong economy, it can also raise the cost of financing. And as an unprofitable growth company, ChargePoint's ongoing losses and not-that-high cash position seemingly make it vulnerable.
Last quarter, while ChargePoint did grow revenue 39%, it also had an operating loss of $123 million. And over the prior two quarters, it burned through $200 million in cash. While it's OK for a high-growth company to be investing in growth, ChargePoint only had $264 million in cash on its balance sheet as of July 31.
So, there may be some consternation whether ChargePoint will need to raise money in the near term to stay afloat.
Moreover, ChargePoint's end markets depend on increasing electric vehicle adoption. For whatever reason, including high interest rates on car loans or difficulty moving beyond early adopters, electric vehicle sales also slowed during the third quarter.
Ironically, "range anxiety" could be part of the reason limiting the growth of EVs near term. That could actually be alleviated if there were more chargers available. So, it may be a bit of a chicken-and-egg problem here in getting the mass market to adopt EVs.
Now what
ChargePoint offers a lesson to investors operating in high-growth companies in exciting markets. While the market itself may be a good one, investors need to make sure a company has the balance sheet and underlying profitability to give it a pathway to sustainable self-funding. Otherwise, if there is a tightening cycle and interest rates rise, it can lead to big problems, making capital more expensive or unavailable while also curtailing demand.
It's possible ChargePoint can become profitable if it cuts costs aggressively, but that's not entirely clear from its financial statements how much could be cut.
While ChargePoint is certainly beaten up, near-term funding and cash flow issues remain big risks, of which every investor needs to take note.
