What happened
Shares of ChargePoint Holdings (CHPT +1.69%) crashed Wednesday afternoon, trading 14.5% lower as of 1:45 p.m. ET. Investors dumped shares of the electric vehicle (EV) charging infrastructure company after it announced plans to raise more funds via a share sale.
So what
ChargePoint announced that it has secured a commitment from institutional investors to purchase its common stock worth $175 million. The company also said that it had already raised $57 million through a stock sale during the third quarter. In total, it is raising $232 million by issuing new stock.
There are two major reasons this development has irked investors in ChargePoint. First, the sale of fresh stock dilutes the wealth of existing shareholders, and that puts downward pressure on the stock.
Second and more important, ChargePoint's decision to sell new stock at a time when its stock price has fallen so much reflects the company's dire need for funds. Until the market's closing yesterday, ChargePoint stock had lost 50% of its value in just three months.
NYSE: CHPT
Key Data Points
Worse yet, ChargePoint also said today that it had modified the terms of $300 million in convertible notes (a form of debt) to extend their maturity, but the move has come at a cost. Although the company will get another year through 2028 to repay the debt, it will also have to bear higher costs in between since the interest rates on the notes have been revised higher as well.
Now what
This has been a brutal year for ChargePoint so far. Although the company's revenue has grown steadily in recent quarters, its gross margins have shrunk and losses have mounted.
ChargePoint is also burning through cash rapidly, which explains why the loss-making company is raising funds via a stock sale. It expects to turn positive adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) by the end of 2024 and had to raise money through a fresh stock issue to support that goal.
If anything at all, this suggests that ChargePoint is in pretty bad shape, and it's not surprising to see investors dumping the stock today.
