ChargePoint Holdings (CHPT 0.79%) was once a hot company pushing the electric vehicle revolution forward. Its charging stations sprouted up like weeds, fueled by a shift toward the production of EVs as it looked to stake its claim in the $100 billion market opportunity.
However, the EV company faces significant headwinds as losses keep piling up, and the stock is down 86% since the start of 2022. If you're considering buying ChargePoint today, there are three things you should consider first.
1. ChargePoint faces near-term economic headwinds
ChargePoint faces significant headwinds from declining sales and delayed deliveries of commercial vehicles, which weigh on demand for its charging stations. The current economic backdrop of high interest rates and economic uncertainty has many commercial customers taking a step back from spending. Meanwhile, fleet customers have seen delayed delivery of EVs, which has led to postponed investments in charging infrastructure.
The economic backdrop has also resulted in tighter consumer conditions. Despite new model launches, price cuts, and tax credits, growth in EV sales across North America and Europe has slipped. The slowdown has many legacy automakers dialing back production of new EVs.
These headwinds have weighed on ChargePoint's business, which saw total revenue fall 12% from last year while its network charging systems revenue fell 24%. The company also posted a net loss of $158.2 million, nearly double its $84.5 million loss in the third quarter last year.
CHPT Revenue (Quarterly) data by YCharts
2. ChargePoint faces heightened competition from Tesla's charging network
ChargePoint faces headwinds at the same time that competition in the space reaches a fever pitch. Although it has the largest charging network in the U.S., most of these are level 2 chargers, which can take up to eight hours to charge a battery fully. On the other hand, Tesla operates more direct current fast-charging plugs in the U.S. and has stations located in prime spots along highways.
This year, most major EV makers announced plans to adopt Tesla's fast charging stations as early as 2025, meaning future models will no longer support ChargePoint's Combined Charger System (CCS) technology. Automakers that have partnered with Tesla to license its North American Charging Standard (NACS) ports on their vehicles include Ford, General Motors, and upstart EV maker Rivian.
ChargePoint sped up the production of NACS-compatible chargers to keep up with the changes. However, ChargePoint is at a competitive disadvantage since it must update and develop new chargers, adding to its costs when the company is already racking up losses.
Image source: Getty Images.
3. ChargePoint's leadership change could be a pivot point for the company
ChargePoint made significant changes to its top management positions to turn things around. On Nov. 16, the company announced it would replace CEO Pasquale Romano with its COO, Rick Wilmer, while interim Mansi Khetani, senior VP of financial planning and analysis, would replace its CFO, Rex Jackson, on an interim basis.
As fellow Motley Fool contributor Daniel Foelber points out, the tone from ChargePoint's new management team was more serious and accountable during its most recent earnings call, showing that the company is looking to tighten its belt to turn things around.
Management will cut costs, and it will take time to see if the turnaround plan succeeds. The new team expects ChargePoint to achieve positive non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) by the fourth quarter of next year, and it will take a few quarters to see if the team is on track to make that a reality. Even so, S&P Global Market Intelligence analysts believe the company will be unprofitable under GAAP over the next several years.
ChargePoint will continue to face headwinds from a challenging economic backdrop for EV companies and heightened competition from Tesla, and its new management team has its work cut out for it. If you're looking to buy it today, it's essential to understand where the company is and decide if it's a good investment for your diversified portfolio.
