Shares of ChargePoint (CHPT 0.79%) fell 75% in 2023 and continue to fall as challenges hit the EV market overall and chargers in particular. Losses are piling up, funding isn't as easy to get as it once was, and now the company is going to have to shift to a new charging standard.
Is this a low point ChargePoint can recover from or a downturn that will last forever? Let's dig into ChargePoint's business to find out.
What ChargePoint really sells
Before getting to ChargePoint's financials, I think it's important to lay out what ChargePoint sells. Yes, it has a network where it generates revenue from charging cars, but the vast majority of its revenue comes from selling chargers.
From the company's recent 10-Q filing with the SEC, "ChargePoint generates revenue primarily through the sale of Networked Charging Systems, Cloud Services and extended parts and labor warranties." This does not include ChargePoint as a Service (CPaaS), which generates recurring revenue.
In the third quarter of 2023, $73.9 million of the company's $110.3 million in revenue was from networked charging systems while just $30.6 million was from subscriptions.
This is still, primarily, a company that sells chargers. And those chargers are sold at a loss. Gross margins for charger sales in the first nine months of 2023 were negative 11%. And that's before the biggest disruption ChargePoint has ever faced.
The disruption in charging
The challenge recently is U.S. charging infrastructure moving to the North American Charging Standard developed by Tesla (TSLA -1.11%). Not only does this make Tesla's superchargers a competitor, it also further commodifies ChargePoint's position in the market.
How is a charging network supposed to differentiate itself when it has the same plug and delivers the same commodity (electricity) as rivals?
This will limit not only margins from charger sales, but also the subscription revenue that may be available for charging EVs.
Starting from a point of weakness
Maybe the strategic challenges I highlighted above could be overcome if ChargePoint were profitable to begin with. But it isn't.
CHPT Revenue (TTM) data by YCharts
ChargePoint can't make money on the existing business of selling chargers and services to the existing network of chargers. So what's the company going to do when it is further commodified in the market?
ChargePoint isn't a buy today
It's easy to see how EV charging will be a big business someday. People will need to charge in lots of places as more EVs are sold, and that's an attractive market. But it's not clear that charging will ever be a money-making business.
Chargers are inherently providing a commodity (electricity) through a commodity plug (NACS) to vehicles, and there's no lock-in to a charging network or big cost advantage to lean on. And with ChargePoint losing money as it is, I don't see a reason the financial picture should improve from here.
Just because a market is growing doesn't mean the companies in it will be profitable, and that's why ChargePoint isn't a buy today.
