ChargePoint (CHPT +0.31%) is a key player in the electric vehicle (EV) market, but it doesn't make vehicles. It makes charging stations, which is more of a picks-and-shovels play in the EV space. The only problem is that so far, ChargePoint hasn't found a way to sell the vital products and services it provides profitably. Here's why the company's asset-light business isn't working out just yet.
ChargePoint doesn't own the infrastructure
Electric vehicles need to be charged, which, while obvious, is still a huge opportunity for companies to service. ChargePoint is one of the larger companies trying to play a role in this part of the EV model. It makes and sells charging systems and offers subscription services for charging networks.
Image source: Getty Images.
But ChargePoint isn't a company with a large physical presence. Management notes that "[b]ecause ChargePoint rarely owns and operates charging infrastructure, it is able to allocate capital strategically toward ChargePoint's initiatives in research and development, marketing and sales and public policy." To sum that up in a slightly different way, ChargePoint is an asset-light business.
That's not a bad thing. As noted, it means that cash isn't getting tied up in physical assets and can instead be used to support activities that will grow the business over time. This fact, however, has to be weighed against the hard realities contained in the company's financial statements.
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Key Data Points
Where is ChargePoint's money going?
For example, in fiscal 2024, ChargePoint spent roughly $221 million on research and development (R&D). Another $150 million or so went toward sales and marketing. It doesn't break out the cost of trying to influence regulatory issues, but that isn't really needed here. That's because the company's gross profit was just over $30 million. Its gross profit isn't anywhere near enough to pay for R&D or sales and marketing, which come after gross profit on the income statement. Adding regulatory costs to the mix would only make things that much worse.
The interesting thing is that ChargePoint generates plenty of revenue, with a tally of nearly $507 million in fiscal 2024. But its cost of sales is a weighty $477 million or so. That doesn't leave much behind to support all of the other things that a company has to do, like R&D, sales and marketing, and the general and administrative costs of running the whole business. It is worth noting that general and administrative costs in fiscal 2024 came in at $109 million, which alone was more than 3 times larger than gross profit.
Being an asset-light operation is a great talking point, but it isn't really doing much to help the company right now. This, however, brings up another question: How is ChargePoint able to spend so much cash if it isn't bringing in enough to cover its spending needs? One big answer is that the company is selling stock, which dilutes current shareholders. Notice in the chart above how the stock price has fallen as the number of shares has risen. That's a troubling sign given that selling stock as prices decline means that more stock has to be sold to raise the same amount of cash. Only companies that are particularly desperate for money would keep selling so much stock in that scenario.
ChargePoint's model isn't working yet
To be fair, ChargePoint is still building out its business, so you could argue that it will eventually hit a tipping point where revenue will more than cover its costs. That's what every company strives for, but ChargePoint is very far away from this feat currently. Only aggressive investors should be considering this stock today.
