The future of electric vehicles (EVs) promises environmental benefits and shifts toward sustainable energy. However, a crucial barrier stands in the way: insufficient infrastructure. To support widespread EV adoption, there is a dire need for a charging station network, robust grid capacity, and innovative battery technology.
ChargePoint Holdings (CHPT +15.65%) is one of the largest providers of EV charging stations in North America and Europe. It aims to enable the widespread adoption of EVs while benefiting from it. However, the company faces significant hurdles. If you're thinking about buying its shares, consider the following.
NYSE: CHPT
Key Data Points
ChargePoint continues to bleed cash
Founded in 2007, ChargePoint has grown into one of the largest charging networks in the world, with a significant presence across the United States and Europe. As reported by U.S. News & World Report, ChargePoint has over 38,500 stations and 70,000 charging ports in the U.S., making it the largest EV charging network by a large margin over Tesla.
The company has done a good job growing its network over the years. However, that growth has come at a significant cost. It has lost money every single year since it went public in 2021 by merging with a special purpose acquisition company (SPAC).
Operating expenses have been high, resulting in negative free cash flow and net income. That has created a reliance on cash reserves to sustain ChargePoint's ongoing operations. The consistent cash outflow is a concern, since it has led the company to tap into the market for funding, significantly diluting shareholders.
CHPT Shares Outstanding data by YCharts
Uncertainty hangs over ChargePoint's business
The company has faced significant headwinds over the past several years that have weighed on its business. For one, the higher interest rates in 2022, coupled with economic uncertainty at the time, caused many of its commercial customers to cut back on spending. Amid this backdrop, there has been slower growth in EV adoption, which has led many automakers to cut back on their EV production.
The company also faces increasing competition from Tesla, which offers more fast-charging ports than ChargePoint, which operates more of the older level 2 chargers. Tesla has opened up its charging technology to other automakers, and many of them have partnered with it to license the ports for their vehicles. This has left ChargePoint scrambling to update its stations for Tesla-compatible connections.
Then, there is the rollback of the federal consumer EV tax credit and other federal spending plans that were put in place during the Biden administration. The tax credit has been integral in driving the adoption of EVs and charging infrastructure. The Inflation Reduction Act of 2022 notably expanded tax credits for both residential and commercial EV charger installations, further incentivizing consumers.
Image source: Getty Images.
On Feb. 7, the Trump administration ordered states to halt the $5 billion National Electric Vehicle Infrastructure (NEVI) program, part of the 2021 Infrastructure Investment and Jobs Act to build EV chargers on highways nationwide. Some legal experts question the administration's ability to cut off the program. Nonetheless, it creates more near-term uncertainty for ChargePoint.
Is it a buy?
It's been a difficult journey for ChargePoint, whose stock has fallen steadily over the past four years. Despite its position in the charging station market, it has faced difficulties in scaling up and achieving profitability. As a result, it has had to tap into equity markets and dilute shareholders several times as its share price plummets.
It also faces an uncertain operating environment, with slower growth for EVs and related infrastructure and uncertainty around federal funding for the projects. Given all these factors, buying ChargePoint Holdings is too risky, and investors are better off avoiding this stock for now.
