Although speculating on an individual EV manufacturer may present the most exciting proposition, the infrastructural road inherent in ChargePoint (CHPT) presents fewer fundamental risks. No one can say for sure which EV companies will ultimately win out in 10 or 20 years. However, if electric mobility is the answer, charging stations will always be relevant. Thus, if you had to bet on the arena, CHPT may be the ideal choice. I am neutral on ChargePoint.
Essentially, the basic thesis here is that investors of CHPT stock are selling tickets to the big game as opposed to wagering on which team will win the matchup. Back when the combustion car industry started to initiate mass production, several brands – including American Motor, Austin, and Auburn – threw their hat in the ring.
The reason you don’t hear much about the aforementioned firms? They’re defunct. Similarly, the explosion of new EV competitors – while boosting confidence in the underlying innovation – likely won’t be around over the next decade or so.
Eventually, consolidation takes over, with the most compelling brands merging together to form superior economies of scale. Unfortunately, the less-enticing companies simply go out of business. However, what would be less prone to failure are the infrastructural firms, thus natively supporting CHPT stock and its ilk.
ChargePoint Stock Analysis
On TipRanks, CHPT has an 8 out of 10 Smart Score rating. This indicates moderate potential for the stock to outperform the broader market.
CHPT Stock and Economic Realities
Typically, EV drivers respond to the criticism that the industry lacks enough infrastructure by retorting that personal residences provide all the charging infrastructure one needs. While this may be true for the more affluent drivers, according to the Office of Energy Efficiency & Renewable Energy, only “63% of all occupied housing units have a garage or carport.”
While it’s a significant figure, it also leaves out 37% of housing units that don’t have garages or carports. Likely, this dynamic won’t change anytime soon. While the median household income in the U.S. is likely around $70,000 today – it was $67,521 in 2020 – the price of everything has shot up because of the soaring inflation rate.
Indeed, with the average sales price of houses sold in the U.S. hitting $525,000 in the second quarter of this year, the dream of homeownership is slipping away from many families and individual buyers. Combine that with brewing layoffs in the technology sector, and economic realities suggest that more people will consider renting than would be normal for any other cycle.
However, the above dynamic cynically bodes well for CHPT stock. For one thing, the underlying company’s charging stations – which can be integrated into places people frequent, such as retail centers and workplaces – deliver much-needed relevance. Second, ChargePoint enjoys organic opportunities via retrofitting apartment complexes’ parking lots with EV charging posts.
The Chicken-and-Egg Problem
Although CHPT stock brings reliable long-term relevance to the table, it too can’t escape from the classic chicken-and-egg problem that impacts the EV industry. Namely, in order for EV manufacturers to justify the investment in churning out new vehicles, they must have reassurances that adequate infrastructure would be in place.
However, the infrastructure providers also face the same dilemma but from the opposite side of the fence. For them to justify their investments in building out charging posts and stations, they must have confidence that EV makers will continue to pump out new vehicles – and not just for the affluent, who likely have multiple homes with garages.
While the matter is a fundamental obstacle for CHPT stock, the risk-reward profile arguably favors ChargePoint and its peers. On the EV manufacturing side, the risk isn’t just centered on acquiring the necessary capital to produce vehicles. Rather, they must have some reasonable confidence that their particular brand will resonate with consumers over others.
Unfortunately, EVs tend to lack character, which is not something you can say about combustion cars. For instance, most people are familiar with the rumble of American V8 engines or the fuel-efficient (and reliable) nature of Japanese inline-four cylinder motors.
On the other hand, setting aside the exterior elements, the powertrain for all EVs is largely identical: a lithium-ion battery pack that scoots drivers from one place to another in relative silence. Since all EVs fundamentally do the same thing, though, each manufacturer needs to bring a compelling element to the table.
Fortunately for ChargePoint, no one cares about the brand of electrons that are transferred to their vehicles, so long as the transfer occurs.
A Look at ChargePoint’s Financials
Although the broader narrative for CHPT stock is intriguing, investors must consider the underlying financial profile. Unfortunately, this is where the wheels start to come off a bit from ChargePoint’s thesis. For the three months ended April 30, 2022 (the company’s most recent quarterly report), ChargePoint delivered total revenue of $81.6 million, a doubling of its year-ago quarter’s sales tally of $40.5 million.
Unfortunately, under the cost of revenue, the line item for networked charging systems spiked up to $56.3 million in the latest quarter (compared to $23.7 million one year ago). The end result is that gross profit for the most recent quarter was $12.1 million, only a 31% lift from the year-ago level.
In addition, the net loss for the three months ended April 30, 2022, was $89.3 million, comparing very unfavorably to the net loss of $46.6 million against the prior-year level. Therefore, CHPT stock isn’t without its own significant risks.
What is the Target Price for CHPT Stock?
Turning to Wall Street, CHPT stock has a Moderate Buy consensus rating based on eight Buys, four Holds, and no Sells assigned in the past three months. The average CHPT price target is $19.13, implying 14.6% upside potential.
Takeaway – ChargePoint is the Best House in the Worst Block
While the transition to EV presents an exciting long-term opportunity, for now, the harsh economic realities of the moment present substantial headwinds, both for EV manufacturers and infrastructure providers. However, when push comes to shove, if one had to invest in this space, CHPT stock presents an ideal narrative.
No one knows for sure which EV brand will emerge as the dominant player. However, everyone will need access to convenient charging, making ChargePoint’s business model more credible in a relative sense.
