ChargePoint (CHPT)

We briefly mentioned today’s stock report subject ChargePoint in the Catch Up on Monday after it released earnings that beat revenue expectations and offered up fantastic guidance for the next quarter. It put the stock back into our sights after we had looked at it earlier in the year and decided it was just a little expensive. Just nine months later and we have a company with great potential and a 50% discount on its share price. So let’s take a deeper look.

ChargePoint is at the forefront of the electric vehicle revolution. If you are a regular reader of our stock reports you would know that we think electric vehicles are not only the future of driving but that the transformation to EV’s will occur a lot sooner than most believe. Last year’s Bloomberg report entitled “The Electric Vehicle Outlook 2020,” said it all. It aimed to predict how electrification, shared mobility and autonomous driving would impact road transport from now out to 2040.

In it, it predicted that thanks to “increasingly stringent regulations” in Europe and China, amongst other reasons, there would be more than 500 different models of electric vehicles available globally by 2022. It highlighted the importance of the role of electric vehicles (EV’s) in the move to eliminate hazardous gas emissions and to ward off global warming are becoming more and more apparent. Almost every developed country its seems, excluding our own of course, have committed to net-zero emissions by 2050 or in China’s case 2060. Getting gas-guzzling vehicles off the road will be one of the most important elements to achieving this feat.

In 2015 only 450,000 EV’s were sold globally, but by 2019 this had increased to 2.1 million. By 2025 however, as battery prices fall, energy density improves and more charging infrastructure is built, the number of EV’s on our roads will increase to 8.5 million. Importantly, all of the major car brands are getting on board. General Motors (GM) for example plan to have their entire car fleet all-electric by 2035. They see the writing on the wall and don’t want to miss out on the rush.

There is so much potential for EV players in the years ahead. There are currently approximately 280 million cars and trucks on the US roads with only about 2 million of these being electric or hybrid vehicles. The US government, under President Biden, has aggressive targets to turn the US fleet electric. However, even if these sales targets are hit electric vehicles will only account for 25% of cars on roads out to 2030. There is a decade of profits to be made at the very least for those who want it.

ChargePoint is one of those companies. They are the largest online network of independently owned EV charging stations in the world. Operating in 14 countries and counting, they have more than 112,000 charging points across the US and Europe, almost five times more than their biggest competitor Blink Charging. They occupy approximately 70% of all EV charging market share. They are first movers, and they have a size advantage that will help them dominate as EV’s take over the globe.

It is expected that over the next decade there will be a shift from gas stations to charging stations with tens of millions of the latter needing to be built. It is extremely likely that, unlike gas stations, charging stations will be owned by one or two large companies rather than a host of smaller operators. They operate as a network, using mobile phone apps to tell customers where their chargers are. Because ChargePoint has the largest network, more drivers will use their app and their stations, providing additional capital to build more stations, thereby increasing their network size, and attracting more customers. The perfect cycle.

ChargePoint earns money by selling electricity to drivers. However, they are not relying on this income alone. They have also made a point of targeting corporations who have found many of their employees like to drive their EV’s to work. These companies can attract workers by providing free charging points as an employee perk. Then there are the advertising dollars. Each individual charging point has a captive audience for at least ten minutes where screens can run advertisements to the occupants of the car. It stands to reason that the company with the most charging points will be selling the most advertising.

The recently proposed infrastructure bill, which is yet to be passed, was a speedbump in the road for EV infrastructure. It has set aside $7.5 billion for EV charging stations “with a focus on highways and routes that connect rural and disadvantaged communities”. Yet this was only half of what the Biden administration had been initially targeting. Still, it will be the first-ever investment by the US government in the EV charging network. If the bill is finally approved it will be great news for ChargePoint, and I would expect there will be additional government money to follow if Biden’s plans are to come to fruition. The positive for us is that the while the market didn’t like the $7.5 billion number, it caused EV related share prices to fall – giving us a great buying opportunity on what would otherwise be great news.

ChargePoint doesn’t make a profit just yet. They are expecting this to come at some stage in 2024. In their latest earnings report which was out last week, they reported a $0.29c loss on revenue of $56.1 million. The loss was higher than expected but the revenue blew past expectations of $49 million. At the moment investors are only worried about revenue, and it was a massive A plus. Importantly third-quarter guidance was up at $60-65 million when analysts were expecting $55 million, and for the year management expect $230 million in sales which was increased from $200 million in prior guidance.

The Management team are obviously expecting big things to come from the rest of the year. In their earnings call that followed the earnings report CEO Pasquale Romano said “ChargePoint’s strongest second-quarter results demonstrate our continued growth and leadership in the electric revolution. We achieved record revenue, significantly grew our commercial, fleet and residential businesses, launched a charging integration with Mercedes, announced our agreement to acquire e-mobility technology provider has·to·be and acquired eBus and commercial vehicle management provider ViriCiti.” And on the impressive guidance he pointed out that even though it has been impacted by covid-19 “we don’t take [the guidance increase] lightly. You can imagine …what that says about what we think about the future of electrification, just in the back half of this year.”

There’s a lot to like about ChargePoint. They are a market leader in an industry that is going to “clean up” in the next decade. Once revenue skyrockets profit won’t be far behind. Even better, this is the best price point we’ve seen since November 2020. And it’s less than half of what it cost in January of this year. This will be a great stock to hold for at least the next decade and probably longer.