Demand for electric vehicles is rising fast and an estimated 60% of new vehicles sold in 2030 will be EVs. The coming influx of electric-powered vehicles means that countries will soon need to significantly expand their charging infrastructure.
And that's where ChargePoint Holdings (CHPT -8.20%) comes in. The company has the largest charging network in the U.S. and is building charging stations across Europe as well.
The company's share price has been cut in half over the past year, which has many investors wondering if now might be a good time to pick up shares of the stock. While the company is certainly tapping into a fast-growing trend, I think investors would do better to hold off on buying ChargePoint right now. Here's why.
Image source: Getty Images.
Electrified growth at a cost
There are a few things that are going right for ChargePoint right now. For one, the company's sales expanded by 93% in the third quarter to $125.3 million. It ended the quarter with 210,000 charging stations across the U.S. and Europe, up 30% from the year-ago quarter.
ChargePoint's rapidly expanding sales, coupled with the company's impressive 70% market share for high-speed charging in North America, shows that ChargePoint has been good at addressing its customers' needs for EV chargers.
But all of that growth has come at a hefty cost, and it's getting more expensive. In the third quarter, ChargePoint's losses widened to $83 million, compared to a loss of $65 million in the year-ago quarter.
And if we look back a little further, things don't look any better. Here's how ChargePoint's operating losses have expanded over the past three years.
| Metric | First Nine Months of 2022 | First Nine Months of 2021 | First Nine Months of 2020 |
|---|---|---|---|
| Operating loss | $263 million | $186 million | $85 million |
Data source: ChargePoint.
One of the reasons for the company's recent widening losses is that its gross margin is moving in the wrong direction. ChargePoint's margin under generally accepted accounting principles (GAAP) was 18% in the third quarter, down from 25% in the year-ago quarter, with the company facing pressure from supply chains and rising costs.
This trend could eventually reverse for the company, putting ChargePoint on a path to profitability. But for right now, that seems like a very distant goal, especially when investors consider the current economic climate.
A difficult time to be unprofitable
Investors have lost a lot of patience with companies that are increasing sales quickly at the cost of earning a profit. Making matters worse for ChargePoint is the fact that it also has less cash on hand than it used to -- $188 million right now, down from $315 million over the same period last year.
That's not a fantastic position to be in, especially as inflation is still elevated, materials costs are high, and some investors are still planning for a recession. Even if an economic slowdown never materializes, ChargePoint's past growth came at a time of easy money and lots of optimism in EV stocks -- neither of which define what's current market conditions.
While ChargePoint could eventually be in a good position to benefit from the EV industry's growth, the company is simply too unprofitable right now to justify taking on the risk.
