ChargePoint (CHPT -7.85%) is a story stock. With a large network of electric vehicle (EV) charging locations, it is an important piece of the transition from combustion engines to EVs. This is a good story and one that is starting to gain traction, as EVs become more and more prevalent. But there's one small problem that investors need to consider here when they try to determine if ChargePoint is a potential millionaire maker.
What does ChargePoint do?
At a top level, ChargePoint offers products and services that allow the owners of electric vehicles to power those vehicles. The company makes products for consumers to use at their homes and products for fleet vehicles in the business realm, and just about everything in between. It has in its roughly 17-year history expanded to the point where it has over 329,000 charging points in its charging network. That network spans across the United States and Europe.
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In fact, the company claims to have seven times' more market share than its next closest competitor in North America. And it counts 80% of the Fortune top 50 list as customers. This is a substantial business. In the third quarter of 2024, it generated roughly $100 million in revenue atop the company's income statement. Notably, subscription revenues, which are recurring in nature, grew almost 20% year over year.
If you expect EVs to be the dominant mode of transportation in the future, you likely have a positive view of ChargePoint as an investment. That's not unrealistic and supports the idea that it could, someday, turn into a millionaire-maker business.
The fly in the ointment with ChargePoint
The problem for ChargePoint and its investors is found further down the income statement. The bottom line, earnings, are deep in negative territory. In the third quarter of 2024, it lost nearly $78 million, or around $0.18 per share. That was an improvement over the same quarter in 2023, when the loss was roughly $0.43 per share. But this isn't a short-term problem.
As the chart below highlights, ChargePoint is unprofitable and has been unprofitable for its entire public existence. Although the initial excitement around EVs was huge and led to a swift price increase in ChargePoint's stock, reality has set in and the stock has since crashed. It has lost roughly 95% of its peak value in late 2020. If you believe ChargePoint will help usher in the EV future, you can certainly buy the stock on the cheap today.
But here's the thing: ChargePoint has to spend a lot of money on research and development (R&D) to keep itself at the leading edge of EV trends or it risks falling behind. In the third quarter of 2024, the company had gross revenues of $23 million or so and spent $38 million on R&D. And you also have to add in general operating expenses, sales, and marketing costs, too, which totaled nearly $53 million.
All in, ChargePoint is a long way from turning a profit. In fact, the company explains the glass-half-empty view here very nicely in its 2023 10-K. The top comment in its risks section is "ChargePoint operates in the early stage market of EV adoption and has a history of losses and negative cash flows from operating activities, and expects to incur significant expenses and continuing losses for the near term."
Know what you are getting into with ChargePoint
ChargePoint is a high-risk/high-reward type investment. There is a chance that it builds a dominant EV charging network and that industry position gives it a differentiated business with strong recurring subscription revenues. That would make ChargePoint a cash-flow-generating machine.
This positive outcome, however, is not in sight right now in what is still a fast-changing EV market. The risk -- and it is not a small risk -- is that ChargePoint falls short of its goals and fades away. That could be driven by an inability to raise capital at attractive rates to support continued growth (noting the steep stock price decline), or it could be because of technology missteps that leave it flat-footed relative to peers.
So could ChargePoint be a millionaire maker in the making? Yes. But it could also be a money pit that eventually goes bankrupt. Unless you believe very strongly in the glass-half-full story here, you should probably watch this stock from the sidelines.
