ChargePoint’s initial investment appeal was compelling, but current difficulties are raising questions.
ChargePoint (CHPT) initially attracted support and investment driven by the strong early momentum surrounding electric vehicles (EVs). The investment thesis was straightforward: the global demand for EV charging infrastructure was significant, and ChargePoint held a leadership position with its network of 30,000 charging locations.
However, the realization of this investment thesis has been markedly slow for ChargePoint, with its second-quarter results underscoring the ongoing challenges it faces.
### Positive Developments
Not all the second-quarter news from ChargePoint was negative. The company’s adjusted gross margins increased to 26%, a substantial improvement from the previous year’s 3%, marking the third consecutive quarter of growth. Additionally, ChargePoint’s GAAP operating expenses as a percentage of revenue decreased, reaching 81% for the second quarter.
There was also positive movement in subscription revenue, which reached $36 million, reflecting a 21% year-over-year growth. In an effort to boost investor confidence, management has introduced an action plan designed to create efficiencies and further reduce operating expenses.
### Challenges
Despite some positive indicators, growth remains a significant challenge for ChargePoint. The company reported second-quarter revenue of $108.5 million, a 28% decline from the previous year’s $150.5 million, missing analysts’ expectations. This decline was largely driven by a 44% decrease in networked charging systems revenue compared to the prior year.
ChargePoint has also announced a plan to cut 15% of its workforce following slower growth, building on a previous reduction of approximately 10% in September 2023. This reorganization is expected to incur restructuring costs of around $10 million.
Investor concerns persist regarding the company’s cash burn, though ChargePoint holds $243.7 million in cash and cash equivalents, with an additional $150 million available in an undrawn revolving credit facility, and no debt maturing until 2028.
### Ongoing Concerns
A significant concern for ChargePoint is the increasing competition amid slow growth. Tesla, known for its extensive network of over 50,000 fast-charging ports, has enhanced its competitive position by opening its charging technology to other automakers, securing various partnerships, and licensing its North American Charging Standard (NACS) ports.
Additionally, Toyota recently became the eighth automaker to join Ionna, an emerging EV fast-charging network, which plans to establish 30,000 high-power connectors. This trend indicates a preference among automakers to develop their own networks to improve customer satisfaction and potentially generate their own subscription revenues.
While the addressable market for charging infrastructure is vast, ChargePoint’s second-quarter performance serves as a reminder that growth may be more difficult to achieve than initially anticipated.
### Disclosure
Author Daniel Miller has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Tesla. Disclosure policies are available from The Motley Fool.
