ChargePoint (NYSE:CHPT) went public on March 1. And you could say it was an inauspicious debut. ChargePoint stock tumbled about 10%. The dip in the stock was more disappointing considering that it occurred on a day when the broader market had another vaccine-fueled rally.
So what’s going on with ChargePoint stock? If I was a little less cynical, I might say that investors are paying attention to valuation. And that may indeed be true.
ChargePoint was brought public through the Switchback Energy (NYSE:SBE) SPAC. At first, SBE stock soared but it was coming down to earth prior to the merger going final.
The opportunity in front of ChargePoint investors is pretty clear. If forecasts are correct, the global market for electric vehicle (EV) charging infrastructure is going to be massive. According to Polaris Market Research, this market will be worth $56.9 billion by 2026. And by the end of the decade that number could be $190 billion.
And I would say that ChargePoint is the unquestioned leader in the space. The company had 115,000 charging stations available worldwide at the end of last year. But the company plans to increase that number to 2.5 million stations by 2025.
Here’s where it gets tricky. ChargePoint is forecasting annual revenue growth of 60% through 2026. However this isn’t a case of ChargePoint managing the supply side of the equation. There has to be demand. And ChargePoint has no control over that.
The Need Is Mutual
ChargePoint needs the addressable market of electric vehicles to expand before it can be profitable. But a widely available infrastructure is needed to make consumers confident in buying electric vehicles. And that means that ChargePoint has to spend money now to make money later.
With the merger complete, ChargePoint has some cash to fuel its expansion. The merger raised $480 million in net proceeds. And that means that ChargePoint starts trading with $615 million in cash.
The question is how long will it take before EV adoption is widespread enough to turn ChargePoint’s bottom line positive?
Obstacles to Growth Exist
First, there’s the economy. For all the talk of pent-up demand and V-shaped recovery, we’ve yet to see it on a nationwide level. Many offices and entertainment venues remain closed. The economic and environmental case for an electric vehicle takes a bit of a hit when individuals simply aren’t driving that much.
Second, ChargePoint is wisely targeting the residential market. However, InvestorPlace’s Josh Enomoto pointed out, “We must realize that when we go down the income strata, consumers will have less access to personal infrastructure (i.e. a house with a garage).” Furthermore, Enomoto raised a fair point in a recent article. Namely that many of these middle-income consumers may be limited in the type of vehicle they can buy and will be the hardest hit by any disruptions to our energy grid.
None of this is to say that we aren’t headed to an electric future. Within the next 15 to 20 years, many automakers won’t give their consumers the option to buy a car with an internal combustion engine.
Will ChargePoint Stock Be Worth the Wait?
There’s a difference between being unprofitable and pre-revenue. ChargePoint is the former, it is not the latter. ChargePoint has a large first-mover advantage. Their network is the largest and most expansive. They are well positioned regardless of the fact that several other charging companies are making noise about going public.
But the company’s path to profit is dependent on widespread EV adoption. This is like a child knowing that they are getting a big gift on Christmas morning, but it’s only March. It’s a long time to wait. And that’s what I believe ChargePoint stock is facing, a longer wait than it may expect.
That’s not their fault. But it’s up to investors on whether they want to ride it out.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.