A significant amount of momentum is building around EV charging stocks, giving investors in Chargepoint Holdings (NYSE:CHPT) a lot to like right now. Yet after climbing back from a March low, CHPT stock is having trouble maintaining its footing.
Right now, Chargepoint is the premier play in the EV charging space. It’s a company with a $6.56 billion market capitalization, and is the biggest player in the EV charging space. It claims to have approximately 73% of the entire EV charging market right now.
That’s huge. AFollowing its highly anticipated SPAC, the CHPT stock thesis is pretty simple: Pick the biggest player with the early mover advantage, and hope this advantage translates into market domination over the long-run.
So why are the shares down 9.8% in the last month? It strikes me that investors may be missing the key catalysts driving EV charging stocks, with Chargepoint at the top of that list.
CHPT Stock Play on Electrification
One of the key factors investors have wanted to see play out in the EV charging space is political support for the EV sector.
And it has.
President Joe Biden has made electrification a top priority in his recently announced American Jobs Plan. In this key infrastructure bill, the Biden Administration sees it like this:
“U.S. market share of plug-in electric vehicle (EV) sales is only one-third the size of the Chinese EV market. The President believes that must change. He is proposing a $174 billion investment to win the EV market… It will establish grant and incentive programs for state and local governments and the private sector to build a national network of 500,000 EV chargers by 2030, while promoting strong labor, training, and installation standards.”
Now, that’s a pretty strong confirmation of support for the EV sector. The fact that EV chargers were specifically called out, and a growth target was set, is even more bullish for companies like Chargepoint.
Accordingly, investors need to assess the company’s ability to maintain its market dominance.
Is CHPT Stock Going to Win the Growth Race?
The key issue I have with EV charging companies right now is the homogenous nature of the product they sell.
That’s not to say there’s no room for differentiation. However, I find it difficult to believe that competition won’t eat away at long-term margins in this sector.
Indeed, investors projecting out growth five to 10 years down the road also need to price in the potential for more than one winner in this space. If Chargepoint can continue to grow at its projected pace of around 33% per year for the next decade, that’s great. And the market might be big enough to allow multiple players in the market to have their fill.
However, if the company loses market share over time, and rivals start competing on price, potential margin deterioration is something to consider. Like gas stations, I don’t expect margins to be high for very long. Right now, Chargepoint may provide the only EV charger in a given area. However, over time, I expect EV drivers will be able to have their pick of charging stations occupying opposite corners of an intersection, akin to how Waffle House chooses its locations.
The Bottom Line on Chargepoint Stock
Chargepoint stock represents an intriguing long-term growth play today. The fact that the shares are now trading more than 50% below their high certainly should invite investors to take a look.
I do think revenue growth will likely accelerate over time. After all, the U.S. is reaching for an ambitious long-term target. Additionally, I think Chargepoint is well-positioned right now as the market leader with a valuation that is better than its peers right now.
However, as a long-term investor, I have a problem with the long-term implications that competition will have on margins. Right now, I don’t see enough differentiation between charging companies to invite investment in one or the other. Accordingly, I’m on the sidelines right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
