The story remains the same for ChargePoint Holdings (NYSE:CHPT). The company is likely to play a major role in the world’s electric vehicle future. However, before that future arrives (which is an obstacle in itself), the company has some proving to do. And that is reflected in CHPT stock, which is down 47% on the year.
When I last wrote about ChargePoint, I remarked that ChargePoint’s growth was dependent on widespread EV adoption. It’s true that the company does derive a not insignificant portion of its revenue from recurring revenue.
However, with Tesla (NASDAQ:TSLA) and its proprietary charging stations remaining a popular choice in the U.S. market, the company continues to look like it’s built a network that will continue to be underutilized.
On a personal level, I still think CHPT stock is a sound investment. And it looks even better at what looks like it could be a discount price. Analysts also love the stock and give it a price target of $35.50.
But in order to get there, CHPT stock has some headwinds to overcome. Here are three that I see.
Will Investor Sentiment Change?
CHPT stock languished for much of 2020 before taking off on speculation that a new administration in Washington would usher in an EV future. That is the plan. But it’s going to take longer than first thought. And as investors realized that, ChargePoint looked overbought.
Add to this that investors started to flee growth stocks (and SPAC stocks in particular) in favor of cryptocurrency and you had all the ingredients for CHPT to drop.
In my prior article I remarked that despite ChargePoint having a large network of charging stations, there will be a lot more that need to be built to overcome the range anxiety of many consumers. This means that the cash cushion that ChargePoint was operating with when the reverse merger was complete may not last as long as expected.
A First-Mover That’s Behind the Curve
After reading Dana Blankenhorn’s article about the future of charging stations, I realized the problem that ChargePoint faces. I encourage you to read Blankenhorn’s article to get his full thoughts. But the crux of Blankenhorn’s argument is simple. A substantial part of ChargePoint’s business could be obsolete in three years.
ChargePoint does indeed have the largest charging station infrastructure today. But those charging stations are designed to handle a 240-volt charge. But 240 volts is not what consumers are going to demand if EVs are going to become the transportation of choice of long-distance travel.
For that, consumers will want fast charging stations of at least 480 volts. These will allow drivers to recharge their vehicle in under an hour.
Ideally, ChargePoint will be able to reconfigure its existing stations with its new Express Plus, 500-volt charging stations. According to ChargePoint the Express Plus platform can be configured to site needs using its modular Power Blocks, Power Modules, and Stations. The site can be scaled incrementally as demand for charging increases.
Supply and Demand Remains Unfavorable
I agree with Josh Enomoto that ChargePoint faces a fundamental problem between supply and demand. However, my logic is a little different. I look at the current global chip shortage and the current (in the U.S.) vaccine glut as two areas of comparison.
The global chip shortage is creating a situation in which companies can’t produce enough supply to meet demand, Conversely while the current public health emergency in India is impossible to ignore, the United States is rapidly facing an issue of more supply than demand.
ChargePoint faces a problem that’s similar to the vaccine efforts. Even if the company was able to deliver all of the 500,000 charging stations being pledged by the Biden administration today, there simply isn’t enough electric vehicle demand.
Is CHPT Stock Ready to Rev Up?
CHPT stock appears to be consolidating after forming a double-bottom pattern in late March. But is this the start of the big move, or just a corrective move to the upside? I’m more inclined to think it’s the latter.
Although I like the long-term outlook for ChargePoint, there still seems to be a lot of static in the way of a big move. Still at a price that’s nearing $20 a share, now may be the time for patient investors with a high-risk tolerance to snag a small position.
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.