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ChargePoint’s Road to Financial Solvency Is Long


Electric vehicles are the future. Therefore, charging station infrastructure that supports the EV buildout must also be the future. ChargePoint (NYSE:CHPT) is an EV charging station provider. And so, CHPT stock must be a no-brainer acquisition, right?

A close-up shot of a ChargePoint (CHPT) charging station.

Source: YuniqueB / Shutterstock.com

Depending on whom you ask, you may get wildly different answers. That’s because no matter how you drill into the EV narrative, it remains a chicken-or-egg question. Do you build the infrastructure first and bank on the EV buildout? Seemingly by most accounts in the mainstream media, the world’s transportation networks will eventually go electric. Therefore, betting on CHPT stock today seems like an incredibly astute bet.

On the other hand, if the buildout never happens or takes far too long to materialize, investors will likely abandon ship and look for more profitable (and timely) ventures. In this scenario, buying CHPT stock would amount to nothing more than burning money in a dumpster.

Not only that, the EV market would have to be robust and diverse as the combustion car market is today. For instance, if Tesla (NASDAQ:TSLA) continues to maintain an overwhelming share, this circumstance might not help CHPT stock. After all, Tesla has its own global network of fast-charging stations, which would presumably compete with ChargePoint’s network.

However, investors are starting to give CHPT stock another chance. Over roughly the last month-and-a-half period, shares have been on a roll. Also, while the company produced a larger-than-expected loss for the first quarter of 2021, it also generated revenue that came in above expectations. As ChargePoint CEO Pasquale Romano referenced, this sales bump points to the potentialities of EV penetration increases and the reopening of economies.

Also important is CHPT partnering with Daimler AG’s (OTCMKTS:DMLRY) Mercedes-Benz USA to provide the latter company’s EV customers with frictionless access to charging solutions through ChargePoint and other networks. No longer purely aspirational, ChargePoint is delivering the goods. But will it be enough?

Noise Needs to Convert to Dollars for CHPT Stock

Back when I was working at a consultation firm that specialized in providing expert analysis for construction management projects, part of my job was assessing critical delays. These are incidents or occurrences that impose bottlenecks, which later impede other construction phases. They’re particularly onerous because unlike garden-variety incidents, you can’t just paper over them.

Bringing the discussion to CHPT stock, the concept of critical delays or bottlenecks is what bullish investors must worry about the most. For me, the biggest challenge is making that conversion to electric stick for consumers. It’s already a hurdle to get people who have been used to driving combustion cars all their lives make the switch to electric. But adding more hurdles? That’s just not in the cards.

Beyond the EV transition, the biggest challenge is undoubtedly the charging aspect. According to the Office of Energy Efficiency & Renewable Energy, 63% of all housing units have a garage or carport. So, that should be a green light for the EV buildout, right? With access to both personal and public charging, consumers should feel more comfortable making the switch.

Well, maybe not. First, it’s not clear within the 63% figure which units have relatively easy access to EV charging. Second, data from Carnegie Mellon University gives a far less rosy picture. In the most optimistic case, 41% of households will have charging capacity. But in its pessimistic case, only 14% will have such capacity.

Granted, the above analysis was published 2013. However, I would argue that housing infrastructure doesn’t change that dramatically in such a short period of time. And no matter how you parse the data, the reality is that a large chunk of potential EV consumers will need public charging.

In this case, I’m not sure if they’ll get accustomed to waiting between half an hour and several hours for a “refuel.”

Is This Business Even Profitable?

It’s such an obvious point that I feel silly saying it: investors are not in this business to lose money. But at some point, ChargePoint has to show a pathway to profitability. And this is where things get dicey for CHPT stock.

Yes, the revenue beat in Q1 was encouraging. What was not so was the earnings side of the picture. While the market celebrates CHPT now, if the underlying company continues to post red ink on the bottom line, I’m not sure how long this celebration will last.

Of course, if the EV rollout expands its upward trajectory, than CHPT stock could enjoy explosive outsized gains. But for me, my skepticism will keep me sidelined.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2021/06/chpt-stock-compelling-but-risky-argument/.

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