Even though ChargePoint Holdings (NYSE:CHPT) is trading closer to the lows now, the stock is still living off EV hype. The stock constantly rallies up to $20 providing a better opportunity for longs to dump shares, but another rally isn’t guaranteed as the quarter ahead will ultimately highlight cash burn concerns. My investment thesis remains Bearish on the EV charging station stock.
Focused Only On Revenues
Investors still investing in the EV charging station space apparently look solely at the below chart of future quarterly revenue estimates. ChargePoint forecast FQ3 revenues of $125 to $135 million with FY23 ending January revenues of $450 to $500 million.
Analysts have revenues jumping to $155 million in the January quarter to reach $481 million for the year and hitting nearly $750 million in FY24. All of these revenue growth numbers sound impressive, but the last quarterly net loss was $62 million and the subscription revenue base is extremely small at only $20 million.
Over Spending On R&D
The new CP6000 EV charging solution recently released falls into the similar traps of past products. ChargePoint talks big about the charging station providing a complete charging solution for businesses and fleets preparing for the future of electric mobility, but the company probably over spent to develop the product and most businesses don’t need fancy software solutions to help charge vehicles.
In the last quarter alone, ChargePoint spent $52 million on R&D expenses, while the company only produced $7 million in gross profits from subscriptions. About $11 million of those costs were for stock-based compensation, but ChargePoint still had a $40 million cash expense for R&D and another $11 million in additional stock dilution.
Sure, ChargePoint is building for the future, but the company has a huge disconnect with the money being spent on R&D to develop these fancy charging solutions and the demand by customers. Fleet customers aren’t overly interested in paying subscriptions, and definitely not paying a premium software type of margin in the 80% range.
Remember, this doesn’t even account for the substantial $34 million in sales and marketing expenses in the last quarter. ChargePoint should only reward the sales department for software subscription sales.
The Inflation Reduction Act places ChargePoint in a promising position for more spending on EVs and EV infrastructure, but the company is unlikely to get much financial benefit. Customers installing EV charging stations are likely to collect the tax credits and incentives.
ChargePoint might sell more charging stations with low gross margins, but the company already has a massive network listing 200,000 active places to charge an EV with an additional 355,000 public places to charge via roaming integrations with other major networks. One just really has to question the need for aggressively adding additional stations.
ChargePoint needs higher use of their software from existing charging stations and, or lower costs. The whole need for roaming on charging networks kind of defeats the purpose of the fuel of the future considering no vehicle owner is now tied to any network of gas stations.
The stock trades at $12 with a market cap of $4.3 billon, based on the revenue targets, investors need to realize ChargePoint still trades at nearly 6x FY24 revenue targets.
Considering most of the sales are low-margin product sales, one might see a more logical P/S target of 1x to 2x. The company isn’t forecast to be profitable until FY26 and when combined with low gross margins even from the subscription business, investors should really expect a retest and eventual break of the lows at $8.50 back in May.
The key investor takeaway is that ChargePoint is still illogically priced, despite trading close to the lows. The company obtains most of their sales from low-margin network equipment, while spending wildly to reward engineers and sales reps to build and sell these products.
Investors should expect the stock to retest the prior lows at $8.50 with a likely move to new lows.