$CHPT Well Positioned to Capitalize on Tesla’s Dominance
In a previous article, we were short on ChargePoint Holdings, Inc. (NYSE: CHPT) after several EV makers struck deals with Tesla, Inc. (NASDAQ: TSLA) to adopt its NACS port to gain access to its expansive supercharger network. Since then, the stock has been in a free fall as it’s down more than 63% and recently reached a new all-time low at $2.38. However, after diving deeper into the topic, ChargePoint may actually further benefit from the Tesla deals given their potential to increase EV adoption. As is, ChargePoint specializes in level 2 chargers located in homes and public spaces, where it’s more convenient and cheaper for EV owners to charge their vehicles. With the stock trading near its all-time low, the risk-to-reward ratio may be more compelling at current levels, which is why CHPT stock could be a good buy.
CHPT Fundamentals
EV Demand To Reaccelerate in 2024
With interest rates at a multi-decade high, EV demand has been softening, bringing down EV-related equities in the process. As ChargePoint’s business is mainly dependent on increased EV adoption, it’s no surprise that its stock is down nearly 63% YTD. To better understand the implications of this softening demand for EVs, automobile giant Ford (NYSE: F) announced in late October that it’s postponing $12 billion of its EV investments due to soft demand and high production costs. In addition, General Motors (NYSE: GM) abandoned its target to produce a cumulative 400 thousand EVs from 2022 through the first half of 2024 citing similar reasons. Even Tesla’s CEO Elon Musk shared his worries about the effects of interest rates on EV demand in the future.
However, EV demand may reaccelerate in 2024 due to a major overlooked catalyst. In a recent US Department of the Treasury proposal, car dealers would offer EV tax breaks to consumers at the point of sale starting January 1st, 2024. This means that all eligible EV buyers would get an upfront discount of up to $7500 for new EVs, instead of the current system where the tax credit reduces the filer’s federal income tax. In simple terms, a $50 thousand EV becomes immediately $42,500 according to the new proposal.
The positive impact of this proposal is that it would expand the pool of consumers, especially lower earners who have smaller tax liabilities, eligible for the full value of the EV tax credit. As a result, EV purchases would become more affordable for interested buyers with lower disposable income. This government rebate could be a game changer when considering that 52% of new car buyers in the US believe EVs cost too much as cost was their most cited concern, according to the 2023 Deloitte Automotive Consumer Study. Therefore, as EV prices become cheaper than they currently are, demand could pick up next year.
Return to Office May Boost Sales
So with EV demand expected to increase next year, it’s normal to expect demand for EV charging stations to increase as well. In fact, demand for EV charging stations may be more than ever next year with more employees set to return to the office by the end of 2024. According to a report from Resume Builder, 90% of companies plan to implement return-to-office policies by the end of 2024, compared to 64% currently.
With that in mind, there is a strong correlation between working from office and demand for EV charging. In a study conducted last March by EVBox, 34% of EV drivers charge at work, while an additional 27% would do so if that option was available. This means that 61% of EV owners would charge their vehicles at work if given the opportunity which shows how significant this potential market is as businesses may start installing charging stations to accommodate their employees ahead of their return to the office next year.
As such, ChargePoint could be well-positioned to capitalize on this industry-wide catalyst due to its reputation and reach in the US. Currently, the company has 31 thousand locations in the US and 56 thousand total level 2 and level 3 ports, which makes it the largest EV charging network in the US. In comparison, Tesla, its biggest rival, has only 6000 locations and 33 thousand ports. Followed by Volta, Blink (BLNK), EV Connect, EvGo (EVGO), and Electrify America, respectively.
However, while Tesla has fewer locations and ports than ChargePoint, it’s leading in terms of level 3 charging ports, of which it has more than 20 thousand ports. Meanwhile, ChargePoint only has a little more than 2000 level 3 ports. But this discrepancy in level 3 ports isn’t as negative as it seems.
Level 3 chargers, or DC chargers, can impressively fully charge an EV in a matter of a few minutes, usually between 20 and 30 minutes. However, there are downsides to using such chargers compared to level 2 chargers which ChargePoint is the undisputed leader in.
AC Charging Advantages
For starters, it is worth noting that 80% of all EV charging happens at home or work where vehicles spend a lot of time parked. This provides more than enough time to fill up using level 2 AC charging speeds, which provide around 25 miles of range per hour. As such, charging at home or work is considered to be more convenient for EV owners.
On the other hand, DC charging is only ideal for road trips, quick stops, and when an EV owner needs to fill up quickly. Therefore, the use of DC charging is limited compared to level 2 charging, especially when considering that frequent use of DC charging can in fact negatively impact battery performance and durability as many EV makers warn, including Tesla.
The reason why DC charging can have negative impacts on batteries is due to physics, so I’ll do my best to illustrate it in a simple way. Just like humans, EV batteries prefer to operate at comfortable temperatures, ideally in the 70s and 80s. But what happens during fast charging is that the battery receives a lot of power which can create heat. This heat would then stress batteries more than AC charging which could impact battery life over time. In fact, experts suggest that home charging with a level 2 charger is better for batteries as the cycling in fast charging can kill batteries. Knowing this information, it appears that relying on level 2 for day-to-day charging is better, which shows that the DC charging market is very limited.
Another advantage of AC charging is that is affordable. In fact, AC charging is 7-10 times cheaper than DC charging with the same performance. At the same time, AC chargers are smaller and their installation is simpler, faster, and less expensive than their DC counterparts. This is an additional advantage for ChargePoint if we take its business model into account.
How To Capitalize on Tesla’s Dominance?
As is, the company’s customer base is property owners not drivers as it generates revenue by selling the hardware to network operators, who then decide whether to charge EV owners or not for using the port. The company also generates revenue from the sale of subscriptions and for the maintenance of the chargers it sells.
This comes in handy when considering the growing wave of EV makers adopting Tesla’s NACS port. ChargePoint currency adopts the CCS port in its network, and given the potential increase in demand for NACS ports, its network operators would have to retrofit or upgrade their stations to be NACS enabled in order to meet the anticipated demand. Doing so would benefit ChargePoint in the form of increased revenue since it charges fees for the maintenance of its stations as aforementioned. In this way, ChargePoint may benefit from more EV makers adopting the NACS port.
Risks
While there are many reasons to be bullish on CHPT stock with the anticipated reacceleration in EV demand as well as more EV makers adopting Tesla’s NACS port, there are risks to consider. The first risk is if network operators don’t upgrade their stations to accommodate the NACS port in case more EVs adopt it. This would mean that there would be less demand for ChargePoint’s chargers while also not leading to the expected revenue growth.
Another risk to consider is ChargePoint’s cash burn. In 2 quarters only, the company burned $190.6 million in operating cash flow. Given its cash balance of $233.4 million, capital raises may occur in the near term similar to the offering it recently closed for $232 million in net proceeds.
It is also worth noting that in addition to the capital raise, the company amended the terms of some of its convertible notes by extending the maturity date from 2027 to 2028. However, it also raised cash interest from 3.5% to 7% and payment in kind interest from 5% to 8.5%, while adjusting the conversion price of the notes from $24.03 to $12. As a result, the company’s bottom line will be impacted in the coming quarters due to the increased interest payments.
Technical Analysis
On the hourly chart, CHPT stock is in a neutral trend as it is trading in a sideways channel between $2.42 and $3.25. Looking at the indicators, the stock is below the 200 and 50 MAs which is a bearish sign, however, it is testing the 21 MA as support. Meanwhile, the RSI is neutral at 51 and the MACD is neutral as well.
As for the fundamentals, CHPT stock appears to be poised to rebound soon with the expected reacceleration in demand for EVs and charging stations. Given that the company specializes in level 2 charging which is cheaper and more convenient for EV owners, its revenues may grow substantially as more EV makers adopt Tesla’s NACS port. With the stock trading near all-time lows, investors could start building a long position in the stock below $2.7.
CHPT Forecast
Despite our earlier bearish view on CHPT stock, the company appears to be well-positioned to capitalize on the expected reacceleration of EV and charging station demand driven by return-to-office policies. The company also has the potential to benefit from the growing trend of EV makers adopting Tesla’s NACS port since more network operators may ask it to upgrade and retrofit their stations, leading to more realized revenues. Given the advantages of AC charging compared to DC charging, the company is not competing with Tesla in the EV charging scene, instead, both AC and DC chargers serve a need and can co-exist in the market.
CHPT Fundamentals
EV Demand To Reaccelerate in 2024
With interest rates at a multi-decade high, EV demand has been softening, bringing down EV-related equities in the process. As ChargePoint’s business is mainly dependent on increased EV adoption, it’s no surprise that its stock is down nearly 63% YTD. To better understand the implications of this softening demand for EVs, automobile giant Ford (NYSE: F) announced in late October that it’s postponing $12 billion of its EV investments due to soft demand and high production costs. In addition, General Motors (NYSE: GM) abandoned its target to produce a cumulative 400 thousand EVs from 2022 through the first half of 2024 citing similar reasons. Even Tesla’s CEO Elon Musk shared his worries about the effects of interest rates on EV demand in the future.
However, EV demand may reaccelerate in 2024 due to a major overlooked catalyst. In a recent US Department of the Treasury proposal, car dealers would offer EV tax breaks to consumers at the point of sale starting January 1st, 2024. This means that all eligible EV buyers would get an upfront discount of up to $7500 for new EVs, instead of the current system where the tax credit reduces the filer’s federal income tax. In simple terms, a $50 thousand EV becomes immediately $42,500 according to the new proposal.
The positive impact of this proposal is that it would expand the pool of consumers, especially lower earners who have smaller tax liabilities, eligible for the full value of the EV tax credit. As a result, EV purchases would become more affordable for interested buyers with lower disposable income. This government rebate could be a game changer when considering that 52% of new car buyers in the US believe EVs cost too much as cost was their most cited concern, according to the 2023 Deloitte Automotive Consumer Study. Therefore, as EV prices become cheaper than they currently are, demand could pick up next year.
Return to Office May Boost Sales
So with EV demand expected to increase next year, it’s normal to expect demand for EV charging stations to increase as well. In fact, demand for EV charging stations may be more than ever next year with more employees set to return to the office by the end of 2024. According to a report from Resume Builder, 90% of companies plan to implement return-to-office policies by the end of 2024, compared to 64% currently.
With that in mind, there is a strong correlation between working from office and demand for EV charging. In a study conducted last March by EVBox, 34% of EV drivers charge at work, while an additional 27% would do so if that option was available. This means that 61% of EV owners would charge their vehicles at work if given the opportunity which shows how significant this potential market is as businesses may start installing charging stations to accommodate their employees ahead of their return to the office next year.
As such, ChargePoint could be well-positioned to capitalize on this industry-wide catalyst due to its reputation and reach in the US. Currently, the company has 31 thousand locations in the US and 56 thousand total level 2 and level 3 ports, which makes it the largest EV charging network in the US. In comparison, Tesla, its biggest rival, has only 6000 locations and 33 thousand ports. Followed by Volta, Blink (BLNK), EV Connect, EvGo (EVGO), and Electrify America, respectively.
However, while Tesla has fewer locations and ports than ChargePoint, it’s leading in terms of level 3 charging ports, of which it has more than 20 thousand ports. Meanwhile, ChargePoint only has a little more than 2000 level 3 ports. But this discrepancy in level 3 ports isn’t as negative as it seems.
Level 3 chargers, or DC chargers, can impressively fully charge an EV in a matter of a few minutes, usually between 20 and 30 minutes. However, there are downsides to using such chargers compared to level 2 chargers which ChargePoint is the undisputed leader in.
AC Charging Advantages
For starters, it is worth noting that 80% of all EV charging happens at home or work where vehicles spend a lot of time parked. This provides more than enough time to fill up using level 2 AC charging speeds, which provide around 25 miles of range per hour. As such, charging at home or work is considered to be more convenient for EV owners.
On the other hand, DC charging is only ideal for road trips, quick stops, and when an EV owner needs to fill up quickly. Therefore, the use of DC charging is limited compared to level 2 charging, especially when considering that frequent use of DC charging can in fact negatively impact battery performance and durability as many EV makers warn, including Tesla.
The reason why DC charging can have negative impacts on batteries is due to physics, so I’ll do my best to illustrate it in a simple way. Just like humans, EV batteries prefer to operate at comfortable temperatures, ideally in the 70s and 80s. But what happens during fast charging is that the battery receives a lot of power which can create heat. This heat would then stress batteries more than AC charging which could impact battery life over time. In fact, experts suggest that home charging with a level 2 charger is better for batteries as the cycling in fast charging can kill batteries. Knowing this information, it appears that relying on level 2 for day-to-day charging is better, which shows that the DC charging market is very limited.
Another advantage of AC charging is that is affordable. In fact, AC charging is 7-10 times cheaper than DC charging with the same performance. At the same time, AC chargers are smaller and their installation is simpler, faster, and less expensive than their DC counterparts. This is an additional advantage for ChargePoint if we take its business model into account.
How To Capitalize on Tesla’s Dominance?
As is, the company’s customer base is property owners not drivers as it generates revenue by selling the hardware to network operators, who then decide whether to charge EV owners or not for using the port. The company also generates revenue from the sale of subscriptions and for the maintenance of the chargers it sells.
This comes in handy when considering the growing wave of EV makers adopting Tesla’s NACS port. ChargePoint currency adopts the CCS port in its network, and given the potential increase in demand for NACS ports, its network operators would have to retrofit or upgrade their stations to be NACS enabled in order to meet the anticipated demand. Doing so would benefit ChargePoint in the form of increased revenue since it charges fees for the maintenance of its stations as aforementioned. In this way, ChargePoint may benefit from more EV makers adopting the NACS port.
Risks
While there are many reasons to be bullish on CHPT stock with the anticipated reacceleration in EV demand as well as more EV makers adopting Tesla’s NACS port, there are risks to consider. The first risk is if network operators don’t upgrade their stations to accommodate the NACS port in case more EVs adopt it. This would mean that there would be less demand for ChargePoint’s chargers while also not leading to the expected revenue growth.
Another risk to consider is ChargePoint’s cash burn. In 2 quarters only, the company burned $190.6 million in operating cash flow. Given its cash balance of $233.4 million, capital raises may occur in the near term similar to the offering it recently closed for $232 million in net proceeds.
It is also worth noting that in addition to the capital raise, the company amended the terms of some of its convertible notes by extending the maturity date from 2027 to 2028. However, it also raised cash interest from 3.5% to 7% and payment in kind interest from 5% to 8.5%, while adjusting the conversion price of the notes from $24.03 to $12. As a result, the company’s bottom line will be impacted in the coming quarters due to the increased interest payments.
Technical Analysis
On the hourly chart, CHPT stock is in a neutral trend as it is trading in a sideways channel between $2.42 and $3.25. Looking at the indicators, the stock is below the 200 and 50 MAs which is a bearish sign, however, it is testing the 21 MA as support. Meanwhile, the RSI is neutral at 51 and the MACD is neutral as well.
As for the fundamentals, CHPT stock appears to be poised to rebound soon with the expected reacceleration in demand for EVs and charging stations. Given that the company specializes in level 2 charging which is cheaper and more convenient for EV owners, its revenues may grow substantially as more EV makers adopt Tesla’s NACS port. With the stock trading near all-time lows, investors could start building a long position in the stock below $2.7.
CHPT Forecast
Despite our earlier bearish view on CHPT stock, the company appears to be well-positioned to capitalize on the expected reacceleration of EV and charging station demand driven by return-to-office policies. The company also has the potential to benefit from the growing trend of EV makers adopting Tesla’s NACS port since more network operators may ask it to upgrade and retrofit their stations, leading to more realized revenues. Given the advantages of AC charging compared to DC charging, the company is not competing with Tesla in the EV charging scene, instead, both AC and DC chargers serve a need and can co-exist in the market.