What’s The Deal With ChargePoint?
In light of the infrastructure bill finally getting passed, what are your thoughts on ChargePoint Holdings? Inquiring minds…
— Mike B.
Thanks for writing in, Mike … and for providing me with a convenient way to talk about ChargePoint (NYSE: CHPT) and the recently passed infrastructure bill.
Are you bugging our communications, Mike? Seriously, I was just discussing with the Great Stuff team on how best to approach this particular topic. Very timely on this question, Mike. Suspiciously timely if you ask me. Hmmm…
Before we get into the impact of the infrastructure bill, it’s important to understand the various ways in which ChargePoint and its competitors make money.
Oh … and an important side note: I won’t be discussing the politics surrounding the infrastructure bill. Great Stuff is an investing e-zine, not a political one.
If politics is your drug of choice, do it somewhere else … otherwise, I will taunt you worse than the Frenchman in Monty Python’s Holy Grail … you and your silly English knnniggits!
Now, let’s talk about investing and electric vehicle (EV) charging with ChargePoint.
3 Ways To Charge Your EV
It’s not quite “50 Ways to Leave Your Lover,” but you do need to make a new plan, Stan. There’s no need to be coy, Roy.
First off, ChargePoint develops, builds, sells and maintains EV charging stations. It’s currently the biggest EV charging station company in the world by revenue … or by broken-out revenue, that is.
Tesla (Nasdaq: TSLA) might be bigger, but it doesn’t break out charging station revenue.
Outside of Tesla, ChargePoint’s main competitors are EVgo (Nasdaq: EVGO) and Blink Charging (Nasdaq: BLNK), and there are distinct differences in each business model:
o EVgo: Directly owns the charging stations it deploys and generates revenue by charging a premium for electricity.
o Blink Charging: Prefers to directly own its charging stations but also sells them directly to business customers. Blink also charges a premium for electricity.
o ChargePoint: Sells its charging stations directly to business customers and offers “Charging as a Service” (CaaS) packages to those customers to service and maintain purchases. ChargePoint doesn’t charge a premium for electricity, but it doesn’t stop customers from doing so.
As you can see, these three companies run the gamut of how to profit from an EV charging station.
At first glance, Blink Charging appears to have the best approach. However, anyone who knows anything about running a gas station knows that there’s very, very little money in actually selling fuel. It’s all about the upsell on snacks and drinks once you go inside.
ChargePoint CEO Pasquale Romano knows this very well. In an interview earlier this year, Romano said: “I wouldn’t want a driver as a customer because I think I’d starve to death. There’s not a lot of money in electricity.”
ChargePoint: Charging As A Service
According to ChargePoint, if you’re looking to make a lot of money … sell the charging stations, not the electricity. And ChargePoint isn’t wrong.
Despite the surging popularity of EVs, they only accounted for about 2% of all vehicle sales in the U.S. in 2020. What’s more, only about 7% of U.S. drivers actually own a chargeable EV or hybrid, according to a Pew Research survey.
Starve, indeed. And if you want a more direct comparison using revenue … check this out:
For 2021, analysts expect ChargePoint to rake in about $204 million in revenue, compared to just $16 million for Blink. Looking further down the road, those same analysts project $893 million for ChargePoint by 2025 but only $151 million for Blink.
But Blink is charging for electricity too? How is that possible?
It’s possible because ChargePoint has recurring revenue that is much, much higher than the price of electricity. The company calls it CaaS — kinda like the Software as a Service (SaaS) model that’s huge with Big Tech software companies like Microsoft, Oracle and IBM right now.
You see, ChargePoint offers subscription maintenance and operating plans to the companies that purchase its charging stations.
ChargePoint makes sure the stations are operating correctly, provides routine maintenance and helps the buyer set up access control and payment handling. As an added bonus to CaaS customers, ChargePoint waives the installation fee, which can be quite steep.
(By the way … with EV growth set to surge 1,150% by 2030, there’s still a lot of money on the table. The absolute best way to play EV stocks? Click here now!)
Bombs Away With Infrastructure Billions
Now to the burning question that prompted Mike to reach out to Great Stuff in the first place: How does the $1.2 trillion infrastructure bill affect ChargePoint?
First of all, only $7.5 billion of that $1.2 trillion is earmarked for building out EV charging stations.
That’s about half of what the Biden Administration asked for at the start, and it’s not nearly enough to deliver on plans to build a network of 500,000 EV charging stations across the U.S.
In other words, there’s gonna be a fight over that money … and some companies are gonna win more than others.
Given that both EVgo and Blink focus a bit too heavily on making money from electricity at the “pump,” my money is on ChargePoint for the win here — at least as far as the infrastructure bill is concerned.
Let’s not mince words here: Pretty much all EV charging manufacturers are gonna get a slice of Biden’s infrastructure pie. (Eeew … Biden pie. I think I’m gonna hurl.)
However, some companies will “win” more than others. For instance, with the ChargePoint model, companies could apply for said infrastructure funds to buy EV chargers and help pay for ChargePoint’s CaaS.
On the other hand, EVgo and Blink will only get infrastructure funds from EV charging station buildouts alone. Sure, they’ll benefit from the added electricity sales, but that will be a dripping faucet compared to ChargePoint’s wide-open CaaS spigot.
Just like Billy Joe and Bobbie Sue, ChargePoint is gonna take that infrastructure money and run. And the best part is, it doesn’t matter how many EVs are on U.S. roads. ChargePoint still makes bank due to its service contracts even if no one drives an EV.
So, you wanted me to pick a winner in the race for infrastructure funds, Mike? ChargePoint is my bet, and it revolves around CaaS.
The Future Of EV Charging
Unfortunately, there are a few provisos … a couple of quid pro quos that are looming large for EV charging companies like ChargePoint.
The first and biggest is EV adoption by U.S. drivers. The current consensus is that U.S. drivers aren’t buying EVs because charging stations are few and far between.
Why buy an EV if there’s no place even remotely near you to charge the thing? And what about longer trips? Are there enough EV charging stations along your journey to keep you charged up and rolling?
While this is certainly a concern, I don’t believe it is the biggest concern U.S. drivers have about EVs. Many of us already realize that our daily and weekly driving habits are well within current EV battery ranges. And charging at home is simple and easy to maintain that schedule.
Personally, I’d really like an EV for daily driving … and I’d keep at least one traditional vehicle for longer trips. Easy-peasy … and I’m helping to cut down on emissions!
But I don’t have an EV for two reasons … and these are the biggest reasons why I believe they won’t catch on as quickly as Wall Street analysts hope:
1. Price: Plain and simple, EVs cost an average of $10k to $20k more than their gasoline/diesel counterparts. With inflation going nuts, a labor shortage and a supply crunch … ain’t no regular American driver got time or money for that right now. I’m doing better than most, and I can’t justify the premium for an EV.
2. Charging/Fill-Up Time: Right now, it takes about five to 10 minutes to fully fill your gas tank. Most EVs, however, take at least 30 minutes to get to half a charge, with a full charge taking an hour or more.
If you’re taking a leisurely road trip, stop to eat and can charge your vehicle at the same time, that’s not too bad. But if you just need to stop for a charge and nothing else? You’re gonna be twiddling your thumbs for a while. American drivers aren’t about that life.
Both of these factors are major players in EV adoption, and neither is addressed by the infrastructure bill.
A Rant On Tax Credits
But, Mr. Great Stuff, isn’t there like a $12,500 tax credit for buying EVs in the infrastructure bill?
Why yes. Yes, there is. To be clear, it’s a $7,500 tax credit with an additional $4,500 for union-made EVs. Now, while both the House and the Senate have passed the infrastructure bill, both chambers of Congress approved different amounts.
The House approved the $4,500 union-made credit, while the Senate approved just $2,500. Both versions need to be reconciled before going to Biden for his final signature.
Ironically, there’s only one EV on the market that meets the union-made qualification — the Chevrolet Bolt EV — and production of that EV is currently on hold. It’s OK to laugh. Go right ahead.
But that isn’t even the real problem here. The problem is that the tax credit doesn’t work like many potential EV buyers think … and that’s going to cause a lot of misunderstanding and problems.
Let’s say you find an EV that qualifies for the full $12,500 tax credit. That credit doesn’t lower the price of the EV. If the EV is $60k, you’re still gonna pay $60K … not $47,500. Furthermore, the U.S. government isn’t just gonna write you a check for $12,500 when you buy an EV, either.
Practically every EV maker lists their prices including this credit … and I think that’s a big load of B.S.
How do you get the tax credit then? Well, you have to owe the IRS at least $12,500 in taxes to take full advantage of the credit.
So, if you manage your taxes extremely well (like you should), and you don’t owe the IRS anything at the end of the year: No credit for you!
If you only owe $2,000 to the IRS, consider that gone with the tax credit. However, the remaining $10,500 in available tax credit is gone. And, no, you can’t roll the remaining balance of the credit over to next year.
You get nothing above and beyond what you owe the IRS, up to the $12,500 limit. In other words, if, like me, you are great at managing your money and your taxes … you’re kinda screwed out of the tax credit.
The Bottom Line: ChargePoint
So, while the infrastructure bill helps EV charging companies like ChargePoint in building out their EV charging networks, it doesn’t exactly go far enough to push EV adoption by average U.S. drivers.
What this means for CHPT investors is that the company is gonna get a solid, short-term boost in revenue and earnings over the next year or so. Then, when the infrastructure money runs out, every EV charging station maker is gonna be at the whims of the American consumer.
I’m not saying EV demand doesn’t exist in the U.S. It does.
What I’m saying is that if there aren’t more incentives than EV charging station availability or paltry tax credits, U.S. drivers aren’t going to care.
We’re going to buy what fits the pocketbook, and right now, that isn’t high-priced EVs.
Hopefully, with nearly every automaker on the planet moving away from gasoline-powered vehicles, prices will come down and EV adoption will rise sharply.
If this happens, good things are in store for ChargePoint’s potentially rapid expansion under the new infrastructure bill. And by that point, ChargePoint might have changed its tune about dipping into charging for electricity. Gotta squeeze that last tiny bit of revenue out, after all.
And if you’re still fiending for more EV action, look no further.
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