Chargepoint bullish on Nevi and demand curve

Chargepoint, the largest provider of chargers in the US, has rebuffed concerns about its Q2 financials in favour of a bullish outlook on demand for its charging products.

The firm’s revenue were marginally below analysts' expectations and the company racked up losses of over $80mn. But management is confident that the bottom line belies growing demand and addressable market.

Chargepoint is not an owner-operator of chargers but instead largely makes its money selling pre-networked chargers to companies to install at destinations, roadside locations or workplaces. It can then offer management of and software services to these chargers.

Under the radar

The US’ New Electric Vehicle Infrastructure (Nevi) scheme is cited as an example of somewhere where it is having significant success, but this may be going under the radar. Because it is not the charger owner, but rather a technology provider, its role is not always recognised.

“In some cases, our name is on the particular Nevi proposal into a state. In many cases, our name is not on the proposal,” says Chargepoint CEO Pasquale Romano. “Also in many cases, there are multiple proposals from multiple parties that all are based on our technology because they have selected us as the technology partner for their bid.”

Romano gives the example of the state of Pennsylvania, which has allocated funding for only one project with the Chargepoint name attached to it, but has awarded funds to 12 other projects for which Chargepoint is the technology partner. “On the surface, it looks like we did not do very well,” he concedes.

“But when you peel the onion one more layer, we did quite well,” adding that “we have got about a third or so win rate there on the monies that have been appropriated by the state”. “The win rate, we think, is pretty good,” he contends.

Demand

Romano is also confident that, fundamentally, the charging industry is on the crest of a wave, and demand is set to increase at a rapid rate as a move towards widespread EV adoption continues. There are, though, some obstacles to unlocking that potential in the current environment.

Backlogs of vehicles in the fleet vehicle segment, as the industry continues to rebound for its supply change crisis, have led to greater reluctance from Chargepoint’s fleet customers more fully embracing electrification. But Romano reminds investors that demand for orders from fleet customers are “lumpy with respect to revenue,” referring to the sector’s less regular, larger orders.

“We think we are on the front end of a big wave and we are going to move into continued growth next year,” the firm’s CFO Rex Jackson adds. “God forbid, fleet vehicles should actually show up.”

There is also a headwind from the overall macro outlook, which is making Chargepoint’s core commercial customers — firms that want to install chargers at retail outlets or in their workplaces — postpone spend on non-core items.

“Multiple of our largest workplace customers have come to us and said, ‘can we think of a creative way of decompressing this?’ Because we effectively do not have discretionary spend capability on things that are non-core to our business and to our customers,” Romano admits.

And these macro factors are also impacting on private EV sales. “While there are some makes and models that are moving. I think what you are seeing is some price sensitivity in the consumer market with respect to the higher-priced side of the EV market — and probably the vehicle market overall — given where interest rates are,” the Chargepoint chief says.

“What you are also seeing, frankly, is variable take-up with respect to the models introduced, based on consumer preference. Not all cars are winners, regardless of the drivetrain technology, so some things will sit in an oversupply state,” he continues.

But Romano remains optimistic. “US EV sales were up by 48pc year-over-year in Q2, a record for any quarter, and Europe is experiencing a similar pace of adoption,” he points out.

“Correspondingly, usage of our existing chargers on our network is up significantly. In short, this puts utilisation pressure on infrastructure, and we believe that will turn into demand for our products.”

Chargepoint manages over 250,000 charge-points globally, including 22,000 DC fast ports, (for comparison, Tesla operates around 45,000 fast chargers globally). In Q2, the firm also began shipping DC charging stations to Germany’s Mercedes as part of a deal signed in January.

Since then, Mercedes has announced it is joining a consortium of seven automakers to install 30,000 DC fast chargers along highways, which Chargepoint sees “as absolutely an opportunity for us”. Romano admits that the seven joint venture members are “sorting out amongst themselves how they want to organise and progress that business”.

But he remains hopeful about “opportunities that the auto consortium would bring to market”. He cites Chargepoint’s experience in OEM collaborations such as its work with Germany’s VW securing Appendix D Funds as part of the OEM's 'dieselgate' settlement with the US government, as well as a recent project with Sweden’s Volvo and US coffee chain Starbucks for a 1,300-mile highway charging corridor from Seattle to Denver.

Reaching scale

No matter the demand outlook, though, there is some analyst concern about Chargepoint’s future ambitions to get profitable. The company expects “improved cost structure and reliable supply”, as a result of streamlining its contract manufacturing strategy, Romano assures investors.

The company also recently cut 10pc of its workforce in a reorganisation “with a goal of achieving higher operational efficiency as we scale, while reducing our operating expenses by an estimated $30mn on an annualised basis”.

Chargepoint is currently sitting on of $144mn in inventory, which the CEO labelled “stranded costs”. However, this amount is not expected to increase greatly by Q4, according to CFO Jackson.

But the value of this inventory was hit by a one-off impairment charge worth $28mn at the end of Q2. The charge knocked 19 points off the Q2 gross margin, bringing it down to 3pc when the company’s cost of goods sold would otherwise have returned a 22pc margin.

Nonetheless, executives have recommitted to a goal of positive gross earnings by Q4 of 2024, even as analysts queried whether the rate of the firm’s growth was slowing down. Chargepoint’s view is that year-on-year revenue growth remains strong at 30pc+ and it only has to maintain this run-rate for the larger revenues to eventually swing it from loss to profit by December 2024.

“Getting to that profitability number at the end of next year, it cannot include wishful thinking on our part,” says Romano. “It has got to include stuff that we have visibility into.

“We are pretty confident that that fleet number is going to continue to surprise us all as a positive as a long-term trend.”