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Assessing ChargePoint Stock in 2023

ChargePoint’s stock, listed as CHPT on the NYSE, underwent a tumultuous period in 2023, enduring a staggering 75% decline that shows no signs of abating. The challenges faced by the electric vehicle (EV) market, particularly in the realm of chargers, have taken a heavy toll. As the company grapples with mounting losses and a constrained funding environment, the impending shift to a new charging standard poses yet another obstacle.

Amidst this descent, the critical question arises: Can ChargePoint mount a recovery or is it destined for a prolonged slump? To ascertain the outlook for ChargePoint, a deeper examination of its business is warranted.

The Core of ChargePoint’s Operations

Prior to delving into ChargePoint’s financial standing, it’s pivotal to elucidate the nature of its offerings. While the company maintains a network that generates revenue from the act of charging cars, the predominant share of its income arises from charger sales. According to the company’s recent 10-Q filing with the SEC, ChargePoint primarily garners revenue through the sale of Networked Charging Systems, Cloud Services, and extended parts and labor warranties. Notably, this facet excludes ChargePoint as a Service (CPaaS), which generates recurring revenue. In the third quarter of 2023, $73.9 million out of the total $110.3 million revenue originated from networked charging systems, with a mere $30.6 million stemming from subscriptions.

It becomes evident that the company predominantly focuses on charger sales, a domain where it operates at a loss. Illustrating this point, the gross margins for charger sales in the initial nine months of 2023 stood at a bleak negative 11%. This trend persists prior to the seismic disruption now confronting ChargePoint.

Unpacking the Disruption in Charging

The recent hurdle pertains to the transition in U.S. charging infrastructure towards the North American Charging Standard championed by Tesla. This development not only positions Tesla’s superchargers as a competitive force but also exacerbates the commoditization of ChargePoint’s standing in the market. Consequently, a pressing quandary emerges – how can a charging network distinguish itself when it utilizes the same plug and dispenses the same commodity (electricity) as its rivals?

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This transition not only restrains margins from charger sales but also limits the potential subscription revenue derived from charging EVs.

Initiating from a Position of Vulnerability

The strategic challenges highlighted above might have been surmountable if ChargePoint had commenced from a position of profitability. Regrettably, this is not the case. The company is mired in a financial predicament, unable to generate profits from its existing business of selling chargers and services to the prevailing charger network.

Given these circumstances, one is compelled to ponder the company’s pathway when faced with further commodification in the market.

ChargePoint Is Not an Attractive Investment Today

It is readily apparent that EV charging holds the promise of a lucrative future; the inevitable surge in EVs demands charging infrastructure expansion. Nevertheless, the fundamental question persists – can charging evolve into a profitable sphere?

The nature of chargers entails the provision of a commodity (electricity) through a standardized plug (NACS) to vehicles, devoid of any substantial network lock-in or cost advantage to leverage. Coupled with ChargePoint’s ongoing financial hemorrhage, there seems to be scant reason for anticipating an improvement in its financial standing.

It is crucial to acknowledge that the burgeoning market for EVs does not inherently guarantee profitability for the companies operating within it. It is on this basis that ChargePoint’s viability as an investment proposition in the present juncture is dubious.

Before contemplating an investment in ChargePoint,