Three years ago, ChargePoint (CHPT 3.10%) was worth over $8 billion and was seen as one of the big winners in the electric vehicle (EV) revolution. Now the company is worth just under $600 million, and the stock is dropping so fast that options are running out for financing the future.
Where will the company be five years from now? The options are getting thin for ChargePoint.
ChargePoint's operations are a mess
It's not hard to see the operational challenges ChargePoint is facing. The company makes most of its money selling EV chargers, not electricity or services, and the demand for chargers is down. You can see the revenue decline over the past year, and the losses are piling up.
CHPT Revenue (TTM) data by YCharts
What will change this dynamic? Management can't lean on pricing power because EV chargers are essentially a commodity, and the industry is moving to the North American Charging Standard (NACS), which will further commoditize chargers.
Gross margins are already down over the past three years, and I don't see the dynamic improving. Meanwhile, operating expenses are unsustainably high.
CHPT Gross Profit Margin data by YCharts
The balance sheet is also in real trouble. If you look at the cash on the balance sheet and the current rate of cash burn, the company has about a year's worth of cash left. But raising capital will be a challenge with $286 million in debt already on the balance sheet and a stock price approaching $1 per share.
CHPT Cash and Equivalents (Quarterly) data by YCharts
ChargePoint needs to find alternatives soon
Given the state of the balance sheet and cash flows, I think ChargePoint is running out of time to turn its business around. The company needs to find an alternative, like a strategic buyer or a company that wants to build a huge EV charging network on its own.
An automaker like General Motors or Ford that's expanding EV sales could be a buyer, although they're going to the standard NACS plug, and having a proprietary network may not make sense.
A company like Blink Charging (BLNK 5.26%) could also buy ChargePoint to consolidate the supply of EV chargers. But remember that Blink and ChargePoint make most of their money selling chargers, not electricity, so the network effect from these chargers may not be as strong as hoped.
ChargePoint could also focus on operational efficiency, as it did with its recently announced layoff of 15% of staff and its partnership with LG Electronics that will offload manufacturing to LG and allow ChargePoint to focus on hardware. But these moves may be too little, too late.
Where will ChargePoint be in five years?
I don't see any path to ChargePoint being a stand-alone company in five years. The company is burning too much cash and doesn't have a path to a profitable business model.
The question for investors is whether the business offers any value to a potential buyer or partner. I don't think there is, and that's why I'm staying away from this stock.
