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ChargePoint: Worth Investing

By Guy S. Ortmann, CMTStock MarketsApr 16, 2021 08:00AM ET
www.investing.com/analysis/chargepoint-worth-investing-200573461
ChargePoint: Worth Investing
By Guy S. Ortmann, CMT   |  Apr 16, 2021 08:00AM ET
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We are initiating coverage of ChargePoint (NYSE:CHPT) with a Buy rating and a $29 per share price target.

The company is the largest provider of EV charging stations in North America and has an approximate 70% market share in the Level 2 AC charging market. As of year-end 2020, ChargePoint has over 105,000 active public and private charging spots in its network.

ChargePoint generates revenues from its charging station hardware, cloud-based annual subscription services, and warranty agreements.

For the electrification of transportation to grow over the next decade, the EV industry needs to build charging infrastructure to meet the demand for charging stations both home and on the road.

The auto industry sells approximately 100 million vehicles globally, with electric vehicles accounting for 2% of all sales. The industry projects EV penetration of 25% by 2030 to approximately 25 million cars.

We recommend ChargePoint as a long-term investment leveraged to clean transportation infrastructure and the rise in EV adoption.

We are initiating coverage with a $29 per share price target. Our price target is based on 25.0x P/S multiple and 2022E Sales of $345 million.

Charge Point Holdings Inc
Charge Point Holdings Inc

Company Description

ChargePoint is a designer, developer, and marketer of electric vehicle (EV) charging systems. The company sells EV charging stations, cloud-based software, and service agreements. The company’s charging network serves residential, commercial, and fleet operators.

Summary

The company is the largest provider of EV charging stations in North America. The company has a light-asset business model and generates revenues from the sales of EV charging systems, cloud-based annual subscription software, and warranty agreements.

In North America, ChargePoint has an approximate 70% market share in the Level 2 AC charging market. Also, the company has a small presence in the European charging market. As of year-end 2020, ChargePoint has over 105,000 active public and private charging spots in its network. Additionally, the company has access to 157,000 active public and private location charging locations with other major EV charging networks across North America and Europe.

For the electrification of transportation to grow over the next decade, the EV industry needs to build charging infrastructure to meet the demand for charging stations both home and on the road. We recommend ChargePoint as a long-term investment leveraged to clean transportation infrastructure and the rise in EV adoption. Market Opportunities

The market demand for EVs (Electric Vehicles) has increased dramatically over the past several years as customers switch from fossil-fueled transportation to green energy transportation. The main reason for the higher demand for EVs is climate change concerns among consumers.

Consumers have been slow to adopt EVs primarily because of driving distance limitations and extended battery charging time. However, the current battery technologies have improved charging time and driving distance.

Currently, the auto industry sells approximately 100 million vehicles globally, with electric vehicles accounting for 2% of all sales. The industry projects EV penetration of 25% by 2030 to approximately 25 million cars.

Investment Theme

A concern for purchasers of EVs is the driving distance per single charge and the fear of running out of battery power, which could be a roadblock for further customer adoption. This problem occurs both for daily local driving and for long-distance travel. Building robust EV charging infrastructure will be key for increased customer adoption of EV for both consumer and fleet operators.

Current EV models typically have a driving range of 200-300 miles per charge. Ongoing improvements in battery technologies are expected further to increase the driving range to above 500 miles. However, for the near term, the anxiety of running out of a battery charge is remedied with the strategic placement of EV charging stations along frequently traveled roads. EV drivers are not just confined to at-home charging. Having charging stations along a driving route enables drivers to recharge at any time and anywhere.

Asset-Light Model

ChargePoint generates revenues from its charging station hardware, cloud-based annual subscription services, and warranty agreements. Hardware is a one-time sale while the Charge Points software apps and warranty contracts are recurring revenue streams.

The company does not own the charging sites, nor does it sell electricity to EV drivers. Unlike other EV charging companies which generate revenues through the sale of charging time or electricity to drivers, we prefer ChargePoint’s asset-light business model.

Selling electricity to EV drivers is a business model that is comparable to retail electricity businesses. To generate revenues from charging, a company would purchase the electricity from utilities and resell it to customers at a mark-up. Electricity prices are not uniform in the United States and can vary dramatically. Also, charging vehicles during peak demand may cause more stress on the electrical grid in high load seasons, resulting in higher electricity prices.

The majority of the time, a vehicle is parked at home, where homeowners are offered incentives by their utility company to charge their EV overnight in the form of reduced electricity rates or incentives. For instance, the IRS offers Federal Tax Credits up to $1,000 or up to 30% of the cost for EV charging equipment for residential purchases.

Whereas for commercial and fleet operators, their vehicles typically return to a central location overnight. Similar to residential charging, the EVs are charged overnight while off-duty or parked.

Competitors

ChargePoint is the largest EV charging station provider by seven times to its closest competitor. Within North America, the company controls a 73% market share in networked Level 2 Charging Stations. Its largest competitor is SemaConnect, holding a 10% market share.

Market Share
Market Share

Valuation

Our price target is based on 25.0x P/S multiple and 2022E Sales of $345 million.

Target Price
Target Price

Fig 3 - ChargePoint Holdings, Inc.
Fig 3 - ChargePoint Holdings, Inc.

Charge Point Holdings Inc Daily Chart
Charge Point Holdings Inc Daily Chart

ChargePoint: Worth Investing
 

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ChargePoint: Worth Investing

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