As the undisputed leader in electric vehicle charging with over 70% share of Level 2 chargers in the United States, ChargePoint (New York stock market :CHPT) has everything to gain even if Growth of electric vehicles is slowing, with expected revenue growth in the low 60% range. Improve operating leverage and gross margins are also positive, but below the surface expenses are still far too high to drive a meaningful shift to profitability through 2023.
The growth of the electric vehicle market in question in 2023
With a month’s delay so far, it’s hard to predict exactly where the EV industry will end the year – other OEMs such as Ford (F) followed Tesla (TSLA) price cuts in an attempt to stimulate demand, which seem to be paying off – Tesla has recorded more than 900% growth in Germany And 18% growth in China after the cuts have taken effect.
S&P Global believes that Growth dynamics of EVs “is at risk in 2023 due to several factors: the end of Chinese subsidies, the energy crisis in Europe and the resulting inflation, and recession fears in the United States. 2024, creating a potential headwind for U.S. EV sales through 2023.
However, growth forecasts differ – JD Power,” says overall BEV retail market share will grow to 12% in 2023 and 21% by 2025, a forecast he calls his midpoint projection, meaning growth could be even faster.” This forecast is based on availability and adoption – how many EV options are available, and how many consumers who have viable EV options buy one. McKinsey”predicted Traditional automakers and EV startups will produce up to 400 new models by 2023,” which would help manage availability and pave the way for wider adoption.
Regardless of the growth rate in 2023 for the electric vehicle market – whether it is 20% y/y or 35% y/y, ChargePoint must always benefit from it – the infrastructure is still lacking, in particular from the point sight of the class 8/heavy duty area. CEO of Freightliner Cascadia manufacturer Daimler Truck North America, John O’Leary, sees that the “Infrastructure is slowing us down in terms of the deployment of electric vehicles.”
There is no doubt that EV charging infrastructure is still a headwind for EV adoption – a lack of widespread and easily accessible charging range anxiety scares has gripped the industry for decades. years. S&P Global Mobility estimates that electric vehicle charging infrastructure “needs to quadruple by 2025 and more than eight times by 2030” to meet growing demand for electric vehicles. From 2023 to 2025, government subsidies allocated through the Cut Inflation Act will help spur greater nationwide investment in electric vehicle charging, benefiting carriers such as ChargePoint, Blink (blnk), EVgo (EVGO), and others.
Strong future revenue growth
ChargePoint’s recent Q3 results saw the electric vehicle charging operator record revenue growth of around 90% annually, with a slight increase in full-year revenue guidance, now recording revenue of between $475m and $485m of dollars. At the upper end of this guided range, ChargePoint would be on track to see roughly 100% year-over-year growth.
For fiscal 2024, ChargePoint could see revenue growth of 60% or more to $780 million, regardless of the overall growth rate of the electric vehicle market. Even with 20% growth in electric vehicle sales in calendar year 2023 (fiscal year 2024), the broader increase in the number of electric vehicles on the road, combined with an increase in charger deployments, has opened the way to continued revenue acceleration.
Subscription growth continues to lag charging system revenue growth – for the third quarter, charging system revenue more than doubled from $47.5 million to $97.6 million dollars, while subscriptions grew only 61.7% to $21.7 million. As a percentage of revenue, subscriptions fell to 17.3% of revenue from 20.6%; for the 9-month period, subscriptions fell to 18.9% from over 22%.
For FY2024, a similar trend is expected to materialize – charger installs, driven by states working to improve charging infrastructure through the IRA, are expected to drive revenue growth, while subscriptions will continue at a modest pace. For example, the continued creation of partnerships such as the recent merger with Mercedes-Benz to deploy a network of 2,500 chargerss is a major driver of this 60% revenue growth projection.
Margin improvement, but OpEx in focus
With strong revenue growth ahead, the main focus of ChargePoint’s fiscal year 2024 comes down to margins – gross margins fell in fiscal year 23 from fiscal year 22, but are showing signs of improvement. sequential improvement. For FY24, the question remains whether ChargePoint can regain 25% gross margin and improve operating leverage to put it on the fast track to profitability.
And at the moment, operating expenses still look too high to drive a meaningful shift toward profitability through FY24.
From the first trimester 23 to Q3’23, ChargePoint saw a fairly significant decline in operating expenses as a % of revenue, from 103% at the start of the fiscal year to 63% in the third quarter; in dollars, quarterly operating expenses decreased by $5 million.
However, the problems are starting to come from the recent decline in gross margin – operating expenses for the third quarter are approximately 4.7x gross margin and approximately 6x gross margin for the period of 9 month. That’s not much of an improvement over the comparable nine-month period in FY22, when operating expenses totaled just under 6.2 times gross profit.
Essentially, even with revenue up nearly 96% in a nine-month period ending in the third quarter, operating losses were up more than 41%.
We observe a worrying trend for the nine-month period:
- subscription gross margin decreased 450 basis points to 37.3%, although the third quarter contributed 36% of total nine-month revenue with a margin of approximately 62%
- in-network charging systems gross margin decreased by 470 basis points to 10.3%
Margins have shown some improvement sequentially since the start of FY23, but overall margins are not strong enough to offset increased operating expenses. FQ4 ’23 operating expenses are expected to reverse the slow decline seen so far in FY23, reaching $86-89 million on a non-GAAP basis (approximately $102-106 million GAAP).
Where does this take ChargePoint for FY24?
FY24 operating expenses are expected to increase approximately 35% from the $420 million forecast for FY23 based on current spending trends, ending the fiscal year at approximately $570 million . With revenues estimated at $770 million, based on EV market growth and increased deployments, gross profits would reach approximately $185 million with a gross margin of 24%.
Based on these two numbers, the net loss for FY24 is projected to be approximately $385 million GAAP; assuming similar growth in SBC expenses to approximately $120 million, non-GAAP net loss is projected to be approximately $265 million, or a loss of approximately ($0.76) per share assuming dilution of about 2 to 3%.
With operating expenses still totaling well over 4x gross profit, it’s hard to see a quick inflection in operating profitability, even as margins show signs of improvement and revenues grow. Net loss for FY24 is not expected to show any improvement in loss per share, if at all. The expected increase in operating expenses in the fourth quarter of 2023 – and the only decrease in operating expenses on a non-GAAP basis of approximately $1 million – is not the trend needed to unlock profitability before at least FY25, potentially FY26. Given the weak outlook for profitability, ChargePoint shares may struggle to find meaningful upside in 2023, similar to trading from 2022.