EV charging earnings signal cutthroat competition ahead (NYSE:CHPT) – InfowayTechnologies
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A week of EV charging earnings from the likes of ChargePoint Holdings (NYSE:CHPT), Wallbox (WBX), and Blink Charging (NASDAQ:BLNK) offered a mixed bag in terms of prints. While the latter was able to exceed expectations and drive shares higher on earnings day, the former two fell sharply on weak 2023 forecasts.
However, a similar note across earnings presentations was the signal that competition is only due to heat up as the EV transition continues to accelerate.
Chasing Profits in Charging
Another common refrain across earnings prints was the lack of profits. None of the three firms reporting yet have been able to reach profitability, though headcount reductions to start 2023 by Wallbox signal the industry’s focus on improving this dynamic. ChargePoint likewise called the ability to reach profitability “super important” especially as investors increasingly focus on efficiency and bottom line dynamics.
However, he indicated that the company may not reach adjusted EBITDA profitability within the next two years. This timeline for ChargePoint at least was viewed approvingly by analysts that broadly retained bullish outlooks on the name.
“With cost headwinds beginning to abate and ChargePoint delivering on cost-down measures and improving operating leverage, we remain confident that ChargePoint is on track to becoming free cash flow positive by the end of CY24,” JP Morgan analyst Bill Peterson told clients. “ChargePoint’s balance sheet is also relatively strong, which will be beneficial in this phase of growth, with facilities available to opportunistically increase liquidity. We continue to think ChargePoint’s scale and leadership across charging verticals is underappreciated, as are the recurring revenue opportunities from its software and service offerings which could accelerate in the coming years with an expanding customer base.”
Importantly, he added that the company does not look as though it will need to raise capital in 2023. The same cannot be said for each of its peers however, many of whom have fallen far more sharply in the past year than ChargePoint.
Peterson recently downgraded EVgo (NASDAQ:EVGO) ahead of its mid-March earnings result, citing capital intensity and site delays as key concerns.
“As a result of higher inflation and input costs, we think capital intensity will be higher than we had previously expected,” he wrote. “Overall, we think risk/reward is relatively balanced at present and move EVGO to a Neutral rating.”
Prominent Partners
One of the keys to consider in assessing the space is who might be backing each name as macro headwinds and increased competition converge in 2023.
ChargePoint benefits from partnerships with automakers like Toyota, Fisker, and Mercedes Benz. The latter projected a total of more than 400 hubs containing a total of 2,500 high-power chargers across North America by 2030. Additionally, partnerships with Volvo and Starbucks were highlighted as key wins for the company in its most recent earnings call.
Meanwhile, EVgo is a key partner for GM, which is rapidly accelerating EV efforts in its own right. The company also agreed to offer a vehicle charging discount program for rideshare drivers on the Lyft platform while inking a deal with Amazon for Alexa integration.
Wallbox (WBX) also indicated a new key partnership in its earnings call, telling analysts “a new partnership with a very large European OEM” was inked to start 2023. The name of the particular automaker was not disclosed. CEO Enric Asuncion added that Walmart has agreed to pilot the company’s chargers at 50 locations across the US.
These key partners could be crucial to helping support each firm as cash burn likely remains an issue in the near term. Additionally, increased EV adoption and the expected increase in popularity for specific makes and models could be a key tailwind for particular partners.
That said, increased competition from the opening of charging networks, including Tesla’s, demanded by recent legislation, as well as Ford’s buildout of an open BlueOval charging infrastructure is only likely to pressure the crowded space. That is not to mention the efforts of BP, Shell, and other traditional energy companies to branch into charging space in pursuit of diversification.
Competition to Consolidation?
The crowded nature of the space could certainly lead to consolidation in the end, as Shell’s deal for Volta (VLTA) earlier in the year foreshadowed.
With many of the stocks populating the space beaten down over the past year and continuing to bleed cash, valuations in the low hundreds of millions could make names like Blink (BLNK) targets for oil companies looking to bolster ESG bona fides and gain added exposure to EV charging. Certainly as executives pursue buyback programs in the tens of billions of dollars, an acquisition costing less than $1B would not be overly onerous.
Conversely, automakers or other charging networks eyeing an expansion of their footprint could seek M&A activity. Indeed, some partners could turn to acquirers if the path to profitability as a standalone company for some names becomes too elongated.
Less optimistically for investors in these stocks, bankruptcy is not a remote risk either. Continued capital raises in a rising interest rate environment could create an existential problem in short order. That potential could play out handsomely for short sellers in the end, as short interest in EVgo stands at nearly 40%, while ChargePoint and Blink court over 17% and 21% short interest, respectively.
Read more on the earnings expectations for EVgo’s upcoming report.
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