We recently launched coverage of ChargePoint (CHPT) and EVgo (EVGO), two electric vehicle charging companies with bright prospects for revenue growth but little in the way of competitive advantages. In conjunction with this, we highlight five questions for investors to consider with regard to the market.
-Is the competitive landscape still evolving? Given the early stage of EV charging, we see room for the competitive landscape to continue to evolve. Today, the landscape largely consists of EV charging pure plays and automaker involvement (Tesla TSLA and Volkswagen VWAGY). We view utilities and oil and gas majors as likely to play an increasing role moving forward.
-AC versus DC? A typical AC charger takes at least 90 minutes to add 100 miles of range, while an ultrafast DC charger can take as little as 6 minutes. Today 80% of public EV charging stations are AC, given the much lower cost. Market expectations are for the 80/20 ratio to remain in the long term, but this remains a moving target. We emphasize the differing competitive dynamics in each market.
-Will public policy determine winners and losers? Investors should bear in mind the important role of public policy in EV charging. Subsidies are key to commercial charging buildouts, but they are often disbursed at the state level, making uniformity in rules challenging. We also believe involvement by utilities, such as ownership via a regulated asset base, is a key topic to consider.
-How do we lower costs? Hint: It’s not all about the hardware. The average DC fast-charging port costs north of $100,000 while the average AC level 2 charger costs $10,000-$20,000. But only about half of this cost is equipment-related, with a large amount related to preparation, permitting, and so on.
-Who wins the fleet game? Seemingly every EV charging company is targeting fleets as part of its growth strategy. While we recognize the attractiveness of the fleet market, we also view it as among the most competitive.
ChargePoint Looks to Higher-Growth Markets
ChargePoint is a leading provider of hardware and software for EV charging products and services. The company has a capital-light business model; it rarely owns charging assets, but rather sells an integrated hardware and software offering to customers looking for an all-in-one solution. Historically concentrated in the North American AC charging market, ChargePoint is aggressively targeting new markets in fast charging and Europe.
We assign ChargePoint a no-moat rating while noting that its competitive position varies widely by end market. The company dominates the North American AC charging market with over 50% share per government data. We like its position in this market but expect much of its growth will increasingly come from fast charging and Europe—markets where ChargePoint has meaningfully lower share.
Our financial model expects robust growth as spending on EV charging increases and ChargePoint enters new markets. We project a 50% five-year revenue compound annual growth rate as management focuses on driving top-line growth. However, we expect gross margins will be watched equally as closely; we model a rebound from compression in recent years but still short of management’s long-term targets in the mid- to high 30s. We expect ChargePoint to remain a hardware-dominated business from a top-line perspective, with software accounting for roughly 15% of revenue long term.
ChargePoint boasts a long history in EV charging—it was founded in 2007—and has established itself as the leader in North American AC charging. However, we await further evidence that it can replicate this success as it seeks to scale in fast charging and Europe before we become more positive on the shares.
Increasing Competition Looms for EVgo
EVgo is an owner-operator of EV fast-charging stations across the United States. Per government data, it has the third-highest number of fast-charging ports behind Tesla’s Supercharger network and Volkswagen’s Electrify America. EVgo seeks to locate its charging stations in high-traffic areas, such as grocery stores or malls.
While EVgo was a first mover in the adoption of fast-charging infrastructure, we see limited competitive differentiation in the long term and expect increased competition in the coming years. As EV charging matures, we expect operators to compete primarily on location and price. Further, robust government subsidies as part of last year’s infrastructure act are expected to drive an accelerated buildout of fast-charging stations in particular. New entrants seeking to capitalize on subsidies, along with Tesla potentially opening its Supercharger network to non-Tesla vehicles in the U.S., drive our negative moat trend rating.
As an owner-operator of EV charging stations, EVgo has a business model with significant operating leverage to asset utilization. We expect utilization to rise from about 5% today to 15%-20% long term as new EV models become available.
We project a 92% five-year revenue compound annual growth rate as the company triples its charging ports and sees improving utilization. However, competitive pressures lead us to forecast moderate average selling price degradation over time and long-term gross margins below company guidance. We expect the company to achieve profitability in 2025-26.
EVgo offers leverage to growing EV adoption and a focus on fast charging, but limited competitive differentiation and potential for industry overbuilding in the medium term leave us on the sidelines.
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