A few years ago, when the interest-rate policy was quite different, it might have made sense to invest in electric vehicle (EV) charging equipment provider ChargePoint (NYSE:CHPT). However, financial traders must adapt to changing environments. The current circumstances don’t favor a long position in CHPT stock.
Now, I’m not suggesting that ChargePoint is a terrible company or anything like that. I’ll even present the bull case before delving into ChargePoint’s problems. Still, while there are indeed two sides to the issue, overall, it’s too risky to invest in ChargePoint right now.
Considering the Bullish Argument for CHPT Stock
Some commentators might suggest that demand for EVs isn’t as robust as it was once anticipated to be. But, for the argument’s sake, let’s say there’s a terrific outlook for the EV market over the coming years. That’s a very positive premise for ChargePoint’s business prospects if you accept it.
Hence, maybe a bull case can be built for CHPT stock. Notably, ChargePoint has finally adopted, or at least made its equipment compatible with, Tesla’s (NASDAQ:TSLA) charging standard. It took a while for ChargePoint to do this, and I suspect that the company only did it reluctantly.
Here are the details. ChargePoint disclosed that it’s “rolling out NACS connector support for its AC and DC charging solutions.” Furthermore, ChargePoint is ramping up the production of its Tesla-compatible NACS EV chargers.
On the other hand, major automotive manufacturers had already adopted Tesla’s charging network. I’m trying to keep the argument bullish here, though, so let’s say ChargePoint made an intelligent move in producing its Tesla-compatible chargers.
Also, ChargePoint recently stepped up its EV software offerings with a new suite of fleet-management apps. These apps can help fleet managers automate schedules, optimize route readiness, and gain insights by location, among other benefits.
ChargePoint Adds to Its Debt Load
So, there you have my best bullish argument for CHPT stock. Frankly, it shouldn’t be enough to convince any prudent investor.
ChargePoint may be an ambitious startup, but it has been unprofitable for a long time. That might have been perfectly fine in late 2020 and 2021. That was a time of easy-money policy when liquidity flowed like wine, borrowing costs were low, and speculative startups were all the rage on Wall Street.
The times have changed, to put it mildly. Higher-for-longer interest rate policy means income-negative startups like ChargePoint can’t rely on easy money anymore. Borrowing costs are high, and ChargePoint has done a lot of borrowing.
ChargePoint CEO Pasquale Romano once claimed that ChargePoint was “well-positioned and well-capitalized for the future.” Yet, that declaration is doubtful as ChargePoint issued $300 million worth of convertible notes (i.e., corporate bonds) in April 2022, plus $232 million worth of debt in the company’s third fiscal quarter of 2024.
Moreover, ChargePoint agreed with one of its creditors to “increase the cash coupon” on some of ChargePoint’s debt “from 3.5% to 7% per year” and to “increase the payment in kind coupon from 5% to 8.5% per year.” Perhaps it’s not surprising that ChargePoint has to pay higher interest rates in a high-interest-rate environment. Yet, this will take a significant financial toll on ChargePoint in the long run.
Just Steer Clear of CHPT Stock
Even if you’re optimistic about the EV industry, the bullish argument for ChargePoint just doesn’t cut it. It’s not late 2020 or 2021 anymore, and the market isn’t as tolerant of income-negative startups like ChargePoint.
At the very least, look at ChargePoint’s financials and sizable debt burden if you’re still considering CHPT stock. Then, I’m sure you’ll be convinced to allocate your investable capital toward a venture that’s less risky and, very probably, more rewarding.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
