Can Chargepoint Cut Its Way To Profit? Try it!

Charging point (CHPT 4.41%) is something of a play in the electric vehicle (EV) sector. Providing the things a growing industry needs has long been a strong business model, but Chargepoint is struggling to turn a profit. That’s why it has just announced cost-cutting plans.

Is this really a good idea?

The charging point is a critical role in EV growth

Chargepoint supports the EV industry by building, selling and operating electric vehicle charging infrastructure. The company covers everything from electric vehicle chargers used by people at home to charging systems used by car fleets.

It operates over 300,000 toll ports and through roaming agreements has access to over 700,000. Its network spans North America and Europe (or about 16 markets).

Image source: Getty Images.

Although EV adoption is still quite modest worldwide, Chargepoint has built quite a network. This is important because the adoption of electric vehicles practically requires the installation of this type of infrastructure. So Chargepoint is doing something very important.

The problem is that building this infrastructure isn’t cheap or easy, which is why Chargepoint has yet to turn a full-year profit. He didn’t spend even a quarter in the black.

CHPT EPS Diluted data (quarterly) by YCharts.

It costs a lot of money to build a network to support an industry that is not yet fully developed, and there is not much reward for taking on the challenge. Chargepoint’s story is basically one about preparing today for a future that is dominated by electric vehicles. You should only buy it if you think this is what the future holds for you.

Load point: Trying to get to the bottom

The problem, of course, is that companies can’t lose money forever. Investors ultimately expect profits. A quick look at Chargepoint’s stock chart shows exactly what you’d expect.

It went public to great excitement as it was set to help revolutionize the transportation industry by ushering in the EV revolution. When that revolution didn’t happen quickly enough, investors lost interest and stocks fell.

A low share price and investors who have adopted a show-off attitude are problematic for an up-and-coming company like Chargepoint. Makes it harder to raise capital through debt and equity sales.

In fact, Chargepoint either needs to find a way to turn a profit, or at least convince Wall Street that there are profits on the horizon (and the company has the financial wherewithal to survive until then). That’s why Chargepoint has just announced a cost-cutting plan.

The initiative will reduce the company’s global workforce by 15% and is expected to save approximately $41 million per year on an annual basis. That’s about $10 million per quarter, which wouldn’t have been enough to push Chargepoint into the black in the second quarter.

The company’s losses from operations would still have been more than 50 million dollars. And it’s important to note that this isn’t the first time Chargepoint has tried to cut its way to profit either.

What’s a little concerning about the current round of cuts is that they’re coming from the company’s sales and marketing team. During the conference call, management said it is increasing the ratio of sell positions to non-sell positions, which appears to increase opportunities for revenue generation.

But this is not the same as hiring more people to sell, as it could also be done by simply having more managers than salespeople. It’s especially hard to cut your way to profit when the discounts are coming from the sales team.

Chargepoint is an investment for aggressive investors

While it’s good news that Chargepoint knows it needs to get lean and mean if it wants to turn a profit, there are real issues here when it comes to cutting costs. For example, the fact that cost cutting is affecting the division that actually generates revenue is a bit of a concern.

Maybe the sales and marketing team needed to be shaken up, but conservative investors should probably look at this current round of cuts with a positive attitude. This EV infrastructure remains a high-risk investment and may be at even greater risk following the recent restructuring plan.