The good news and bad news from ChargePoint’s Q2 results

Charging point (CHPT 10.22%) was an easy company to root for and invest in amid the strong early hype around electric vehicles (EVs). In terms of investment thesis, he had a fairly simple one: the world was in dire need of electric vehicle charging infrastructure, and ChargePoint was one of the few leaders with its network of 30,000 charging points.

However, that investment thesis has been incredibly slow to materialize for ChargePoint, and its second-quarter results serve as another reminder of its challenges.

The good news

The news from ChargePoint’s second quarter wasn’t all bad. Adjusted gross margins rose to 26%, which was a massive jump from 3% the year before and the third consecutive quarter of growth. Over the same three quarters, ChargePoint’s GAAP operating expenses as a percentage of revenue fell, with the second quarter figure coming in at 81%.

Another positive takeaway was that subscription revenue in the second quarter was $36 million, which was good for 21% year-over-year growth. In an attempt to boost investor confidence, management has implemented an action plan to create efficiencies while reducing operating expenses.

The bad news

On the downside, growth continues to be a challenge for the company. Second-quarter revenue was $108.5 million, down 28% from $150.5 million a year earlier and missing analysts’ estimates. Much of this decline was driven by revenues from grid charging systems, which fell 44% year-on-year.

ChargePoint also announced plans to cut 15 percent of its workforce after experiencing slower growth. It’s a more worrying trend when you consider that in September 2023 it has already cut about 10% of its workforce. The reorganization is expected to result in restructuring costs of approximately $10 million.

Cash burn continues to be a primary concern for investors, although the company has cash and cash equivalents of $243.7 million, $150 million remaining unused in its revolving credit facility and no debt maturing until 2028.

CHPT Cash and Equivalents Data (Quarterly) by YCharts

Questions remain

Another major concern facing ChargePoint is increasing competition at a time of sluggish growth. adze is well known for its much larger collection of fast charging ports (numbering over 50,000) and, after opening up its charging technology to other automakers, has entered into a number of partnerships and agreements to license its Charging Standard North American (NACS) ports.

Further, recently Toyota has become the eighth automaker to join Ionna, a young electric vehicle fast-charging network with plans to build 30,000 high-power fast-charging connectors. It’s a worrying sign that automakers may prefer to build their own networks in hopes of improving customer satisfaction and generating their own share of subscription revenue in the future.

The addressable market for charging infrastructure is massive, but the second quarter was a reminder that growth may be more challenging than the initial hype for ChargePoint led investors to believe.