ChargePoint: Leading the EV Charge

Sector

Electric VehiclesEnergyInfrastructureRenewable Energy

Background

Mark Tomasovic is a principal at Energize Ventures. We cover how ChargePoint is leading the land grab for EV charging infrastructure, why the US is at a particularly interesting point for EV adoption, and the challenges of running a business in a rapidly commoditizing industry.

Cover

Date

August 19, 2022

Episode Number

70

Key Learnings

1. ChargePoint's strategy of leaning into market capture while the industry is an aggressive approach for businesses in emerging markets. Despite being net income negative and burning about 15 million a month in EBITDA, ChargePoint is investing heavily in expansion.
2. Diversification of product and service offerings / mix of hardware and software. ChargePoint differentiates itself not only by providing charging hardware but also offering software and professional services.
3. Being platform-agnostic can help capture a larger customer base: ChargePoint's decision to remain compatible with all auto OEMs allows it to service a broader customer base, irrespective of the car brand.
4. Capital light business models and strategic partnerships: ChargePoint's decision to sell hardware and minimize physical assets enables it to stay capital light and sidesteps concerns over charger utilization. They focus on selling the hardware and associated services, rather than selling electricity, which helps them avoid having to worry about charger placement or usage. Additionally, their strategic partnerships with installers and real estate owners allow them to expand their network efficiently.
5. The value of strategic partnerships and widespread distribution in a commoditized market: ChargePoint's strategic partnerships with large corporations indicate the power of distribution and market presence.
6. The importance of a recurring revenue model in a hardware business: Despite the commoditization of the hardware, ChargePoint has built a recurring revenue model by selling a subscription software service with each charger. Over the eight-year lifespan of a charger, 50% of revenue comes from this service. This rev stream diversifies away hardware commoditization.

Key Takeaways and Business Model

1. ChargePoint, the primary player in the electric vehicle (EV) charging space, controls about 40% of the market share with 200 million annual revenue. Their business model is centered around selling charging hardware for EVs, alongside associated software and professional services. The company is heavily invested in capturing market share as the EV market is anticipated to grow substantially.
2. The EV market, while currently representing only 1% of vehicles on the road, is expected to grow significantly over the next few years, with expectations of a 40% CAGR in the US EV market over the next five years.
3. ChargePoint's "Switzerland" model is capitalizing on auto manufacturers' preference for charger agnosticism: Auto manufacturers prefer to stay neutral and compatible with all types of charging stations to minimize "range anxiety" among potential EV customers. This helps them sell more cars. ChargePoint, with its open-wall network, allows any auto OEM to use its chargers, and has partnered with some to include the ChargePoint app in their car dashboards. Their network also includes Tesla's cars, despite Tesla having a closed-wall network.
4. ChargePoint's market leadership is driven by first-mover advantage, comprehensive service offerings, and strategic partnerships: As the first public company in the EV charging space, ChargePoint holds a substantial early-mover advantage. This has allowed them to secure prime locations and install their chargers ahead of competitors. Their comprehensive offerings, such as ChargePoint Assure and ChargePoint as a Service, provide customers with a fully integrated, hands-off solution. Furthermore, they've formed strong partnerships with installers, real estate owners, and auto OEMs, gaining distribution leverage.
5. Revenue and Product Composition: ChargePoint's revenue stands at $200 million with 80% of it coming from selling level two charging hardware, while 20% is from subscription services. On average, they sell around 10,000 chargers annually at a unit price of $20,000, with an installed base of 110,000 chargers since 2007.
6. Gross Margins and Competition: Their gross profit margin hovers around 20-30%, primarily dictated by the cost of the charger's components. In comparison to their competitors who often operate at negative gross margins due to offering fully integrated services, ChargePoint's margin is higher.
7. Product Pricing and R&D Investment: ChargePoint's pricing strategy spans across a broad range. Level two chargers cost between $10,000-$30,000, and level three chargers can cost over $150,000. The company heavily invests in R&D to optimize charging speed and extend battery lives.
8. ChargePoint has a strong growth trajectory tied to the EV market: ChargePoint's growth is closely linked to the increasing penetration of electric vehicles (EVs). This is supported by the 'attach rate'—the ratio of EVs to chargers—being used to estimate the company's future growth. For example, considering a hypothetical ratio of 20:1, the transition to 100 million electric cars would require 5 million chargers, offering a considerable market opportunity.
9. EV charger industry is becoming commoditized at the hardware level with differentiation driven by software and services: The hardware of EV chargers is being viewed as a commodity, and companies in the space, including ChargePoint, are differentiating through software and services. They are aiming to provide user-friendly software products, assisting in charger location, site management, and load management.
10. Regulatory environment and macro factors: include infrastructure bills, EV tax credits, and low carbon fuel standards.
11. Strategic partnerships, geographic expansion, and decommoditization: ChargePoint's ability to form strong partnerships, particularly with Fortune 50 companies, and expand geographically, will be critical to its long-term success. Needs to focus on decommoditizing its offerings through software and services, enhancing user experience, and exploring new avenues such as autonomous vehicle integration.

Transcript