ChargePoint Holdings, Inc. (CHPT) Earnings Call Transcript & Summary

I lead the Oppenheimer & Co.'s Sustainable Growth and Resource Optimization team. We're pleased to have Pasquale Romano, CEO of ChargePoint, here to talk about the charging landscape. We are waiting just for a couple of more people to log in here. So we'll give it another -- I think we're good to go. It's 3 after the hour. So first, thanks, everybody, for being here. Again, my name is Colin Rusch. I lead Oppenheimer's Sustainable Growth and Resource Optimization team. We're very pleased to have Pasquale Romano, the CEO of ChargePoint, here to talk about the charging landscape and ChargePoint specifically. I think from a process perspective, time is going to run pretty short once we get started here. So I think -- if you have any questions, please drop them into the chat function here or email me at colin.rusch@opco.com. Again, colin.rusch@opco.com. And so let's just get going.

So Pasquale, can we first start just laying some foundation on the ecosystem and talk about ChargePoint's position from a software service and hardware perspective. And what that software solution really provides ChargePoint from a differentiation perspective and why other companies have not fully followed suit at this point?

Well, I mean, I think, first of all, the charging landscape gets lumped together in one bucket, but it's really not one bucket. There -- in our opinion, there are 3 distinct columns that you would place the company in. There's folks that own assets and sell energy. That's not us. That market is a very specific market. It's only applicable in a narrow set of verticals, in EV charging of passenger cars and equally of fleets. Put a pin on that one. We can talk about that later if you want. Then there's companies that make effectively hardware solutions, but don't control any of the software substantially at any deployment. So they are kind of bound by the standards and have little flexibility to go outside that and control their destiny. Then there's companies like us that are fully vertically integrated, creating hardware, software services solution that you can use in any vertical. And one of the things we realized early in the life of the company is that you have to be everywhere. The drivers go with their fleets, for example, might want to use your technology and not all of them pencil from resale of electricity perspective. So it's hard to be relevant with a model that's owning assets and selling energy, from our perspective anyway. So it's hard to do something there. It's also hard to control its destiny without a large investment in software. And since electricity is pervasively distributed, if you look at what ChargePoint looks like to the driver, we kind of look like Airbnb. It's the interface you use to access other people's capital in a consistent way. And so on the capital, we don't have to raise the money for the capital. It doesn't constrain our ability to gain market share and relevance in all the different verticals. We also aren't dependent on the business model of the business. So our business wants to use it as a marketing expense across subsidy or whatever for their customers or for their employees for that matter. They can do that with our stuff because we charge them a flat subscription rate per year that's not aligned with the energy dispensed. So if they want to give the energy [indiscernible] we don't care because it doesn't encumber our ability to the way we make money. So I'll pause there.

Okay. I think that was super helpful. Just to make sure that everybody understands that. As we get into -- I want to do one more question on kind of the industry and then let's get into the implications of the Tesla announcement. So given what you guys have, which is a unique view on the charging activity around how vehicles are being used, what can you say about the patterns that you're seeing emerge just historically and recently around infrastructure use on a time-of-day perspective, top-up versus deep charge, home versus public and anything around fleets, just so we kind of have that also as a foundational piece for folks to think about?

Yes. And the fleet and passenger are very different answers. So let's start with kind of consumer and operated passenger because I think people can relate to that everyone. As the charging patterns in terms of proportion of where energy is onboarded haven't changed relative to this question, by the way, relative to battery size or anything like that, it hasn't really changed. Most of the energy is going to come on board 70% to 80%. And we see that statistic. It's also a widely published statistic so there's third-party data on this. It will come in while you're sleeping, wherever that might be. So if you have a single-family residence in the early market, right now, you can control your destiny and put a charger in, which most people seem to be doing. Multifamily is coming online pretty quickly with programs where if you live in an apartment or a condominium, that's increasingly lower friction. It's a little higher friction right now than single-family residents just due to the impedance of kind of getting through the business reorientation of landlords. And then the last position is street side overnight where you don't have parking where you live, and so you park in a permit zone, typically street side. And those programs, I think, are the most nascent, and we're starting to engage with cities and towns on programs there. So you'll see an evolution there, especially for folks that live in major cities like New York, for example. I get that question all the time because what they see as a consumer is not necessarily being fulfilled right now. It's the last brick in the foundation, so to speak, to get laid. It hasn't gotten much attention up to now. So that's kind of where 70% to 80% of the fuel comes in. Correspondingly, your car is parked typically where you were -- presuming that you are a 3-in, 2-out day in the office individual, which seems to be the trend. That's, I think, the new normal. But on the 3-day piece that everyone's in, it's the same utilization as the 5 days that used to be because we tend to all be relatively synchronized. There's a little bit more acceptance of flexibility. So maybe it's a little less pressure, but it's roughly the same. And so that's where your car is parked correspondingly. The model is outside of being parked at home, assuming that you're going into the office about 3 days a week. So there's a significant amount of fuel that's onboarded there. And then the balance is about 10% or so, in that range, is when you're going on a trip, when you go beyond your battery reach. That's volumetric. That's not 10% of the sessions. That's 10% of the volumetric fuel. You tend to take really big gulps when you're going outside your battery range. So that tends to be very few sessions a year, but it's very important for you to own only 1 car if you're most of America and be able to drive anywhere you want to go. So that's sort of how it generally breaks down. So that around town component and that home street side multifamily component, that's where most of the fuel's coming in.

Perfect. And then on the fleet side, I guess, I'm curious, it's -- I have to imagine, largely return-to-base type applications that you guys are seeing demand from now, are you're seeing point-to-point starting to emerge as a real viable category.

The most fleets, even when they're not your traditional short-range logistic and delivery fleet or work fleet, contract or roofing contractors, electricians, builders, things like that, they don't go very far, by the way, with their vehicles. And delivery vans don't go very far with their vehicles in a single day. Buses don't go very far, except for a few routes very far in one day. So most fleet vehicles, in general, don't go very far. Even over-the-road distribution trucking for larger form factor trucks typically sit within 250 miles or so. So most things can be fueled at endpoint. And some things can be fueled -- some things are, by necessity, fueled over the long-haul Class 8. That's an emerging market. That's not really well established right now because there's no supply there. And then you have a very interesting phenomenon, Colin. You have the take-home fleet, which we're getting surprising amount of traction with because we've done a ton of stuff with home reimbursement for leasecos in Europe that lease -- that provide leasing services to businesses. They give you a car as part of your compensation because it's tax effective in Europe. By the way headline, 20% of your vehicles in Europe get to consumers in that mode. That's all vehicles, nonelectric vehicles. It's a higher percentage actually of electric vehicles because it's aligned with ESG goals of employers. So the -- I take my vehicle home at night and charge it there and get reimbursed automatically through ChargePoint infrastructure, where we're monitoring how much is dispensed to the vehicle at home and we know the electricity rate so we can reimburse the employee. That's happening at a much higher percentage than we would have initially expected. And in Europe, a higher percentage of even traditional delivery fleets because of space constraints are managed that way. It's much more diffuse where vehicles park overnight relative to North America where there's a bit more space.

Perfect. So I think with that backdrop, let's get into the implications for the charging landscape as we've seen multiple OEMs sign these deals with Tesla for access to the fast charge network. The -- it was kind of a big deal, and I think in many cases, misunderstood. So, I guess, as you guys are looking at this, having announced the availability of hardware with the new connectors or with the Tesla connectors, what do you think the real implications are here for the charging landscape and for the opportunity for ChargePoint?

Well, Colin, you know I'm always a good one for some humor in one of these sessions. So it's a [indiscernible]. What I've said publicly many times is I just want to make a T-shirt for the industry, we should all wear them, that says, just pick one, okay? It's a connector. And it's mind-numbingly annoying as to how much misinformation is surrounding the connector type, which has 0 implications for functionality or performance. It's exactly -- you can do exactly the same thing that CCS can do. It's a little bit smaller because they multiplex the AC and DC on the same pins That's the only reason it's smaller. And it does -- the connector itself, the adoption of the connector is a nonissue. And it's a relatively simple thing for us because our cables are modular so we fully protected the installed base. So we can go back and sell an upgrade. That's an easy 20-minute install for anyone out there. We have some very interesting solutions because we don't want our customers abandoning CCS because there's going to be a tweener number of years for a long time where you have CCS in the population. You can't ever try to allocate connector types by parking space because you'll never get the mix right and the mix changes over time. So if you don't want to purposely assign a parking space to a connector type, the burden is on companies like us to make sure that you have the capabilities to deal with that -- serve any car for parking space. And that's tough to do in a cost-effective manner. We've got some great stuff coming. We've made some announcements. We've left a couple of things in the announcements because we think they're pretty innovative, and we've announced the availability in a press release. You can order the solutions now, and we'll be rolling those out sometime Q4 and the more advanced ones in the beginning of next year. So base is fully covered. In terms of access to the actual network itself, there's quite a bit of Tesla infrastructure out there. Vehicle OEMs, I think, are pretty mindful of the fact that there's a premium that's being charged for energy if you're not a Tesla driver, if you're not subscribing to that network. So I think it's -- from the vehicle OEMs, I've talked to, viewed as I just want my drivers to use any infrastructure they possibly can. And that doesn't mean that it's going to be exclusively the supercharger network, but there's a lot of infrastructure out there. So why can't drivers use literally everything that's out there, which I agree with, actually. So the right thing to do is to populate the universe with chargers that can charge any car. That means some modifications for the supercharger network in terms of cable length as it doesn't reach. In terms of compliance now with roaming, compliance with screens, on dispensers to accurately display price, all the things that we have to do because we're not closed to one auto manufacturer, we're open to all manufacturers, so we have to comply with the regulations in every single jurisdiction on metering, on privacy, security, all that sort of stuff. So assuming that, that's all brought into compliance, I think most auto OEMs just look at it as, eventually, this is going to be the realm of the retail brands that sell you food like retail coffee, things while you're stopped on a trip for 20 minutes, and that's where it ultimately goes. But in the early days, it's not a high enough percentage of cars were enough for that stuff to be capitalized. So in the early days, make it available -- make things available to drivers on a broad basis as possible.

That's super helpful. So then, I guess, it begs the question around industry adoption and industry growth here and kind of capital efficiency, right? What we're seeing is that -- it's been a little bit less efficient than I think a lot of these OEMs had hoped to bring these products to market from a capital perspective. It's been a little bit more challenging. And this is getting to one of the questions we've got online here around what you're seeing in terms of activity for '23 and '24, and we're starting to see some pretty healthy adoption in Western Europe and even in Eastern Europe on EVs. But in the U.S., we're getting reports around more inventory is sitting a lot for a little bit longer on the EV side. And so I guess, what can you say about how that impacts you guys? Because you historically have talked around charging, tracking vehicle sales pretty closely, and obviously -- yes. And so I'd love to just get the update on how that's tracking and given some of the things that you guys have in terms of geographic exposure, how that's tracking for you?

Yes, yes. So a great question in the chat. I love the detail on that, and it's exactly the right question to ask. So the way our revenue has been driven since the beginning of the company is it's all driven by percent of net new vehicles being driven into the installed base. And if you remember a lot of these sorts of events, we've talked about the rebuy rate of existing customers being quite high. And that's due to customers that already have programs where they are charging their parking lots, whether they be for their employees or customers or both or fleets. And as they add electric vehicles, the utilization will hit some natural ceiling of inconvenience until they add more infrastructure. So if you just look, as long as the percentage of cars that are electric is climbing, it puts utilization pressure in the CapEx at large in the universe, ours and others, and it drives growth. Assuming we can hold or increased market share, our growth rate is generally tied to that or increased market share positions in Europe and continued development in fleet, which is highly vehicle starved and unramped -- unfolding, but it's still vehicle starved. And it will be vehicle -- it'll be a little less vehicle starved in 2024 because it's decompressing, but it's still going to be pretty compressed through 2024. So the net-net is we should see growth. We do have, relative to the question in the chat, some sensitivity on businesses that want to serve customers or employees that have discretion as to timing. We could see some delays in the installation of charging infrastructure or the decompression of overutilization, but that's already -- those trends are already sort of been in our numbers for 2023. And unless something precipitously changes in 2024, I don't see it affecting growth any larger than it's affected growth relative to our comments on our earnings calls. This year, our growth, by the way, Q1 to Q1 prior, because we only reported on Q1, was over 50%. So even in a bad economy with pressure from interest rates, et cetera, on vehicle sales, et cetera, you've got an over 50% growth rate in Q1 to Q1 previous year. So you're still seeing toward a growth rate pattern. So I'm not that concerned about the growth sustaining the business. I don't see is flattening by any stretch of the imagination. And then relative to your comment on vehicles sitting on [indiscernible] . The press loves good articles or good clickbait. So I think it comes down to a couple of things. First of all, vehicles aren't immune to interest rates with respect to the financing and leasing costs that's all built into the vehicle price. So they're not immune to that. But more importantly, they're also not immune to whether a consumer actually likes it or not relative to other vehicles. So every model is not going to fly off a lot. There's also an element of the consumer votes as to whether they like the vehicle or not. It doesn't mean that everything with a plug is superior. There -- at the end of the day, the drivetrain notwithstanding, there's a lot of other things that a consumer votes on if they like the vehicle or not. And there's some vehicles out there that are electric, and I won't tell you what I think because it's not my place.

Well, anybody can talk to me afterwards because I'm happy to share some things about some of these products, but keep going, yes.

Yes. I wouldn't -- I mean there's some on [ lots ] that I kind of understand why they're sitting on a lot.

Yes, for sure. That's super helpful. So as you're looking at the strategy around Fortune 100 and Fortune 500 companies in this land-and-expand model and given some of the discretionary spending that you're seeing, and with that context of the vehicles are there and the pressure that happens on the infrastructure, in terms of willingness for those larger customers to continue to build out infrastructure, are they kind of in the build-out and digest mode? Or are they still feeling like they have a lot of room to run in terms of where they want to have infrastructure to support some of their initiatives?

So are you referring comp to fleets or to businesses that are seeing...

I mean, it was more around the infrastructure of the amenity sale -- side of things, right? And then if you want to address it separately as a fleet question as well.

Yes. Fleet is associated with cost structure and it's an improvement in cost structure over time. So that -- I mean, they're -- if they could get the vehicles, they would deploy them. I had a conversation with the CEO of a very large delivery service 2 days ago and totally vehicle limited. Totally vehicle -- right? So on the passenger car side, it really depends on the business. It really depends -- if you take just the recent announcements, if you take Walmart, for example, that's looking at -- figuring out how they want to electrify for their customers, they're betting on the long term. They have plenty of balance sheet. They're not -- they don't seem to be -- they seem to be trying to figure it out, but they don't seem to be that fussed about whether it's now or 6 months from now because I think they realize how long games are playing on this. And then you've got other smaller businesses that are going to be a little bit more cautious with their balance sheet and then it depends on just how effective they are by the overall macro. So for every put, there's a take. And then we've got Europe where we're gaining market share. So I think from our perspective, yes, we're going to see -- we already see some customers get into the red zone utilization-wise, and they know it. And they're turning on more of our software features that help them increase utilization through a charger like a Waitlist feature, for example. But that only goes so far and we're seeing plenty of sales into existing customers as well. So we're about to -- we're going to close our Q2 here in a few weeks. So there will be new data on us. I would just -- I would wait for the comments on the earnings call because we'll be able to fill you in on exactly how we saw Q2 unfold.

Okay. Perfect. I have one technology question before we get into some of the questions around NEVI and some of the other mandates that we're seeing in both North America and Europe. So just in terms of the capability of vehicles to take faster charges, right, and this is something that you've talked about historically, and I think it's important for everybody to understand that a lot of these batteries just actually can't do fast charging on a consistent basis without turning into real degradation problems. I'm curious what you're seeing in terms of the evolution of the vehicles and their ability to actually manage fast charge on a consistent basis rather than more of a trickle charger on top-up of charge model.

So look, I think right now, state of the art is you don't want to get better. It was more than about a 2C charge rate on a consistent basis. And you also don't -- lithium ion is sensitive to how close you are to full. So stay away from full, right? So if you can -- if you drive an electric vehicle, that gives you some level of control as to how far up the battery state of charge curve you charge before it stops. You'll see that they recommend you backing off the slider, so to speak, 10% to 20%. And then there are a lot of vehicles that don't give you the choice. They just manage that themselves. So the battery is bigger than they're telling you in the vehicle for that exact reason. They try to manage the battery life relative to warranty. I actually think it's a red herring. We're not trying to get it back to the gas station. No consumer wants to get it back to the gas station because no consumer is going to substitute the convenience of charging while you're parked doing something else for most of your fueling. So if you drive a gas car and you haven't made the leap to electric yet, you're like, well, I want to get it back to the 5-minute charge rate. You actually don't. What you want to do is you want to charge it while you're doing something else. So 90% of the time, you don't have to worry about it, and it's only when you're going beyond your battery range that you would care about putting a bolt of lightning into your vehicle. And in that case, that's so infrequent, you can actually push the limits a little bit and go kind of to the practical edge of where the technology and the battery that you buy will allow you. So let me give you an interesting thought exercise. Let's pretend this. This is my earbuds case. Let's pretend this earbuds case is a 100-kilowatt hour battery that could charge infinitely fast and it costs about $1. Let's just pretend we had a magic battery. We could wave our magic wand and create this. And it could charge infinitely fast. So you could make a vehicle that could go 300 miles and you could pull into a gas -- what looked like a gas station, but it was an electric station, and it could fill this thing as fast as you could deliver energy. If you wanted to emulate a gas station fill, you have to apply somewhere around 1.5 megawatt to 2 megawatts to that vehicle, depending on this battery size to get that to happen. Gas stations in most places, let's take North America, have an average of about 8 pumps. So if you're sitting there 12 to 16 megawatts, it's impractical. It's just totally impractical, right? And people are time lined. So you quickly move the issue to availability of energy. And when 90% of the time, your entire driving life -- and I've been driving electric for 13 years. When your entire driving experience is never having to go to the gas station or take your car in for service, when you're going out of town, you drive 3 hours, you stop, you stretch your legs, use the restroom and buy a coffee, you don't care. You get very conditioned to 15, 20 minutes is fine. So this notion that we're desperately trying to get faster charging, we're not as an industry. As a -- we have -- our chargers have the ability to push way more energy into a battery than the cars can currently take. So we're car limited, not charging infrastructure limited. The charging infrastructure is way ahead of vehicles right now. So it's not a technology limitation. It's much more of a practicality of limitation, I think, ultimately.