Okay, good afternoon and welcome to JPMorgan's 21st annual CES Tech and Auto Forum. My name is Bill Peterson, the Transportation and Fuel Transformation Analyst here at the firm. Really pleased to have Pasquale Romano here from ChargePoint. ChargePoint's at CES, I think, for the first time, at least first time I remember.
Oh, no, we've been, we've been at CES for literally every year running except for...
Except for last year.
Except for last year.
Except for last year.
The COVID years. Yeah.
Okay. Okay. Well, welcome back. Obviously you had a big announcement earlier today, along with Mercedes-Benz. Hoping we could start off with that, but maybe also just for the audience here, just a bit about ChargePoint, intro comments and maybe an update on the business as you kind of race to the end of your fiscal year. Again, just thanks for joining our conference.
Yeah. First of all, thank you and all the folks at JP Morgan for hosting us. We do this all the time with you and always enjoy it, and always enjoy the investors in the audience. A little bit about ChargePoint. We have, we're coming up on our second anniversary being a public company. That'll be March 1. We are a January 31 company. Our fiscal year end is approaching, we're ending 2022. We are, you know, surprisingly, I think a 15-year-old company that hasn't pivoted for 15 years from a business model perspective. It's been certainly growing geographically.
It's been growing in the subverticals that it's been attacking, but it's had one consistent theme, and that is we wanna provide all the tech and services, software, hardware, consulting services, professional services, design build services, et cetera, for our customers in all verticals. We're talking home, multifamily, workplace, all forms of retail, public and private parking, all the subverticals and fleet, everything from light commercial all the way through transit and heavy-duty vehicles. We want all those customers to be able to come to us and buy tech and then pay us a recurring fee that's not proportional to utilization or energy. We stay out of the business model that the end customer wants to portray to their customers or their employees.
The reason for that is we wanna be relevant to drivers everywhere, and our customer's customer or our customer's employee may have a different relationship with the parking, the site, the site owner that's on the parking lot that we're at. You have to be in every parking lot to be relevant to make your service, your mobile app, to get the network effect out there, et cetera. Our business model is quite simple. It's anchored on the fact that we sell subscriptions to keep a port of charging on the ChargePoint network. Depending on the vertical you're in, there's different packages you can buy. I'll leave out the details there. You can optionally buy hardware from us. Most of our customers do.
In many cases, you can wrap that hardware into a higher subscription payment if you wanna buy it all together. We do not sell hardware separately from software. We will sell software only with third-party hardware on it if that's what the customer wants. It's a one-way ratchet there. That's a little bit about the company. In terms of financials, what you're seeing is us mature the company now, given that the market is increasingly more fluid with makes and models coming online in both the fleet and the commercial segment for passenger cars just every day as there's a new announcement. What we've, we're converging on cash flow breakeven sometime in 2024. We're seeing the operating leverage that we forecasted, you know, in the business.
The growth rate of OpEx is obviously very much less than the growth rate of the revenue because we think we've reached a build-out stage with our infrastructure as a company as a whole to be able to address the markets we're in. We're in Europe as well as North America, so we're covering two continents. Again, we're in every vertical that we can think of anyway. So that's a little bit about the company. You know, midpoint of our guidance that we put out on the last earnings call is nearly a double year-over-year, and that's inside the worst supply chain environment we've ever seen. We're pretty proud of what we've been able to accomplish.
Just, yeah, and then the second part, Mercedes-Benz announcement.
Yeah.
You guys also put out a press release, I wanna say maybe about an hour ago.
Mm-hmm.
Maybe you could tell us a little bit about that announcement. What does it mean for ChargePoint? How should we think about it, progressing? You know, what does it mean for the financials? What is the broader statement about, you know, what it means when Mercedes-Benz chooses to work with ChargePoint among others and for this, you know, charging expansion?
I mean, I think the headline of why is we have a very distinct viewpoint that Mercedes-Benz is, you know, of like mind in that the charging experience is not the experience the driver's looking for. It's the experience while refueling. What else is there to do? In the particular use case of this announcement, this announcement is to cover when you're driving beyond your battery range. Most of your fuel does not come on board at a fast charger. Most of your fuel comes on board at home, at work, when you're shopping, when you're around town, when you're parked. We've covered that market for years.
We've also been in fast charge for a long time, and one of the things we've lamented is that the players in the 30-minute retail economy, you know, something to do for, you know, for about 20, 30 minutes, which is how long it takes to reload enough fuel to be able to get to your next waypoint or your ultimate destination. We've always said that drivers really care about where they're stopping when they have to refuel. They don't. They're, that's the more important thing to get right is, you know, bathroom, security, something to do aligned with the parking duration that you're likely to be sitting there on. We've always felt that way. Mercedes came at it from, "Hey, we're a premium brand.
you know, we wanna make sure that the experience is aligned with a premium brand." In their own words in the, in the press conference we just had, what they said is, you know, "Chargers next to a dumpster in the back 40 of a big box lot is not what we envision, as aligned with our customers." What you've seen to date, and this is something we've worked very diligently to try to not have happen, is the placement. The location of the chargers needs to be aligned with those amenity brands. It has to be, because it's not going to charge and making money on power. That's something we've never touched. The reason we've never touched it is the amenity brand has a whole other set of avenues to get money and gross margin out of the driver.
If you buy a coffee, the gross margin on a coffee when you're captive, you don't mind paying $7 for a double pump caramel macchiato, you know, on your way to your grandmother's for Christmas dinner. You might have a $7 caramel macchiato, which I don't know, costs $1, if that, and a $7 charging session, which has, you know, 15% gross margin maybe. The amenity brand doesn't care about the gross margin on that charging session. They care about the gross margin on this 'cause it's that combined business. The driver cares that, "Hey, I needed to stop, and I'm safe. There's lights. There's a camera. There's a bathroom. That I could get a coffee. It's kind of a nice experience.
By the time my two macchiatos come out for yourself and your spouse and maybe your kids, right? You're back to your car, your car's almost charged. You sit down, you kind of rearrange the seats a little bit, and by the time you're done, you're off and doing what you wanna do. That's Mercedes-Benz's view, and it's aligned with what they're doing with respect to all the other things with autonomy improvements, with in-dash entertainment improvements, et cetera. That's the reason.
Well, don't need a macchiato after that. That was a great overview. Now, you know, want to take a step back. You know, we've obviously seen a lot of gyrations in the market. There's, there's now concerns about EV demand, I mean, which we didn't really think about here, you know, last year especially, you know, rapid growth. And we still, we still expect rapid growth of EVs in your core markets. You know, again, there are some concerns. I mean, does ChargePoint have a view on the, on the demand growth if we take a step back and look at the North American and European, your markets, your core markets?
Mm-hmm. Yeah, demand growth for our infrastructure or cars?
EVs and the infrastructure.
Yeah. The infrastructure demand follows cars. To give you an interesting anecdote. When I first joined ChargePoint, I wish I was a founder, but I wasn't. I joined it about almost 12 years ago. It'll be 12 years the first week of February, and the company is about a 15-year-old company. When I first joined, the federal government and the Obama administration had the American Recovery and Reinvestment Act, ARRA, and ChargePoint had a grant out of the ARRA, and we had a companion grant from the CEC in the state of California. When you combine the two grants, it covered the full cost plus the installation of a charger. Now, there were very limited cars. There was the Nissan LEAF and the Chevy.
Volt
...Volt at the time. Not the Bolt, the Volt. I get the two confused. They were trickling out, but there wasn't a lot of them on the road 'cause these were new cars. It was hard to give away a charger. To give away a charger. Why? 'Cause it's like, I don't wanna tie up a parking space with this thing and put a sign up saying, "EV only," when I got, you know, the parking space next to the building is not something I wanna give up right now 'cause there's no EV. Where am I going with this? There's zero demand for chargers unless there's cars. There is no build ahead. There's limited build ahead. You can stimulate a little bit, but it all comes from cars. Let's look at cars.
What drives demand for vehicles broadly in the consumer sector is make/model availability. If all you're offering in the early days of EVs is a Bolt and a LEAF, two fine cars, no issue with either one of those vehicles in the early days. They were where the state-of-the-art was at the time. If you drive a pickup truck, and you really want an electric pickup truck, but there isn't one available, I could give you one of those other two formats for an incredible discount, and you still won't want it 'cause it doesn't fit your lifestyle. Cars are like fashion. You have to have enough to fit your lifestyle. You need all sizes, shapes, price points. You need a used market on it, et cetera. Where am I going with this?
We are seeing, regardless of the, of the macro, we are seeing a proliferation of releases because auto manufacturers take five to seven years to get a new platform out. The decisions that you're seeing today, they made a long time ago. The macro changing dynamically. They're not gonna say, "Oh, we're going back to gas." They can't. They've disabled all the investment in ICE vehicles. It's disabled, right? There is not a rich, robust pipeline of new stuff. European emission standards are not relaxing, right? They are not relaxing. It's a global market, you have to sell everywhere. You can't afford the R&D and the support for two platforms, an ICE one and a BEV one. They're going to roll a larger percentage of their model base as EVs. What does that mean?
If you have a declining auto market because of the macro, but you have an increasing percentage of EVs out of the total number of cars sold, you know, car sales aren't gonna go to zero because of the macro. They may take a hit, but they're not gonna go to zero. We believe that the increase in EVs as a percentage of new cars sold will offset substantially the decrease in the total number of cars sold. We should still see growth to the degree, you know, we haven't forecasted next year yet for markets, so we can't comment on that. We believe that there is a substantial offset there in the penetration rate of EVs relative to the decline in new car sales to the macro. We think there should still be growth.
Okay, great. By the way, I should mention, if there's anybody has a question, please let me know. You can use a microphone since this is being webcasted. Maybe just wrapping up that point. You've always discussed charging growth, tracking EV growth. And with that in mind, we think about the mid to long term, how should we think about that, but maybe in addition, layering on things like the NEVI program or the IRA, how do they augment that mid to long term growth view?
I think, relative to the example that I used in the beginning days of early days of ChargePoint, where you could have a subsidy program that substantially offset cost, but if there wasn't real demand, you know, no one's gonna put the chargers in anyway. I think things like the IRA will have a durable and lasting effect on, you know, accelerating, greasing the skids for a need that's there. It's not going to drive a need. It's going to grease the skids for a need that's there. You need the cars to be there. You do have vehicle incentives as part of the equation here, so that's a good thing.
I think NEVI helps subsidize things like the announcement we just made this morning is not mutually exclusive with NEVI. We're hopefully going to be able to work with MN8 Energy and Mercedes-Benz to put proposals together for states that have programs that they've defined around NEVI and use some of that as subsidy money to get even more sense.
Mm-hmm.
Right? To move the bar of where things pencil, the hurdle rate as to where things pencil, move it in because there's some subsidy there. For the early days, NEVI is a great program to jumpstart the early days to get more and more structured coverage of long-haul corridors in North America. That's what it's good for.
Mm-hmm.
Awesome. If that was the only thing you got, you'd be out of business because in a few years, by the time that money's flowing, let's say you even want all of it's gonna be relatively to an equipment and services company, which not all of that will go to equipment and services, a lot of it will go to O&M, some of it will go to, you know, a lot of it will go to construction, et cetera. You'll be irrelevant relative to the size of the charging market three years out 'cause it's a constant amount of money for each year for five years, but the market's growing.
Yeah.
It is a wonderful early day enhancement, and it is a terrible thing if that's the only thing you got.
Yeah. I wanna come back to the business model, and you kind of alluded to it earlier of why, you know, why you do what you're selling hardware and software and wrap it around rather than trying to monetize electrons. Why do you think that's the best model in compared to others with either an operator model or maybe potentially a hybrid model or in some cases even ad-based model?
Let's take it in reverse order. We're not the ad-based model. We have partners that take our stuff into that market. There's a finite number of sites and a finite number of parking spaces within those sites where an ad-supported model will pencil. Our partners that are in that space typically have more than one vertical they're ad supporting, so they can build a business, they can build the infrastructure for ad supporting across a lot of different verticals, one of them maybe being charging. When the customer wants to add more ports, they can add more ChargePoint conventional business model ports, because as they need to grow and land and expand, you can't ad support everything.
Our partners enable with us a wonderful, like you can seed it with some ad support, and then you can expand it with not, et cetera. It provides the fluidity there. The overarching answer to your question as to why our business model is you have to be in every vertical, and you can't get in the way of what your customer wants to do. Our customer is the business, not the driver.
Mm-hmm.
If our workplace customers wanna give power as an employee benefit, and I'm making money on energy, I'm in conflict with their desire. If a retailer wants to give free power to a rewards card holder, or change the hours of operation at a site to not make the chargers available after hours because they don't want to encourage people that aren't customers to be in those for liability reasons in the parking lot at night, you're in conflict with me as an asset owner because I need that asset utilization to be as high as possible. We wanna be in every vertical, so we're relevant to drivers, but we don't wanna be in conflict with the business model. We don't want it to be a vending machine for electrons exclusively.
Mm-hmm.
There are some scenarios where that's a fine thing, okay? In which case, our customers can use our technology, and they can make it a vending machine for electrons, and that's just fine. We don't wanna limit ourselves to that. It's the only way to be pervasive, we think, is to approach it the way we are.
Yeah. I wanna talk, I guess, expanding on, I guess, you'd say the competition. First of all, you know, you have the most scale, largest L2, one of the largest DC fast. How does that help you with the land and expand, you know, strategy of customers? Then on the competition side, like who do you view as the key competitors? I mean, what. Then maybe wrapping it up, why would they wanna choose ChargePoint over either a direct competitor or maybe even a different model?
Okay, The different model one is an easy one to, I think, answer simply.
Mm-hmm.
If the other models were more attractive than ours, they'd have our port growth.
Mm-hmm.
Pretty simple.
Yep.
Okay? 'Cause we report our port growth every quarter. That's activated ports under management, by the way, so that's not sold. It's when they're in the ground, fully constructed, commissioned, and activated. You're seeing basically our growth rate in arrears when you do that, when we report that number, because the sale of that unit happened months before because it's construction. You know, you have to get things in the ground. That's how I would answer that is, you know, if the other models were driving volume and were more attractive broadly, then they would have our port growth and we would have pivoted to that, right?
Okay.
that's why we didn't. Now, with respect to.
The direct competitors.
The direct is we want to be relevant to drivers, to create a network effect. Businesses look at ChargePoint and say, "I wanna put ChargePoint in 'cause I know it works. I know drivers understand it. I know it's integrated with in-dash navigation systems, auto OEM mobile apps. I can do my take-home fleets with it. I've got fuel card integration. We've already got fuel card integration. We're ecosystem integrated, Apple and CarPlay and Android Auto, Apple Maps and Google Maps integrated." I mean, just the numbers of integrations are broad. If you choose ChargePoint, I know it works with everything or as many things as possible. If I choose someone else, it probably works with only a subset of those things. I just don't want...
Charging in my parking lot is either an amenity or additive to my customer experience, but it is not my sole customer experience. I wanna make sure that every driver has the lowest friction experience. That's the network effect, is the more verticals we're in and the more use cases we cover, the more drivers say, "I just know what to do.
Mm-hmm.
the more the car-
Yeah.
already knows what to do. Like in the Mercedes-Benz case, it knows to reserve it and it knows to do what, you know, on a long trip, what to do. That is the driver right there, no pun intended. That is what drives the stickiness. That's what drives the competitive differentiation.
Yeah. Maybe just going a little deeper on that, and the questions we get a lot of times is what's differentiated about ChargePoint's offerings, which would be, you know, a software and hardware company. So at its core, and you kind of alluded to it earlier, like the broadness and the depth of the engagements. Any other examples of what can give, to give confidence that there's some really differentiated, you know, things under the hood?
Yeah. I mean, it's That would be a very... Man, that's the... How long have you got?
About nine minutes.
Yeah, exactly. you know, it's, it really I think at the end of the day, it's one cloud system and one set of hardware, one set of chargers and different, you know, kind of platform configurations that really can serve all verticals. I think that's the biggest differentiator. The feature set's super robust. We're down in the nitty-gritty of real supportability, real ability to do software integrations with ecosystem partners, et cetera. It is just so fluid a system with so many real-world features. The way I liken it is, if you look at a company like, say, Salesforce, and you're running your Salesforce on Salesforce, it's integrated with your ERP system.
There's 1 million tool providers out there that are Salesforce integrated, deal with your support stuff or with third parties that are dealing with support systems, et cetera. It's just integrated. If you went to even ChargePoint, we use Salesforce. If you went to our IT people or our sales ops people and you said, "We're going to extract that and change it," they're like, "Get out of town." It's glued into everything.
Yeah.
That's really what it is.
Okay.
with ChargePoint. It's glued into everything.
Yeah. No, that makes sense. Just wanna make that clear. Again, if anyone has any questions, please let me know. We're certainly happy to take them. You know, wanna pivot to one vertical in particular, and that's fleet. It's even in itself is a really broad term.
It's, yeah, it's got a lot of verticals.
It does, I guess, represent a unique opportunity set for ChargePoint.
Mm-hmm.
I think it's probably not well understood. There's multiple facets to it. Can you help us understand the kind of fleet applications you address and, you know, what are the main drivers of growth? I mean, especially, I mean, we're like at the cusp of, like, even, you know, commercial vehicles coming to market.
Yeah. I think, the easiest way to sum up fleet for investors is, it's vehicle limited, just like passenger car, the passenger car EV market was, you know, a few years ago.
Mm-hmm.
It's behind for a whole bunch of reasons I won't get into. It is the platform utilization is much higher in general than a passenger car that's only 4% utilized, you've got higher utilization, the TCO of electrifying is much better. My prediction is that even though it started later, it will get to substantively full electrification before we get all passenger cars to substantively full electrification. You probably got a ten-ish, maybe twelve-year stretch. If you look at a transit bus, for example, it lasts about 11 years, et cetera. You got about half of transit bus orders now are electric, and that's gonna flip to 100% electric pretty quickly.
Mm-hmm.
You've got 10 to 15 years, and that 10 to 15-year window is fully electrified because there's a smart buyer on the other side with a lot of analysis and a spreadsheet to turn green.
Mm-hmm.
It's going in all verticals. Light commercial is vehicle-limited because it uses passenger cars generally, pickup trucks, things like that. Pickup trucks are, by the way, half the fleet vehicles in the U.S.
Yeah, yeah.
You're vehicle limited there, but we're seeing big uptake there, especially with take-home fleets, sales, medical device sales people, general sales for delivery, et cetera. You got the mid-range delivery and logistics. That's electrifying as fast as it can. Super vehicle limited there. Just can't get enough of them. In medium and heavy, for construction, things like that, super vehicle limited. Transit buses are the only segment that really has some maturity. You know, you're on, in many cases, the second, if not the third platform.
Mm-hmm.
Right? you're seeing a pretty balance between Europe and North America with respect to penetration there. transit buses is the most mature sub-vertical, but it's one of the smaller sub-verticals.
Mm-hmm, mm-hmm.
As these others mature, that, you know, that business is gonna grow disproportionately fast on a percentage basis relative to our commercial business because it will electrify so fast.
Yeah, yeah. Before the holidays, maybe some investors missed it, but you know, United States Postal Service talked about basically, you know, pledging to move to all electric. I'm not sure you guys are involved, but I mean, how could ChargePoint potentially benefit from like a huge fleet opportunity like that?
I mean, it's pretty obvious, right? I mean, that's the perfect application for electric. They don't go very far. you know, so, platform life's pretty long, but you get it even longer. It's quiet. That's a perfect use case for our depot management software in terms of how we manage charger scheduling to optimize cost, into the vehicle. The dwell time gives you a lot of flexibility there, so you can software optimize it. A lot of our, you know, kind of vehicle monitoring and management services that we do either natively or in conjunction with telematics partners all play straight in to an example like that.
Okay.
We'd love to go postal.
Okay. Well, we'll stay,
Had to throw that in there.
We'll see if there's any announcements like Mercedes-Benz. Just I guess one thing just coming back to fleet and maybe even broadly, and you mentioned it was vehicle limited. One of the things we hear about more and more is grid limitations. I mean, ChargePoint's not solving that problem, but I guess a lot of things have to happen to improve the reliability to even put chargers in the ground for these really heavy-duty use cases. Any thoughts or insights on how that plays out over the next few years?
Well, okay, a couple data points. First of all, what you're seeing in terms of our D.C. port growth, which we report separately.
Yeah
... every quarter, is again a function of what we sold in arrears.
Mm-hmm, mm-hmm.
The time delay on that because of the construction, the construction delays associated with everything from just bigger construction projects along with utility upgrades, et cetera, give you potentially a longer delay there depending on how much power you want, right? If it's a high-powered passenger car site, sure, it's gonna take longer to get the utility infrastructure. The key is to have a continuous pipeline, so your business doesn't stall.
Mm-hmm.
What you're just looking at is you're looking at a delay in the growth curve, but the growth curve, you're feeding the top of the funnel with your, with your new sales rate and your new customer acquisition rate. You're just seeing a delay there. It doesn't hurt the continuity of the business.
Mm-hmm.
It's only one segment, it's only 10% of the fuel's gonna go in that way. Look at the percentage of DC fast ports as a percentage of the total number of ports on our network, you know. In the 10%-15% range is where we think it's gonna settle out for the foreseeable future. While they're disproportionately higher revenue-
Mm-hmm
they're disproportionately lower port count. We've got a very diverse business. Yeah, there's gonna be some natural buffeting in how long it takes utilities to get more labor and, you know, some grid reorganization, but it's a slow-moving variable. We're so vehicle limited right now. This isn't gonna happen. This is 20, 25-year phenomena. This is not a, "Oh, we're done with solving climate change from a transportation perspective in 5 years. Okay, now let's move on." We're gonna be having this fireside chat till we retire.
Yeah. Yeah, absolutely.
He's really looking forward to that, by the way.
Yeah. Well, kind of coming back to the start, and you kind of talked about it. You know, you're showing this sort of almost nearly double year-on-year growth. On the same token, you're starting to tighten operating expenses. How do you balance that without compromising the growth as you look ahead and plan your business?
We haven't done anything structural OpEx-wise. There's nothing unnatural. It's what we've said, and just, you know, being very consistent with what we have said on earnings calls over the last two years of being a public company. We were spending ahead because the market is vehicle limited, but the expense to go after a vertical or a geography doesn't change. If your TAM is 100,000 cars, I made the number up, right? If it's 100,000 cars or if it's 10 million cars, the cost to develop a product, to sell it, to build the channel, to build all the collateral material and all the supporting infrastructure around that is about the same.
Mm-hmm.
It's not that different. We were spending way in advance of where vehicles were, knowing that we had to be there and that there was a long gestation period. Why you're seeing a flattening, it's not flat, but why you're seeing the slope change is that we've finally gotten to the point where we put enough infrastructure into the company to be able to handle our current scope.
Mm-hmm. Mm-hmm.
We're not saying that the operating expense isn't gonna grow. It's just growth slope is going to be much, much less than the growth slope of revenue.
Mm-hmm.
We've always forecasted that. There is no fundamental strategic change in how we're managing operating expenses.
Yeah. Well, with that, we're out of time. We're looking forward to following the progress here this year, your new fiscal year as well. Thanks for joining us again.
Thank you.
Appreciate it. Thanks.
Very much.
Yeah. That's good. Thanks.
Thanks.
Yeah.