Shares of ChargePoint Holdings (CHPT 17.29%), the world’s largest independent charging network for electric vehicles (EVs), were rallying today in response to the Federal Reserve’s interest rate announcement yesterday, trending with other beaten-down stocks that stand to benefit from lower interest rates and the jolt they are expected to give to the economy.
As of 11:48 a.m. ET Thursday, ChargePoint stock was up 18.5%.
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Saved by the Fed
There was no major news on ChargePoint today, but yesterday’s rate decision from the Fed was enough to push the stock up by double digits. The central bank did not adjust interest rates and indicated in its forecast that it expected three cuts to the fed funds rate, lowering the benchmark rate from the current 5.25%-to-5.5% range to 4.5% to 4.75% by the end of next year.
ChargePoint has struggled badly this year with slowing demand for EVs, macro challenges, and a threat from Tesla as a number of EV makers scheme to switch to Tesla’s North American Charging Standard (NACS), forcing ChargePoint to alter.
The company is struggling on multiple fronts as revenue fell 12% to $110 million in the third quarter and a loss of $158.2 million under generally accepted accounting principles (GAAP).
ChargePoint also has nearly $300 million in debt on its balance sheet, though that is at a fixed rate, making it less sensitive to fluctuations in benchmark interest rates. However, if the company continues to lose money, it might need to tap the debt markets again.
Demand for EVs and the overall health of the economy are sensitive to interest rates as most car buyers use financing to purchase vehicles.
What’s next for ChargePoint?
The Fed’s forecast for lower interest rates shouldn’t do much to affect ChargePoint’s business directly, but it is breathing new life into the stock. The company is under the guidance of a new management team as its CEO and chief financial officer recently departed and the board of directors named Rick Wilmer as its new CEO.
There’s no shortage of challenges facing Wilmer as he aims to deliver positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the fourth quarter of next year, but stronger EV demand would help. Still, investors should expect ChargePoint’s volatility to continue as the business needs a lot of work to reach viability.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
