Patents: Peering Into the Future of EV Charging Businesses

ChargePoint (CHPT) went public in March, becoming the second listed electric vehicle (EV) charging company in the US. Before ChargePoint's listing, the firm spent a decade building its charging platform, which now hosts 100 million chargers in the field, a cloud-based subscription platform, and partnerships with major retailers.

The company went public right at a (projected) inflection point. Annual revenues today run at $160 million, with 22% gross margins and operating losses. Management hopes to scale their charging network to 425,000 by 2026, elevating revenues to $2 billion per year while guiding gross margins to 40+% as a result of economies of scale and software revenues.

A fundamental assumption necessary to audit management's growth projections is how much market share the company can maintain. Today, ChargePoint owns upwards of 70% of the L2 EV charging infrastructure in the US. The firm's patent portfolio provides some interesting context to assess potential market share and may shed light on some of the tools at management's disposal to hold off competitors seeking to gain market share.

A review of ChargePoint's patent portfolio yields two initial conclusions:

There is no explicit technology edge anywhere in the EV charging network operator industry. One can envision a future in which a company figures out a way to charge electric vehicles faster without compromising safety, but successful R&D today (crudely measured by successfully filed patents) suggests that is not the primary focus of current efforts at network operators. Our review of patents suggests a limited focus on charger improvements, with a preference for investment related to ancillary services development and software improvements. In short, investment in fundamental EV charging technology does not appear to be a priority.

Despite this, in my opinion, industrywide shortcoming of R&D focus, ChargePoint does hold the industry's only meaningful patent portfolio. 50% of ChargePoint's 40 patents cover their platform's "look and feel" and user interface. Where there are technology-focused patents, they tend to be geared towards safety and reliability features, which are undoubtedly important. Based on my review, though, I do not expect a step-change improvement in the ability to charge an electric vehicle coming from the R&D departments of the current batch of charging companies.

ChargePoint has some surprising patents that appear both broad and critical to even the most basic functioning of a network of chargers. Whether intentional or not, the intellectual property that ChargePoint is going after focuses on developing and nurturing a network of users. I highlight three examples below:

1. Configurable Visibility of Electric Vehicle Charging Stations: A utility patent (not just design patent) for an interface that allows charging station operators to put their station on a map. This is a functionality one expects in a mobile application today. Uber/Lyft don't function without mobile mapping functions; the same goes for food delivery services. More importantly, it is hard to envision a successful charging company that does not have/support a mobile mapping function as a critical feature in their business model.
2. Network-Controlled Charging System for Electric Vehicles: Charging firms appear to believe that communication networks will be an essential part of electric vehicle charging networks, and this may turn out to be the case. Management believes systems will need to integrate wide area networks, local networks, and shorter-range devices like RFID's. This patent is for smart electric outlets connected to a wireless network that allows operators to manage and automate charging preferences. You may want to only charge during periods of low rates; you may choose to sell power back to the grid under certain conditions, you may need to manage power output during periods of grid stress or congestion. The patent is relatively broad and void of details, but the functionality might be critical for the successful rollout of ancillary services and the value-added management of charging networks.
3. Connecting Electric Vehicle Operators and Organizations: A utility patent for a charging network to provide configuration services, authorization services, billing services, and usage reporting services to firms so they can manage charging networks. This seems a critical feature to add to your network should ancillary services related to fleet management play a role in future business plans.

If enforceable, this set of patents governing end customer options and commercial partnerships point to ChargePoint creating a large and sticky customer base while preventing competitors from doing the same. Admittedly, I do not have a good read on the boundaries and enforceability of the patents, nor do I have any insight into management's willingness to utilize their patent portfolio to maintain market share.

The sub-optimal unit economics of charging infrastructure today may be a head-fake for the ultimate value capture that ChargePoint could command a decade from now. It would not be the first time a company utilized its captive customer base to build value-added products that exist on top of its network. It's work keeping an eye on the regulatory response function in this industry as it matures.

Note: I would encourage readers who have a legal perspective on evaluating the enforceability of patents to reach out. Thanks to Rob West at Thunder Said Energy for drawing our attention to ChargePoint patents. If you are not familiar with their work, I would encourage readers to learn more here.