EVgo Stock: Charging The EV Surge (NASDAQ:EVGO)

You would be heavily mistaken to take the year-to-date volatility of EVgo’s (NASDAQ:EVGO) common shares as a sign of a faltering TAM or a management team that’s not executing properly. The company is down 29% from the start of the year as the market turned sour on riskier growth assets on the back of a rising interest rate environment. But this has not stopped EVgo from aggressively chasing the large opportunities posed by the EV surge.

Climate economy bears would be somewhat right to state that there is far too much investor enthusiasm in companies like EVgo which once reached a valuation of just under $6 billion on unfettered hype around the growth of EVs. But the hype is real and it would be hard to characterize the current growth rates as anything other than material. Indeed, in 2012 just 120,000 EVs were sold globally. Last year saw this sales figure realized on weekly basis with 10% of all cars sold in 2021 being electric, 4x the market share in 2019. Gas and diesel-powered vehicle sales are already flatlining in numerous developed nations around the world with the shift towards EVs still in a relatively early stage in the United States. Just 1% of all vehicles on US roads are currently electric but this number is set to materially change in the decade ahead.

The secular shift to EVs is now fully embedded in the post-pandemic economic zeitgeist of most developed nations racing to combat anthropogenic climate change. This saw the US enact the inflation Reduction Act which will allocate $370 billion to decarbonization initiatives for a decade from next year. EVs are set to receive a $7,500 tax credit. Globally, EVs are forecasted to grow to at least 26.8 million by 2030, up from 6.6 million in 2021. The IRA aims to create the conditions for 50% of all new vehicles sold to be EVs or plug-in hybrid electric models by 2030. It will also aim to build out at least 500,000 new EV charging stations by this date.

Charging EVs Could Eventually Be Lucrative As Revenue Growth Maintains Strong Pace

Bulls should consider this, EV uptake was once extremely anemic with the cars broadly associated with a fringe subset of the population and certainly remained out of reach for most people. Tesla’s (TSLA) 2006 “Secret” Masterplan actually remained a secret for a while because not many people outside of its ardent supporters cared. This kept the EV economy as an insignificant part of global automotive sales, but we are all now living through the most significant generational shift in passenger transport as EV adoption begins its golden age under the sun.

Los Angeles-based EVgo’s TAM is fast expanding which places the expansion of its charging points on a strong upward adoption ramp. The company last reported earnings for its fiscal 2022 second quarter saw revenue come in at $9.1 million. This was an increase of just under 90% from the year-ago quarter but a miss of $1.69 million on consensus estimates and came as the company notched new partnerships. This most recently saw a tie-up with MHX, a Californian logistics operator. EVgo will support MHX’s fleet electrification project with the deployment of its 350kW fast chargers.

Network throughput reached 10.1 GWh, an increase of 66% year-over-year with the company ending the quarter with 2,397 stalls in operation or under construction. This growth drove a cash burn from operations of $18.5 million, up from a cash burn of $9.1 million in the year-ago quarter. But EVgo held cash and equivalents of $344 million at the end of the quarter. This is ample liquidity to see it through what will likely be more quarters of cash-burning growth. The early stage of the EV surge for charging companies will be characterized by extensive capital expenditure to land grab viable locations that increase the visibility of their chargers and render the most value for their customers. Hence, I expect EVgo to continue to realize losses for the foreseeable future.

Riding The EV Surge To New Records

With the company guiding for full-year 2022 revenue of not more than $55 million, its price-to-fiscal 2022 sales multiple stands at 36x. A tough and extremely high valuation especially against a stock market crash. But from Tesla to Lucid Motors (LCID) EV sales are surging and EVgo stands to ride a fast-accelerating market for EVs to new highs.

As these become more prevalent on US roads, demand for charging will rise in parallel. This has set the conditions for EVgo to be a pick-and-shovel play on EVs. Bears would be right to say that shares are far too expensive with a multiple that oddly stands above SaaS companies. They’re broadly right. An investment in EVgo remains far too risky especially as the stock market is expected to experience more volatility in the near term.