2023-04-16 08:35:50 ET
Summary
- The business model needs to be put to the test over time, it has a history of operating losses.
- The growth rate of EV charging stations may not be in a linear relationship with the EV sales.
- In the FY2022 10-K report, EVgo has identified material weaknesses in its internal control over the financial reporting, which may impact investors’ confidence in the financial numbers.
- I recommend monitoring the company's strategic growth plan and ability to adapt to changes in the market.
Thesis
EVgo (EVGO) is one of the leading players in the EV charging sector. The company has been increasing the number of charging stalls across the United States and is well positioned in today’s adaptation of the EV.
Founded in 2010, the company is in the early stage of its business and has a history of operating losses. Their business model must be put to the test over time, and the company should be creative and have an ability to continuously generate a steady, meaningful stream of revenue. As the EV adoption rate is trending up, its success will depend on its adaptability to changes in the market and develop new products and services to cater to the needs of the industry.
In the FY2022 audit report, the company has also identified material weaknesses in its internal control over the financial reporting. Taking into account their recent fast growth and financing position, there is a certain risk that weak internal control may produce sudden negative news or correction on the company’s financials.
Investors should monitor the company's strategic growth plan and its position in the market. For now, I am neutral to this company.
Company Overview
EVgo is a leading electric vehicle ((EV)) charging network in the United States that provides fast and reliable charging solutions for EV drivers. Established in 2010, the company has built an extensive network of over 2,800 fast-charging stations across 34 states, serving a growing customer base of more than 300,000 users.
The business model is based on providing convenient and accessible charging options to EV drivers, with a focus on high-quality service and reliability. The company offers a diverse range of charging plans and pricing options to meet the needs of its customer base, such as individuals, fleet operators, and both public and private organizations. The company has established partnerships with automakers – such as BMW (BMWYY) and GM (GM), utilities, and real estate developers to broaden its infrastructure and to create seamless charging experience for drivers.
As the EV market continues to grow, EVgo faces competition from other charging network providers such as ChargePoint (CHPT), Electrify America, and Tesla (TSLA). These companies offer similar charging solutions and services, but each has its own unique business model and value proposition. On top of that, traditional gas station companies like BP and Shell are also entering the EV charging market, presenting new competitive challenges for EVgo and other charging network providers.
EVgo is one of the major players in the EV charging market. With a general trend to increase EV adoption, EVgo is in the right industry at the right time. As the company is still in its early-stage, investors should study the company’s strategy and growth direction to make informed investment decisions.
1. EVgo business model must be tested, and financial performance has yet to turn positive.
Being a company in its early-stage growth stage, EVgo has not achieved a positive financial performance turnaround. EVgo added around 670 stalls in 2022 and has provided guidance to add another 600 to 1200 stalls in 2023. As such, EVgo is expected to spend more capital in the near term as the company ramps up more fast charging stalls
For the full FY2022, revenue was $54.6 million, a 146% Y-o-y increase. Revenue growth was mainly driven by retail charging, regulatory credit sales, and ancillary revenues. The EV industry revenue is also heavily dependent on the government and other entities’ rebates, tax credits and incentives. Rebates for EV charging stations can help reduce the upfront costs of installing charging infrastructure, making it more accessible and affordable for businesses and consumers. In the United States, many states offer rebates for EV charging stations through their Clean Vehicle or Clean Energy programs.
The future of EV incentives and rebates is not guaranteed, as it ultimately depends on the political and economic landscape in each jurisdiction. In some cases, these incentives are designed to phase out as the market for EVs and EV charging infrastructure matures and becomes more self-sustaining.
Then what would be the tipping point for the company to be creative and have a profit-making business model? As EV become more widespread, there might be lesser credits given by government. If we balance off that into financials, it might be hard for the company to reach to point where it creates the meaningful surpluses over long-term.
There might have been influx of investment capital from the emergence of Tesla as a major trend of EV, and stocks that are EV-related experienced a stocks boom. I view that we should not expect that those stocks could go further up as EVs takes more market shares – simply because the economy of scale or margin per one stall will not create enough profit to the company.
As such, EVgo will be put to test on its ability to continuously generate a steady, meaningful stream of revenue.
2. The growth rate of EV charging station may not be in a linear relationship with the EV sales.
It is important to note that the growth of the electric vehicle market may not directly correspond to the revenue generated by electric vehicle infrastructure companies like EVgo. While EV sales are one of the drivers of infrastructure development, there are other factors that can impact the installation pace – for example, the government policies and incentive programs, EVgo’s technical expertise and the demand for EV charging stations.
In the Bloomberg NEF 2022 report ( EVO 2022 ), it predicts that EVs could account for 23% of the new passenger vehicle sales by 2025, rising from just under 10% in 2021. By 2025, there will be 77 million passenger EV, that represents 6% of the cars on the road.
The overall trend is toward increased adoption of EVs as they become more affordable, practical, and attractive to consumers. EVgo is still in the early stage and there is a huge demand and opportunity in the future. Its success will depend on its ability to adapt to changes in the market and develop new products and services that meet the evolving needs of the industry. Investors should closely monitor EVgo’s strategy and progress in this area.
3. The company has identified material weakness in its internal control.
In another vein, in the FY2022 10-K report , EVgo has identified material weaknesses in its internal control over financial reporting. particularly in its ability to effectively evaluate risks and ensure the reliability of information used in financial reporting. EVgo is in the initial stage of its business and must prove that its business model is working and at the minimum, let investors be confident in their financial numbers.
Although EVgo is committed to remediate the material weakness, it takes time to train the right people and to instill a proper process internally. Given the recent fast growth and the huge influx of cash amounting to $594 million during the 2021 financing activities, there is a certain risk that weakness in internal control may produce sudden negative news or correction on the company’s financials.
Investors should carefully consider the risks and potential impacts the weak internal control before making investment decisions.
Valuation and opinion
My valuation for EVGO stock is based on EVGO’s financial statement and earnings forecast, and the data is driven by Seeking Alpha data. ( EVgo, Inc. Earnings Estimates )
Author's financial model
EVgo is a major player in the EV charging sector with a growing network of charging stalls across the US. Despite being well positioned to benefit from the increasing adoption of EV, EVgo needs to test its business model by showing improved financial performance, address weaknesses in its internal control, and demonstrate its ability to adapt to changes in the market. Investors should monitor the company's strategic growth plan to make informed investment decisions.
For now, it is best to remain neutral towards the company.
For further details see:
EVgo: The Uncertainties Of Investing In An Early-Stage Company