The second-quarter financial results of EV charging-station owner EVgo (NASDAQ:EVGO) showed that the firm is growing extremely rapidly. Going forward, the company’s sales and EBITDA are likely to climb tremendously. Among the positive catalysts that will probably produce the latter scenario are higher utilization of the firm’s current chargers, the increasing profitability of its charging stations, its relatively stable fixed costs, rising demand from the rideshare and autonomous vehicle sector, the increased EV sales of General Motors (GM) and EVgo’s deployment of NACS connectors later this year. These connectors will likely result in the company serving many more Tesla (TSLA) drivers than presently. Also, importantly, despite widespread skepticism about the growth of the EV sector, data and projections indicate that EV sales are growing meaningfully and are likely to continue to do so for the foreseeable future.
Finally, there are indications that EVGO stock could be in the initial stages of a powerful short squeeze.
Extremely Rapid Growth And A Path To Profits
In Q2, EVgo’s charging network revenue soared 146% versus the same period a year earlier to $36.4 million, while network throughput, representing the volume of electricity that its chargers provided, increased an even more impressive 164% YOY. EVgo disseminated 66 gigawatt-hours through its network last quarter. On the top line, its overall sales increased 32% YOY to $66.6 million.
EVgo also added more than 131,000 new users last quarter, bringing its overall user base to more than 1 million. Finally, its operations generated $7.6 million of cash last quarter, versus cash burn of $3.2 million in the same period of 2023.
Additionally, the firm’s charging network is becoming more profitable, as its charging network margin climbed to 34.2% last quarter versus 19.1% in Q2 of 2023. Charging network margin is defined as its charging network revenue less the cost of sales of its charging network. For the first half of the year, its charging network margin came in at 36.8%, up from 20.4% in the first six months of 2023.
CEO Badar Khan noted on the firm’s earnings call that the company’s cash flow at the store level had turned positive at the end of 2023, and he indicated that cash flow per store continued to climb in the first half of 2024. According to the CEO, if the firm’s cash flow and the number of chargers it has deployed continue to grow at their current rates, then its adjusted EBITDA will break even in 2025. Given the EV sector’s positive catalysts that I’ll detail below, the latter scenario is highly likely to materialize.
And in general, since EVgo’s charging network margin is now positive and is moving meaningfully higher, while its overall revenue is increasing rapidly and its fixed costs are changing little (its operating expenses dropped 1% YOY to $38.785 million in Q2, and they declined to $78 million in the first six months of 2024 versus $81.79 million in the same period a year earlier), it clearly is headed towards profitability in the longer term.
Rideshare, Autonomous Vehicles, And NACS Connectors
Khan reported that the “Rideshare (sector) is increasingly electrifying,” and noted that rideshare drivers tend to charge their EVs at public chargers rather than at home. I believe that the CEO’s assertions are accurate.
First, Uber (UBER), the runaway leader of the rideshare sector in the U.S., has determined that it will be “a zero-emission platform in US and Canadian cities.” And the company’s drivers “can earn an extra $210 after completing 200 eligible rides in an EV every 30 days through the end of 2024. ” As a result, many of the company’s drivers will obtain EVs for their work on behalf of Uber. What’s more, since rideshare drivers travel extremely long distances each day, it’s impractical for them to always charge at home, so they will have to utilize public chargers to a large extent.
Khan added that “Autonomous vehicles are a major long-term driver, as these cars will be electric and will charge at either public or dedicated” chargers. Indeed, GM’s Cruise unit and Waymo both exclusively use EVs. And both businesses are expanding significantly, as Cruise on August 22 disclosed that it would start offering robotaxi rides on Uber next year while Waymo noted that it now provides over 100,000 paid robotaxi rides weekly, double the levels that it had disclosed in May.
Meanwhile, EVgo disclosed in May that it would begin providing NACS connectors on its charging network in 2024. Since Tesla uses the NACS standard, the connectors will presumably allow Tesla’s EVs to utilize EVgo’s network without employing the adapter that is currently required.
Tesla drivers currently represent a “minimal” share of the company’s revenue, according to Khan. EVgo’s deployment of the NACS connectors is likely to tremendously increase the revenue that the firm obtains from these drivers, and over time will probably positively move the needle for EVgo’s financial results and EVGO stock.
GM And The EV Sector
GM is partnering with EVgo and convenience store operator Pilot Company to build as many as 500 charging stations in the U.S. Under the deal, EVgo is operating the stations. Since GM is partnering on the initiative, it will probably heavily promote the stations among the buyers and leasers of its EVs. And with GM introducing a meaningful number of new EV models, last quarter its EV deliveries surged 40% versus the same period a year earlier to 21,930 EVs. And with the automaker slated to reintroduce its popular, low-cost Bolt EV in 2025, the growth of its EV sales could tremendously accelerate next year.
It’s become quite fashionable to denigrate the outlook of the EV sector. But overall U.S. EV sales last quarter climbed 23% versus the previous quarter and 11% versus the same period a year earlier to a record 320,463 units, according to Kelley Blue Book. What’s more, Tesla’s market share fell below 50% for the first time, indicating that the EV sales of many other automakers are rapidly climbing. EVgo should benefit from the latter trend, since Tesla’s competitors do not boast the huge charging network that Elon Musk’s company offers.
And Bloomberg expects global EV adoption to continue to climb as technology improves, and battery prices keep dropping. In June, the news service predicted that global EV sales would rise from about 15 million this year to roughly 20 million in 2025 to over 30 million in 2027.
A Potential Short Squeeze
A large 28.36% of the shares of EVGO stock are being sold short. The name could be starting to undergo a short squeeze as its share price jumped from $3.74 at the market close on August 22 to as high as $4.47 in morning trading on August 26. Moreover, trading volume came in at 5.6 million shares on August 23, versus its average volume over the last three months of 3.35 million, and Seeking Alpha gives it a Momentum Score of A+.
Valuation And Risks
EVGO stock is changing hands at a forward price-to-sales ratio of 1.77 times. That’s slightly above the levels of its peers ChargePoint (CHPT) and Blink (BLNK) which have forward P/S sales ratios of 1.55 times and 1.45 times, respectively. But EVgo’s revenue grew much faster than ChargePoint last year, while its sales are much higher than that of Blink. Therefore, I view EVgo’s valuation premium to its two competitors as justified.
Turning to risks, EVgo would be meaningfully hurt by a slowdown of the growth of EV sales growth due to lower oil prices, higher interest rates, and/or increases in battery prices. The company could also be significantly damaged if GM decides to terminate its alliance with the firm.
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