As the electrification of the Auto Industry experiences its share of fits and starts, the eventual industry-shift from the Internal Combustion Engine (ICE) to the EV looks virtually guaranteed. Whether the transition is fully-resolved by 2030 or beyond, the major obstacles for Consumer Adoption of the EV – Price & Recharging Accessibility – appear to be fading a little more every day.
As one company, EVgo Inc. (EVGO) likes to proclaim:
EVgo, Inc. (EVGO) owns and operates a DC Fast-Charging Network for EVs in the US. The company offers:
EVgo’s business model is primarily focused on the strongest-growing segment of the EV Charging Market, DC Fast-Charging. The company generates revenue every time a Customer drives up and charges an EV on their network.
As the average price of a Battery-Powered EV (BEV) has come down in recent years, another major barrier for Consumers has been access to rapid recharging stations for their EVs. While many owners charge their EVs at home, for non-suburbanites living in cities, multi-unit apartment dwellers, or long-distance travelers, convenient access to DC Fast-Charging is paramount.
As such, EVgo has built out a national network of 1,000+ DC Fast-Charging locations in over 35 states to the extent that they believe 145M Americans are now within a 10-mile drive to a charging station.
Again, keep in mind that EVgo collaborates with automakers to ensure their DCFC Chargers are “OEM-agnostic,” meaning there is interoperability between their equipment and all EV models. The company also employs a proprietary, AI-driven algorithmic approach when considering new locations in its DCFC Network.
In doing so, EVgo considers various factors/consumer habits like EV Adoption Rates, Demographic & Driving Characteristics, Utility Rates and Incentive Availability before establishing a presence in a geographic area. This expert selection-process goes a long way in ensuring high-utilization rates at every station and a high ROI to boot.
EVgo eXtend is a recent expansion that leverages the company’s DCFC expertise to third-party brands looking to build out charging sites or charging networks under their own brand name. In these instances, EVgo offers Design & Construction Services, Operational Support, and Software Integration Solutions to the Company who purchases the finished charging assets from EVgo and retains ownership thereafter.
This is a slightly different business model, which offers more attractive margins and no CapEx, thus adding a second diversified revenue stream for the company.
EVgo’s first major project for eXtend was announced on July 14, 2022, a collaboration w General Motors (GM) and Pilot Company, to build 2,000 Charging Stalls at Pilot & Flying J stations in more than 40 states. A Big Three auto company choosing EVgo as its solution provider demonstrates the respect its core-competencies are garnering in the industry. As CEO Cathy Zoi stated:
“This particular EVgo eXtend rollout demonstrates the versatile pathways we offer collaborators to achieve their electrification goals and expand charging options for EVgo drivers…
EVgo eXtend allows EVgo to leverage its core competencies to expand its network footprint to places where EV adoption is still emerging by working with third-party owners.
This unlocks another avenue for growth and value creation while extending EVgo's geographic footprint as well.”
On April 30, Elon Musk shocked the EV Industry by announcing a total elimination of the company’s Supercharger Network Team – 500 jobs – in an effort to reduce costs at Tesla. This was very sudden and unexpected as the Supercharger Network is the largest fast-charging network in the US, numbering 2,261 stations nationwide.
Furthermore, nearly every other EV Maker in the US had previously signed up with the Supercharger Network and agreed to adopt Tesla’s North American Charging Standard (NACS) plug. This concerted move was an effort to sway Consumers that universal availability/accessibility for EV Charging not only exists for ALL EVs NOW but will also continue to improve. Talk about dropping a bomb!
In a subsequent note, Musk allayed fears a bit by saying Tesla would still support/add to the Supercharger Network but at “a slower pace for new locations and more focus on 100% uptime and expansion (adding stalls) of existing locations.”
Tesla’s cost-cutting move is an incredible gift to EVgo (and its competitors) as it creates a void for them to fill in terms of DC Fast-Charging expansion across the country. There is already fervent demand for fast-charging as EV owners multiply exponentially.
An article in Government Technology, on July 19, speculated that “at the current pace, public fast-charging sites will outnumber gas stations in the U.S. in about eight years [and that] charger momentum is only expected to accelerate.” EVgo’s Executive Vice President, Sara Rafalson, was also quoted saying:
“We’re seeing demand for fast charging skyrocket. We’re continuing to build bigger and bigger stations because we need to keep up with that demand.”
On May 7, EVgo reported a solid $0.05 beat on EPS, with impressive Revenue Growth of 118% YoY.
Highlights from the Q1 Report included:
To this, CEO Badar Khan commented:
“EVgo’s business continues to grow and achieve record results, demonstrating the strength of our business model of owning and operating a fast-charging network as more Americans drive electric vehicles.
We continue to build new stalls across the US and see throughput growth outpacing growth of EVs in operation.
EVgo’s compelling unit economics, operating leverage, along with the tailwind of long-term EV adoption, gives us confidence that we will achieve adjusted EBITDA breakeven in 2025 and create significant shareholder value.”
EVgo is a forgotten stock. In the midst of volatile gas prices and inflationary worries the past few years, the EV Landscape has changed remarkably. As the Average Price of a Battery-Powered EV (BEV) has trended down in recent years and is now approaching parity with All Fuel Type Vehicles, Consumers are warming up to the idea of EVs. Take a look:
Now refer back to the IT’S A MATTER OF WHEN slide on Page 1. BEVs grew 39% in 2023 vs 2022. Importantly, non-Tesla BEVs grew 66% in ‘23 reflecting broader consumer adoption towards all EV-makers’ models, NOT just traditional favorite, Tesla. On the call, CEO Badar Kahn commented on the Affordability/Adoption fulcrum saying:
“If Tesla's decision to halt further growth of charging stations was designed to allow them to focus on their automotive business and particularly more affordable vehicles then this will be a positive for EV adoption.
We know from experience both here in the US as well as in other countries that affordability is a key driver of mass adoption.”
Momentum in the EV Industry is undeniable. EVgo’s Revenue tripled in 2023 and is projected to grow 54% in CY24. Given our deep-dive into the name and what we see as an upcoming Seminal Inflection Point, FY24 numbers seem too low.
Importantly, Positive EBITDA is forthcoming in 2025. We believe EVGo may achieve it as early as Q4 of this year. The company has already gone out and provided a blueprint to $180-$200M in EBITDA in 3-5 years. We think it happens closer to three.
EVgo is enjoying incredibly strong tailwinds. On the call, Management informed investors:
“It's also worth remembering that the number of BEVs sold this quarter is roughly equal to what was sold in all of 2020.”
Now take a look at EVgo’s compelling Unit Economics:
Evgo added 250 New Stalls in Q1 for an overall Total of 3,240 Operational Stalls. Management expects to add at a pace of 800-900 new stalls this year and believes they can accelerate the rate of installs in the next few years.
Now, if we assume EVgo ends the year at 3800 stalls and can add 900 a year, for the next 3 years, it would have 6500 stalls in the network by 2027, perhaps more if all goes well.
At 6500 stalls in 2027, were EVgo able to move the Annual Cash Flow needle to $35k/per stall, the company will be at $157.M in EBITDA, after subtracting $70M in Costs. In a Bull Scenario, EVgo has 7000 stalls by end-2027 and $36k in Annual Cash Flow/per stall, which would get it to $182M after costs. In an Uber Bull Scenario, EVgo has 7000 stalls at $37.5k/per stall, yielding $192.5M EBITDA after costs.
Management took the time to go in-depth on the economics during the call. As none of us here at TTI are Electrical Engineers, their explanation was very helpful:
Taken together, we see EVgo on its way to $1B in Revenue by 2027. The Top Line growth we see coming should catalyze major leverage in the company’s EBITDA and Free Cash Flow generation at that point. When this occurs, a major re-rating of the stock is likely. Why wouldn’t it be?
With investors likely looking at close to $200M EBITDA in 2027, a 20x Forward EBITDA multiple brings EVgo to a $4B Market Cap, or $12+.
Given the longer-term scope of our expectations, our plan is to initiate a small position in EVGO and add to it on pullbacks to the 20day EMA. As EVgo likes to say, “It’s a matter of when, not if,” but we do expect fits and starts as the transition to EVs takes effect.
As such, we are attaching a Conviction Level of 7.
STOP LOSS: 200day SMA or $2.60.
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Disclosure: We are long EVGO stock. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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