EVgo, Inc. (NASDAQ:EVGO) operates a direct current (DC) fast-charging network for electric vehicles (EVs) in the United States. The focus is on fast chargers, which gives it a different business strategy than its competitors. Is this a smart move to gain an economic moat in the race towards electrification of mobility? It might be reflected in the price of EVGO stock.
EVgo went public in summer 2021 after it and Climate Change Crisis Real Impact I Acquisition Corp, a special purpose acquisition company (SPAC), finalized their merger. Year-to-date, shares of EVgo have outperformed the Nasdaq with gains of 6% versus losses of approximately 15%. This is due to a 1-month rally of nearly 38% for EVGO stock, an impressive trend. Will it last?
The answer to whether this stock price rally for EVgo will last or fade depends mostly on the upcoming earnings, but for now there is plenty of news to focus on. Most of it is positive, but there is an important note about the latest earnings report that should raise concerns.
EVgo’s Chargers Are Best in the Business For a Price
Investors and drivers of electric vehicles will like the latest statement from EVgo’s website: “EVgo is the nation’s largest public fast charging network for electric vehicles, and the first to be powered by 100% renewable energy. With more than 800 fast charging locations, EVgo’s charging network serves over 68 metropolitan areas across 35 states, owns and operates the most public fast charging locations in the U.S. and serves more than 310,000 customer accounts.”
EVgo’s biggest advantage is its DC charging network. DC charging is essentially an improved version of regular charging, compared to AC charging. DC charging essentially skips the middleman, in charging the charger, and provides power directly to the battery. EV charging is broken up into three levels: Level 1, Level 2 and Level 3. Level 3 EV charging includes DC charging and Tesla’s (NASDAQ:TSLA) superchargers.
EVgo with its DC charging network wants to build not only a brand name, but a strong marketing message by offering convenience with quick charging times. Why spend hours to charge an electric vehicle when you can spend minutes? It solves one of the biggest barriers to EV adoption.
EVgo also invests a lot in the idea of sustainability. With a commitment to protect the environment, they say they have “been the only EV charging network powered by 100% renewable energy” since 2019. This is a very clever and effective way to build a brand name that supports clean energy, and could turn out to be a very strategic point of differentiation compared to other EV charging companies. In business, any unique key points can add sustainable and incremental value, and attract a loyal audience.
The one sticking point I see with EVgo’s charging system is the associated costs. DC fast chargers are the most expensive chargers to use compared to the other levels of EV charging.
EVgo has to solve two problems to become a successful company. First is to find a way to turn the large capital expenditures associated with infrastructure and installation expenses into profits. Second is to convince EV owners that the extra cost of using its DC fast chargers compared to other slower chargers is worth it — not one time, but repeatedly — to generate recurring revenue.
Smart Marketing Initiatives
EVgo has announced several smart marketing initiatives. For instance, it formed a commercial agreement with Toyota (NYSE:TM) so that customers of its new bZ4X battery-electric SUV receive one year of complimentary charging from EVgo’s network.
Then Subaru (OTCMKTS:FUJHY) announced that EVgo is its preferred EV charging partner.
EVgo has also released a guide titled “Best Practices for Charging Infrastructure Funding Program Design,” to help state Departments of Transportation make wise use of the funds allocated to the recently announced $5 billion National Electric Vehicle Infrastructure Program.
The marketing department of EVgo deserves a lot of credit. Still, there is a factor in the latest Q3, 2021 earnings that is too important to ignore.
EVgo reported a net income of $23.6 million. Their cash flow from operations also remained negative.
Increases in revenues and customer accounts is a very good sign. However, profitability does not impress, as the firm remains unprofitable. Keep an eye on EVGO stock, but it is not a buy yet, as it continues to burn cash to support its growth.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
