EVgo’s Struggles: A Cautionary Tale for Investors

EVgo (NASDAQ: EVGO), a prominent player in the electric vehicle (EV) charging network landscape, became publicly traded in July 2021 through a merger with a special purpose acquisition company (SPAC). The stock debuted at $15.05 but is currently valued around $4.

Missed Expectations and Financial Challenges

Like several other SPAC-backed EV firms, EVgo has struggled to meet its ambitious promises. In its pre-merger presentation, the company projected revenue growth from $20 million in 2021 to $166 million in 2023. While it started off strong with $22 million in revenue in 2021, it ultimately only reached $161 million in 2023.

Although this revenue miss was fairly small, EVgo also anticipated that its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) would turn positive by 2023. Instead, it reported a negative adjusted EBITDA of $59 million for that year.

EVgo’s History and Business Overview

EVgo’s origins date back 14 years, stemming from a settlement between NRG Energy and the California Public Utilities Commission after the Enron scandal. NRG was required to invest $100 million to create an EV charging network, which eventually became EVgo. NRG sold EVgo in 2016 to Vision Ridge Partners, and it was passed on to LS Power in 2020, which spun off the company for its public debut while retaining a significant stake.

Since then, EVgo has grown through strategic acquisitions, including Recargo, which created the PlugShare app for locating charging stations. It has partnered with General Motors (NYSE: GM) to enhance charging accessibility for GM vehicles and has collaborated with Amazon to integrate its stations with Alexa-enabled cars.

Current Operations and Market Competition

Today, EVgo manages over 1,000 fast charging stations across 40 states and 65 metropolitan areas, making charging accessible to approximately 145 million individuals living within 10 miles of a station. While customers can pay for each charge individually, the company encourages subscriptions starting at $6.99 per month.

Despite establishing an early lead in the EV charging market, EVgo faces substantial competition from Tesla‘s (NASDAQ: TSLA) Superchargers, which are compatible with an increasing variety of vehicles. Other competitors include ChargePoint (NYSE: CHPT) and Blink Charging.

Revenue Growth and Future Outlook

Over the past three years, EVgo’s revenue growth has accelerated. By the end of 2021, it had 1,903 stalls operational or under construction, which increased to 3,550 by the end of 2023. Customer numbers surged from 340,000 to 884,000 during the same period.

Data source: EVgo. YOY = Year-over-year.

This growth was significantly driven by EVgo’s partnership with GM to establish co-branded charging stations. However, GM has also provided its drivers access to Tesla’s Supercharging network and is planning additional stations with ChargePoint. Moreover, EVgo’s chargers are compatible with Tesla vehicles.

Much like ChargePoint, EVgo is under pressure to balance the high costs of constructing its charging stations with its charging revenues. These costs have become more acute as EV sales slowed, compounded by higher interest rates impacting the expansion of charging networks. Consequently, its adjusted EBITDA has remained negative for three years.

In the first nine months of 2024, EVgo reported a 71% year-over-year increase in revenue to $189 million, yet it still faced a negative adjusted EBITDA of $49 million. The company forecasts revenue growth of 55%-65% for the full year, expecting to reach between $250 million and $265 million with an adjusted EBITDA loss of $32 million to $38 million. This outlook remains challenging, although growth may continue as market conditions improve.

Should You Buy, Hold, or Sell EVgo’s Stock?

Analysts expect EVgo’s revenue to grow at a compound annual growth rate (CAGR) of 44% from 2023 to 2026, with adjusted EBITDA projected to turn positive in 2025 and 2026.

While EVgo’s stock appears undervalued relative to this growth potential, it has increased its number of outstanding shares by 56% since its SPAC merger due to secondary offerings and stock-based compensation. Furthermore, EVgo Holdings, affiliated with LS Power, recently initiated another secondary share offering of at least $23 million at a price of $5 per share.

Insider trading activity also raises concerns, as insiders have sold nearly four times as many shares as they have bought over the past year. This may indicate a lack of confidence in the stock’s immediate prospects. Thus, it may be prudent for investors to consider selling or avoiding EVgo for now, waiting for clearer signs of a turnaround.

Is EVgo a Worthwhile Investment Right Now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board. Leo Sun holds positions in Amazon. The Motley Fool has interests in and endorses Amazon and Tesla and recommends General Motors, along with certain options strategies.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.