The EV charging infrastructure industry has been one of the hottest sectors in recent years, driven by the rapid adoption of electric vehicles. Among the key players is EVgo, a company focused on building and managing fast-charging stations across the United States. But something unusual happened recently: in just three months, EVgo’s stock went from being considered overvalued to being perceived as undervalued.
EVgo
EVgo is a third-largest fast-charging network provider in the U.S., operating:
Over 1,000 fast-charging locations with nearly 3,700 ports.
Serving over 1.2 million customers with a focus on urban and high-traffic locations.
Prioritizing Level 3 DC Fast Charging, positioning itself as a key player in the EV ecosystem.
This strategy makes EVgo an essential player in the EV market, especially as it caters to densely populated areas where home charging may not be feasible. However, its market position and valuation have fluctuated dramatically.
Competitors
To better understand EVgo’s position, let’s compare its infrastructure with competitors focused on Level 3 DC Fast Charging:
Tesla: With over 27,000 Level 3 ports, Tesla is the market leader, offering exclusive charging for its vehicles for years, recently opening to many other brands
Electrify America: Operates 4,250 DC fast chargers, slightly ahead of EVgo in terms of infrastructure.
ChargePoint: Despite having 200,000 charging ports, fewer than 500 are DC fast chargers, making it less competitive in this segment.
EVgo’s focus on urban areas gives it a unique edge in meeting the fast-charging needs of city dwellers and rideshare fleets.
Why Was EVgo Overvalued Three Months Ago?
DOE Loan Announcement
On October 3, 2024, EVgo announced a conditional commitment for a $1.05 billion loan guarantee from the U.S. Department of Energy (DOE). This significant milestone allowed EVgo to plan the deployment of 7,500 fast-charging stalls by 2030, doubling its infrastructure deployment rate.
The stock peaked at $8.84 on October 24, 2024, a level last seen in September 2022. This represented a 100% increase in just a few weeks. At this price, EVgo’s Price-to-Sales (P/S) ratio soared to 11.14, far above industry norms.
Valuation Concerns
Despite the DOE loan announcement being a long-term positive, several factors suggested that the market overreacted:
EVgo is not expected to reach profitability until 2026 or 2027. The razor-thin margins typical of the EV charging industry make a P/S ratio of 11.14 unsustainable for a company still years away from profitability.
EVgo’s EPS of -$0.11 in Q3 2024 reflects the financial strain of high capital expenditures. With plans to install 7,500 ports by 2030, CapEx will remain heavy for the foreseeable future.
EPS
While the market priced in optimism for EVgo’s growth potential, it overlooked near-term risks, leading to the overvaluation.
Why EVgo Is Undervalued Today
Since October, EVgo’s stock price has corrected significantly, closing at $3.42 last Friday, bringing its P/S ratio down to 4.11.
P/S Ratio
Challenges
The broader EV infrastructure sector has faced several challenges, contributing to EVgo’s undervaluation:
Investor sentiment has been impacted by uncertainties around EV adoption, government subsidies, and potential policy changes under the upcoming administration.
While the DOE loan is a positive development, it adds significant liabilities. EVgo reported $325.9 million in total liabilities as of Q3 2024.
LS Power, EVgo’s largest shareholder, sold 23 million shares at $5 apiece, significantly below the market price of $6.09. This underwritten sale contributed to a 30.4% drop in EVgo’s stock value within a week. The exit of a key shareholder may signal doubt about EVgo’s short-term prospects, amplifying market uncertainty. The sale at a discount triggered a sharp decline, with shares trading well below $5.
While EVgo’s stock has faced declines, these may reflect short-term market sentiment rather than the company’s long-term potential:
Growth
Despite market volatility, EVgo continues to demonstrate strong operational performance:
Q3 2024 revenue grew 92% YoY to $67.5 million, with charging network revenue increasing 98% YoY.
Revenue TTM
Throughput reached 78 GWh, a 111% YoY increase.
EVgo added 147,000 new customer accounts in Q3 2024, with total accounts surpassing 1.2 million.
The company expanded its network to 3,680 stalls, up 34% YoY.
These metrics highlight that EVgo is not only keeping pace with demand but also positioning itself for long-term success.
The Path to Profitability
EVgo’s business model involves heavy upfront investment to build its network, resulting in:
High CapEx Costs: Q3 2024 CapEx totaled $25.8 million, with net CapEx of $5.2 million after offsets.
Slow EPS Growth: While CapEx remains high, EPS improvement is limited. However, as EVgo slows its expansion post-2030, profits are expected to rise significantly.
EVgo is on track to breakeven by 2025, with profitability likely by 2026.
The company’s strategy to leverage prefabricated installations and dynamic pricing will further enhance efficiency and revenue.
EV Adoption and Infrastructure Needs
The Future is Electric: Even though EV adoption has slowed recently due to high interest rates, EVs are projected to dominate car sales by 2030. This transition ensures a growing need for charging infrastructure.
Demand Beyond Tesla: The U.S. cannot rely solely on Tesla’s proprietary network. As the third-largest DC fast-charging provider, EVgo is critical to meeting national charging needs.
