EVGO Stock: Long-Term Future is Bright... But It’s Not Yet Time to Buy

By Larry Ramer

Electric vehicle charging company EVgo (NASDAQ:EVGO) reported very strong third-quarter financial results on Nov. 12, showing the firm is growing quite fast while also moving quickly toward profitability. In light of these points, along with EVgo’s powerful partnerships and the continuing, significant growth of the U.S. EV market, I’m very confident in the company’s long-term outlook. 

But…

The shares are likely to be very volatile in the near-to-medium term. That’s because, after the Department of Energy announced that it had made “a conditional commitment” to grant the firm a loan guarantee of up to $1.05 billion, EVgo may not wind up receiving the guarantee.

Impressive Q3 Results Amid Continued EV Growth and Outstanding Alliances

EVgo’s top line soared 92% last quarter versus the same period a year earlier to a quarterly record of $67.5 million. Moreover, its network throughput, a measure of the amount of electricity that the company’s chargers disburse, jumped 111% year-over-year to 78 gigawatt-hours. Meanwhile, its net accounts climbed by over 147,000 compared with the previous quarter to more than 1.2 million, representing a large year-over-year gain of 57%.

EVgo reported a net loss of $33.29 million last quarter, compared with a net loss of $28.26 million in Q3 of 2023. But the increase appears to have been driven by noncash items . Specifically, the company’s “depreciation, net of capital-build amortization,” jumped 34% YoY to $11.54 million, while the fair value of its warrant liabilities fell $2.9 million, versus a $4.77 million increase in Q3 of 2023. 

Many other measures of EVgo’s profitability, however, climbed significantly in Q3. For example, its operating activities generated $5.57 million of cash in Q3, compared with a use of nearly $30 million in Q3 of 2023. Further, its Q3 adjusted EBITDA loss came in at $8.9 million, much better than its adjusted EBITDA loss of $14.25 million during the same period a year earlier. Finally, its operating loss dropped to $31.79 million from $36.37 million during the same period a year earlier. 

Given the major improvements in the firm’s results, I believe that it is benefiting meaningfully from its partnerships with GM (NYSE:GM) and Uber (NYSE:UBER). GM and EVgo partnered to launch 1,000 fast-charging stalls as of August 2023 and intend to open their 2,000th fast-charging stall by the end of this year. 

And notably, GM’s EV sales climbed a huge 60% last quarter versus the same period in 2023. As for Uber, it’s financially incentivizing its drivers to use EVs instead of gasoline-powered vehicles. And in August, EVgo CEO Badar Khan stated that “the "Rideshare (sector) is increasingly electrifying,”

EVgo is also likely getting a boost from increased EV sales in general as U.S. sales jumped 11% versus the same period a year earlier, to a record 346,408. 

Uncertainty About EVgo’s Loan Guarantee

Sparked by optimism about the Energy Department’s possible loan guarantee, EVGO stock soared from $3.83 on Oct. 2, the day the conditional approval of the transaction was announced, to $9.07 on Oct.25. Since then, the shares have trended steadily downward, and the drop accelerated after President-elect Donald Trump’s victory on Nov. 5.

There’s some justification for the decline, since President-elect Donald Trump has shown antipathy toward EVs in the past. On the other hand, he is now close allies with Tesla (NASDAQ:TSLA) CEO Elon Musk, who’s obviously a big fan of the vehicles. 

Moreover, after Tesla laid off roughly 500 of its employees who had worked on expanding its charging network, the automaker’s ability to build new charging stations will probably be limited. 

But Tesla’s drivers could benefit from having more charging stations available, and the presence of additional charging stations could make the firm’s EVs more attractive. And the notion of Washington guaranteeing a loan to a huge, profitable firm like Tesla, headed by the world’s richest person, could come across as unsavory to the public. That’s why I don’t expect the Trump administration to make such a move, making Musk’s prodding of Trump to approve EVgo’s loan guarantee more likely. 

Further, the Biden administration may look to approve the transaction in its final weeks. To be sure, Plug Power (NASDAQ:PLUG) received conditional approval of a loan guarantee back in May, yet that transaction still has not closed. As a result, the chances of EVgo’s loan closing by Jan. 20 may seem low. However, administrations have been known to rush through the rulemaking process in order to get rules finalized before they leave office. Perhaps they can do the same with a loan guarantee. 

Also noteworthy, however, is that CEO Badar Khan, speaking on the company’s Q3 earnings call, said that “If (the loan guarantee is) finalized, this low-cost financing will enable EVgo to accelerate our fast charging stall deployment across the United States.” The fact that he used the word “if” does not increase my confidence that the transaction will close.

But conversely,  Khan did add that “We do not expect a lengthy process to close the loan.”

The Bottom Line on EVGO Stock

Uncertainty about the loan guarantee could continue to pull EVGO stock down in the near-to-medium term. On the other hand, given the company’s very rapid growth and signs that it’s moving quickly towards profitability, I view its forward price-sales ratio of 2.2 times as attractive. 

Nonetheless, I rate the stock as a hold until there is more certainty about the loan guarantee. But as I noted in the beginning of this column, I think that the company will have a very bright future over the long term.

Those who do not own any shares should wait either until the price drops below $4.30 or until there’s more information about the loan guarantee before investing in the name

Disclaimer: The author did not hold a position in any of the securities mentioned above. The information provided in this article is for educational and informational purposes only and should not be construed as investment advice. Always conduct your own research or consult with a licensed financial professional before making any investment decisions. Past performance is not indicative of future results.