Here’s Why EVGO Stock Looks Poised to Roar Over the Long Term

By Larry Ramer

Among the developments that are likely to boost EVgo (EVGO) stock over the longer term are the continued proliferation of electric vehicles in the U.S., the company's progress in opening new charging stations and offering charging for Tesla's (TSLA) EVs, and upcoming, technical improvements in charging.

Considering those, I think the shares of the EV charging-station operator are extremely cheap.

According to JD Power, the market share of EVs in the U.S. reached 9.3% last month, compared to 8.4% during the same period a year earlier.  Further, in the first quarter, the EV sales of EVgo's longtime partner, General Motors (GM), soared 94% year-over-year to nearly 32,000.  

Tariffs Concerns Overblown

Many believe that EV sales are likely to be decimated by the elimination of EV tax credits and the imposition of tariffs in the U.S.  But there is currently an exemption from tariffs "for parts and components (of automobiles) that are compliant" with free trade deals with Canada and Mexico. 

In other words, the value of most parts from Canada and Mexico that are included in vehicles imported from those areas will not be incorporated into tariff calculations. 

What's more, many EVs are made in America and are thus exempt from the tariffs on assembled automobiles. And finally, after U.S. Treasury bonds plunged in the wake of the Trump administration's tariff bonanza, the administration has been rapidly eliminating many duties. I think it's not unreasonable to believe that the duties affecting vehicles will eventually be greatly reduced or eliminated over the longer term. 

As far as the tax credits are concerned, the fact that many electric vehicle factories are located in red Congressional districts could prevent the tax breaks from being completely eliminated by Congress. Additionally, California,  a huge market for EVs, has said that it would implement additional EV subsidies if the tax credit is scrapped, and other blue states could easily follow suit. 

EVGO's Progress on Multiple Fronts

 The company continues to rapidly expand its charging network, as its total chargepoints in operation surged 37% last year to 4,080. And importantly, its launch of new charging stations should accelerate tremendously this year. That's because the company in December obtained "a loan guarantee of up to $1.25 billion" from the U.S. Department of Energy." EVGO expects to use the funds to add about 7,500 charging stalls by 2030. 

While the Trump administration has tried to prevent companies in the EV sector from receiving federal funds, courts have generally ruled that the administration does not have the power to prevent money that has already been approved from going out the door.   

For example, last month the Supreme Court ruled that the administration didn't have the authority to prevent foreign aid approved by Congress from being disbursed, and the authority of the executive branch is generally considered at its highest when dealing with foreign policy. 

As a result of these points, I expect EVGO's loan guarantee to eventually be honored.

The company intends to "more than triple" the number of charging stations it has in operation in the next five years. 

Meanwhile, EVGO reported on its last earnings call that it had successfully opened its first operational pilot site featuring NACS connectors which allow Tesla EVs to be charged without adapters. The eventual launch of many such stations should greatly increase EVGO's addressable market, given the high number of Teslas on U.S. roads. 

Technical Improvements of Chargers and EVGO's Valuation

China-based EV maker BYD (BYDDY, BYDDF) reported that it has developed technology which allows EVs to be driven 400 kilometers after being charged for just five minutes. And Israel-based StoreDot's batteries can go from 10% of capacity to 80% in just 10 minutes. 

Eventually, just as instant messaging and text messaging proliferated around the world, these fast-charging technologies will, in all likelihood, do the same. At that point, many apartment dwellers will be able to buy EVs and use EVGO's chargers, while the overall adoption rate of EVs will soar. Consequently, EVgo's top and bottom lines are poised to go through the roof over the long term. 

In light of EVGO's many, powerful catalysts, I believe that the company's current market capitalization of $773 million belies its potential. Also noteworthy is that the shares are changing hands at a very low price-to-sales ratio of just 1.05x and price-to-book of 34.02x.

The nine analysts polled by FactSet have a mean estimate for a loss of $0.08 in the just-ended March quarter.  EVgo’s December quarter report, of a $0.10 per share loss, was the first negative surprise in eight periods.

Disclaimer: At the time of writing, the author held long positions in EVGO and BYD stock. 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.

Larry Ramer is currently ranked 1,063 out of 30,991 financial bloggers analyzed by TipRanks, with a 7.3% return on his buy and sell ratings. He has been a long-time contributor to Insider Monkey, Seeking Alpha and InvestorPlace. He is one of the founding contributors to this newsletter.

He focuses on contrary investing and specializes in the renewable energy and consumer discretionary sectors. Among his highly successful, contrarian picks have been Plug Power, Exxon Mobil, solar stocks, and airline stocks. On the downside, he was an early predictor of the collapse of cryptocurrencies, marijuana stocks, Ocugen, and Meta Platforms.