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Why EVgo Stock Tanked on Monday

By Evan Niu, CFA – Aug 2, 2021 at 2:45PM

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The electric vehicle charging network is preparing for a potentially dilutive event.

What happened

Shares of EVgo (NASDAQ: EVGO) have tanked today, down by 15% as of 2 p.m. EDT, after the company made a regulatory filing to register millions of shares to be issued in connection to the exercise of warrants. The filing comes about a month after the electric vehicle (EV) charging network closed its merger with a special-purpose acquisition company (SPAC).

So what

EVgo has registered up to 18.1 million new shares that are issuable upon the exercise of public warrants. Additionally, the company is registering another 52.35 million shares that can be sold by existing shareholders and another 6.6 million private warrants. Any new shares that are issued related to warrant exercise will be dilutive to existing investors, while shares sold from early investors will not be.

EVgo charging stations in a parking lot.

Image source: EVgo.

SPACs typically include warrants as a sweetener for investors. The derivative allows the warrant holder to buy more shares at an exercise price of $11.50. The company, which operates the largest DC fast-charging network in the U.S. and has partnered with auto giant GM, will only receive proceeds from any warrants that are exercised but will not receive any of the proceeds related to existing shareholders selling shares.

Now what

The SPAC can choose to redeem outstanding warrants for $0.01 once the securities become exercisable, which will prompt warrant holders to exercise or risk losing their entire investment. The main criteria that must be fulfilled is that the stock must trade at $18 for 20 trading days within a 30 trading-day period. Since the SPAC merger closed, EVgo shares have traded as high as $16.24.

There were approximately 264.5 million shares outstanding as of July 1, according to the filing, so 18.1 million new shares would represent roughly 7% dilution.

Evan Niu, CFA owns shares of EVgo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

EVgo, Inc. Stock Quote
EVgo, Inc.
$6.40 (5.26%) $0.32
General Motors Stock Quote
General Motors
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