The importance of a robust charging infrastructure in the electric vehicle (EV) growth story cannot be overemphasized. Several EV charging companies are working hard to capture a share of this growing market. EVgo (EVGO -0.80%), which went public in July, is expanding its network fast. The stock's price has doubled in just a month. Let's take a closer look at the company's performance and its long-term growth prospects.
What makes EVgo different
There are two ways to look at the EV charging industry. In terms of operators, there are pure-play charging providers as well as EV companies with their own charging network. Often, EV makers collaborate with EV charging providers to use their charging network. Tesla has its own network of chargers while Volkswagen and General Motors (GM -4.37%) have collaborated with EV charging companies to use their networks. As an example, General Motors has partnered with EVgo to deploy fast charging stalls. Under this agreement, EVgo will install 3,250 fast charging stalls for GM by 2025.
Moreover, EV chargers can broadly be classified into three types: level 1, level 2, and DC fast chargers. Level 1 chargers are slow chargers that typically use a 120-volt outlet. The charging speed ranges from three to five miles of range per hour. Level 2 chargers are the most widely used EV chargers right now, both at home and at public places. They can typically charge between 12 and 80 miles of range in an hour. DC fast chargers can charge between three and 20 miles of range in a minute. These are very expensive and currently cost between $200,000 to $300,000 per charger.
Among pure-play EV charging companies, most typically focus on level 2 chargers. ChargePoint (CHPT -3.78%), for example, has more than 26,000 public charging station locations in the U.S. Only around 1,600 of these have DC fast charging ports. Blink Charging (BLNK -5.87%) has less than 100 fast charging stations in the country. By comparison, Tesla has fast charging ports at more than 1,100 station locations.
EVgo has more than 800 fast charging stations in the U.S. Unlike ChargePoint or Blink Charging, EVgo focuses only on fast chargers. Though there is always a cost-benefit angle, in the long run, fast charging would likely be the preference in the public charging segment. Specifically, medium- and heavy-duty vehicles and fleet drivers need fast chargers due to their bigger battery packs and longer travel distances. EVgo plans to more than triple its fast-charging network in the next five years.
Profitability is a key challenge
Despite all the growth in the use of EVs, EV charging companies aren't profitable yet. That may change as the number of EVs on the roads increases. In its last fiscal quarter, ChargePoint reported a net loss of $84.9 million on revenue of $56.1 million. Even excluding stock-based compensation expense and other items, the company's adjusted net loss stood at $40.4 million. It widened from a loss of $22.6 million in the year-ago quarter.
By comparison, EVgo generated revenue of $6.2 million in the third quarter, up 73% year over year. The company posted an operating loss of $25.9 million for the quarter. It reported net income of $23.6 million, primarily due to a one-off impact of change in fair value of warrant liability. Its adjusted gross profit rose from $0.1 million in the third quarter of last year to $1.4 million in the latest quarter. Overall, the company's financial metrics seem to be moving in the right direction.
Still, the company could be years away from generating bottom line profits. EVgo expects to generate adjusted EBITDA of negative $54 million to negative $58 million in 2021. Notably, that's on expected annual revenue of just $20 million to $22 million. It expects to achieve EBITDA breakeven in 2023.
The EV charging stock faces risks
EVgo seems to be progressing well on its plans. Its customer accounts continued to increase in the third quarter. At the same time, active construction pipeline increased to nearly 2,500 fast charging stalls. The company also expanded its agreement with General Motors for an additional 500 stalls.
Yet, EVgo is operating in an evolving sector. The company's success in the long-term depends on how EV charging market evolves, competition from other networks, and its ability to generate sustainable profits. Despite the risks, EVgo looks like an interesting stock considering that it is just getting started in a segment that surely has a long growth runway.