Electric vehicle sales were skyrocketing in the United States for a decade. Then, in 2023, this growth stalled out. Tesla unit volumes are not growing anymore. The market share of electric vehicles for new car sales in the United States actually fell in the last few quarters. This has presented a problem for EVgo (EVGO +0.49%) stock. The electric charging network's share price is off 86% from all-time highs due to this narrative of falling electric vehicle sales.
But if you look at the underlying EVgo business, it is growing rapidly and improving profitability. When electric vehicle sales eventually return to growth, the company should see further increases in demand in the coming years. Does that make the stock a buy today? Where will EVgo stock sit in 10 years' time? Let's take a closer look and find out.
Charging stations for electric vehicles
EVgo owns one of the largest networks of charging stations for electric vehicles in the United States. With over 1,100 locations and 3,680 charging ports, it is trying to expand mightily to take advantage of the growth in electric vehicles.
Unlike Tesla -- which has a vertically integrated charging network -- other electric vehicle owners will need to "fill up" at third-party locations similar to a gas station. This is where EVgo comes in. Electric vehicle customers can stop at a station and charge up when they need to. These stations will not be as important as gas stations because of the at-home charging capabilities of electric vehicles, but they are still necessary. Management sees an opportunity for over 100,000 potential stalls in the United States.
In the third quarter of 2024, the company's charging throughput in Gigawatt-hours (essentially the amount of electric power sold to customers) grew 111%; it has seen rapid growth over the last few years. This is possibly due to non-Tesla vehicles gaining market share in the United States. Non-Tesla sales for electric vehicles hit 178,000 last quarter, up 18% year over year.
NASDAQ: EVGO
Key Data Points
Improving profitability and a long runway for growth
EVgo's revenue grew 92% year over year to $62.5 million last quarter. Since March 2021, trailing-12-month revenue is up 1,530%, making EVgo one of the fastest-growing businesses in the world. This is even more impressive considering the slowdown in electric vehicle sales in the United States.
Fully electric vehicles are still well under 10% of total vehicle sales in the United States. These vehicles have some distinct advantages to traditional gasoline-powered vehicles and are only getting better over time, which leads me to believe that electric vehicles will make up a much larger share of overall vehicle sales in the United States 10 years from now. If this percentage can grow to 25%, 30%, or even 50%, that should mean more and more demand for EVgo every year.
Revenue growth should not be a problem for EVgo. What is a problem is profitability. EVgo's gross margin was actually negative for many years and only recently inflected higher to around 10%, which is still razor thin. Net income was negative $44 million over the last 12 months and has only gotten worse over the last few years. The company does have a tax credit advantage and a $1 billion loan from the federal government to help increase charging station supply, but this doesn't mean the company will generate a profit. Bottom-line margins are the key figure for investors to watch over the long term.
EVGO Market Cap data by YCharts
Where will the stock be in 10 years?
In the last 12 months, EVgo has generated $239 million in revenue. With plenty of growth still left for electric vehicles in the United States, I don't think it is crazy to expect EVgo's revenue to hit $2 billion or even higher in 10 years. This is a fast-growing business, a leader in its field, and only just getting started on its market share gains versus gas stations. While this calls for 23% annual revenue growth, remember that EVgo grew revenue 92% year-over-year last quarter while EV sales grew just 7% in the United States last year and the company has financial backing from the federal government.
But what will EVgo's profit margins be at scale? Assuming today's 10% gross margins can continue its trajectory to15% due to scale and operating leverage, I think a 5% bottom-line net margin is reasonable for EVgo 10 years from now. A profit margin of 5% on $2 billion in revenue equates to $100 million in annual net income. At this moment, EVgo has a market cap of around $400 million, which is only 4 times its projected earnings power in 10 years. Four times earnings is quite cheap and likely means EVgo stock would be valued much higher in 10 years if these estimates come true.
If you believe in the EVgo growth story, now may be a good time to scoop up some shares. That doesn't come without risk, but there is a lot of upside for this stock right now for those that hold over the long haul.
