SouthWorks/iStock via Getty Images

SouthWorks/iStock via Getty Images

EVgo’s (NASDAQ:EVGO ) huge and growing network of chargers, rich experience developing and operating fast charging infrastructure, partnerships with OEMs and fleets, and an established brand name separate it from competitors. Its focus and experience in fast charging infrastructure can give it an edge over competition in the long run. The stock’s valuation looks tall, but the company is growing its revenue fast, and has the potential to grow into that valuation.

EVgo is the largest public fast charging network for EVs in the U.S. It has more than 850 fast charging locations with around 1,670 fast chargers, and serves over 444,000 customer accounts. EVgo’s charging stations are fully powered by renewable energy. The company derives revenue from multiple sources. First, it sells electricity directly through its fast-charging stations. EVgo owns and operates the stations in parking spaces owned by commercial owners, landlords, or tenants. The company also offers the option for site hosts to own the station, with EVgo maintaining it.

Second, EVgo enters contracts with OEMs to provide charging services to drivers using the OEM’s EVs. Third, the company contracts directly with high-volume fleet customers for the use of its public chargers based on needs and use patterns of the fleet. It also provides dedicated charging solutions to fleets, including ‘Charging as a Service’ or ChaaS. Finally, the company offers a variety of software-driven services such as customization of digital applications, charging data integration, loyalty programs, and charging reservations.

EVgo reported revenue of $9.1 million in the second quarter, growing 90% year-over-year. The growth was driven by higher retail charging revenues, as well as growth in network OEM and regulatory credit revenue.

The company added around 67,000 new customer accounts, bringing the overall number of customer accounts to over 444,000, increasing 60% year-over-year.

During the quarter, the company also announced a collaboration project with General Motors (GM) and Pilot Company. The agreement is expected to lead to 2,000 new stalls at around 500 locations across the U.S. over the next few years that EVgo will install and operate for GM and Pilot Company.

EVgo has entered agreement with General Motors to install 3,250 chargers by the end of 2025. It has also partnered with Nissan to install 210 chargers by February 2024. Overall, EVgo is growing its charging network fast. The company has also grown subscribers on its PlugShare platform to more than 2.5 million.

EVgo’s huge and growing network of chargers, rich experience developing and operating fast charging infrastructure, partnerships with OEMs and fleets, and an established brand name separates it from competitors. These factors have contributed to the company’s strong growth in recent years. EVgo focuses on DCFC fast chargers. These chargers operate between 200V and 1000V DC and supply at least 50kW. The company expects faster growth in DC fast charging market than the overall EV charging market. As EV adoption increases, fast charging would likely be the preferred choice for many drivers.

As the adoption of EVs increase, the need for more EV charging stations is undisputable. In the U.S., the market share of EVs more than doubled in 2021. The EV charging ecosystem is rapidly evolving to meet the needs of EV drivers, while also looking for a viable business model. There is no set way in which EV charging operators are trying to generate revenue. Rather, they are working on multiple models and sources simultaneously.

As an example, Volta (VLTA) focuses on generating revenue by doubling up its charger as an advertisement screen. Again, EVgo also sees advertising as a key potential avenue for growing its revenue. These innovations are aimed at finding a viable business model, as EV charging companies understand that it is difficult to generate profits by only selling electricity at the stations.

Another example of innovation happening in this space relates to efforts to connect the non-networked home chargers and make them available for public use. The offering companies, such as EVmatch and Power Hero, believe that this concept would be the Airbnb (ABNB) in the EV charging space. While EVmatch requires the homeowner to buy or lease a new charger equipment so it is networked, Power Hero offers a small, innovative adapter that makes any home charger a networked charger, without the need to replace the legacy chargers. If this concept gains widespread adoption, it can potentially make over a million home chargers in the U.S. available for public use. This should help in increasing EV adoption, in turn benefitting EV charging companies.

So, there are several players working on different models, and lots of innovation going on in the EV charging space. While that bodes well for EVgo, there are some key risks to consider too.

The first risk relates to EVgo’s ability to make itself profitable. None of the EV charging companies are profitable so far. As the ecosystem is still evolving with several moving parts, it isn’t clear how EVgo, or any of its competitors, will ultimately achieve profitability, and when.

Second, the company faces increasing competition from other companies, such as ChargePoint (CHPT), Blink Charging (BLNK), Volta, Electrify America, and so on. Fast chargers are more expensive to install, as well as for the drivers to charge, as compared to Level 2 chargers. Although EVgo also has Level 2 chargers, its main focus is on fast chargers. If EV drivers end up preferring Level 2 charging, due to is cost benefits, EVgo will be at a disadvantage. That’s because its Level 2 charging network is miniscule compared to that of ChargePoint or Blink Charging.

At a price-to-sales ratio of 21, EVgo stock isn’t cheap. Add to it the fact that the company’s path to profitability isn’t clearly laid out, and value investors may not want to even give it a second look. However, the company is operating in an industry that is still evolving and has a long runway for growth. It is growing its top-line rapidly.

EVGO PS Ratio data by YCharts

As the chart above shows, analysts expect higher growth in EVgo’s revenue compared to ChargePoint. These expectations get reflected in its lower 1-year forward PS ratio, even though EVgo’s ratio is higher than ChargePoint currently. On a comparative basis, EVgo looks the best among the top listed EV charging companies in the U.S.

EVgo’s advantages and concerns also get reflected in Seeking Alpha’s proprietary Quant Ratings that rate the stock as “Hold.” The stock is rated high on ‘Growth’ and ‘Revisions’ factors, but low on ‘Valuation’ and ‘Profitability’ factors.

EVgo’s huge and growing network of chargers, rich experience developing and operating fast charging infrastructure, partnerships with OEMs and fleets, and an established brand name separates it from competitors. Its focus and experience in fast charging infrastructure can give it an edge over competition in the long run. The stock’s valuation looks tall, but with the rapid revenue growth, the company has the potential to grow into that valuation. It is just starting and has a long runway for growth. Overall, EVgo looks like a top bet in the EV charging space.

This article was written by

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.