You don’t have to dig too deep to encounter the mantra that everyone loves repeating: electric vehicles are the future. Through simple deduction, if EVs are the future, then the infrastructure to support the electrification of transportation is also the future. And voila! You have EVgo (NASDAQ:EVGO), a charging station provider. You couldn’t ask for a better investment than EVGO stock, right?
Right!? Well, that’s not exactly what Wall Street thought.
EVGO stock over the trailing year gained just under 1%. I’m sorry folks, but a little bit above parity is probably the last thing growth-focused investors were looking for. Even a hefty loss in some respects might be better because it implies that following a tweak, EVGO can fly.
As it stands, a Switzerland-type of investment leaves many people scratching their heads. If it’s such a great opportunity, why aren’t people jumping onboard EVGO stock? According to my InvestorPlace colleague David Moadel, you just need to give the company more time to allow its key partnerships to marinate and then blossom.
Referencing political catalysts in the form of the infrastructure bill, Moadel also cited Larry Ramer’s work, who mentioned that EVGO stock is “vastly undervalued” because of its potentially expansive footprint. As both my colleagues mentioned, EVgo now commands collaborations with General Motors (NYSE:GM) and Uber (NYSE:UBER).
In particular, the GM partnership should in theory prove quite lucrative for EVGO stock. “Building upon a previous deal, the two companies now plan to develop a network of 2,750 charging stalls through 2025. With that, General Motors and EVgo will extend the geographic reach of this build-out from 40 metropolitan markets to 52,” wrote Moadel.
It’s got the right stuff, so what’s going on?
The Pandemic Backlog Hurts EVGO Stock
To be fair, my colleagues may be on the right track. On the first session for the new year, EVGO stock jumped up nearly 7%. Yes, it’s been slow over the trailing month but a 7% move is very encouraging. Although you shouldn’t read too much into any one session, it suggests that the market is starting to recognize the potential of the underlying company’s partnerships.
Yet these partnerships by now aren’t exactly breaking news. Neither is the concept that EVs are attempting to spark a paradigm shift in transportation. While competition has always been a concern for EVGO stock, the issuing company has the deals, the infrastructure and the disciplined leadership to make the transition work. So, why the disappointingly choppy sessions over the past year?
It might come down to the pandemic or more specifically, the impact to global supply chains.
Yes, everyone talks about the computer chip shortage and how that has contributed to soaring used car prices. The common thesis is that once chip supplies normalize, the automotive retail market will also normalize. However, that’s going to take some time. As well, you need to consider that semiconductor manufacturers don’t want to supply automakers since automotive chips are high effort and low margin.
But the worrying angle is that cars (even if they’re liabilities) are necessities. And because Americans have on average been holding onto their vehicles for the longest time on record, when it’s time to buy a new (or new to them) vehicle, it’s really time.
Now, you have an economic conundrum as people who have been forced to buy cars at extremely elevated prices must hold onto them even longer for said purchases to make sense financially.
That’s the backlog that few are talking about.
A Credible Precedent
One of the concepts of the supply chain that people don’t always think about is the time element. For instance, if you’re observing a Christmas tree shortage today, then the catalyst for that shortage occurred about a decade ago. That’s because it takes about that long for Christmas trees to grow to a desired height.
Similarly, those who were planning on buying an EV today (or would have planned) may have seen their desires disrupted. Because of the pandemic, they will now have to buy combustion cars instead — and drive them for longer due to the higher premium.
So, if the EV transition were to happen this year, guess what? It’s very possible that those plans may have been pushed out to at least a few years. That’s why some investors are holding off on EVGO stock. We just don’t know the full impact of the pandemic quite yet.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.