EVgo, Inc. (EVGO) Earnings Call Transcript & Summary

Thanks for joining the JPMorgan's first day of the Energy Power and Renewables Conference. My name is Bill Peterson, U.S. Clean Tech and Metals and Mne Analyst. Really pleased to have Cathy Zoi, CEO of EVgo; and Jonathan Levy, Chief Commercial Officer of EVgo. So thanks for supporting the conference. Maybe for those who are less, I guess, aware of your company and strategy, maybe you could just kind of provide a brief overview of what EVgo does, your business model, how you make money, and we can kind of dive into a lot more questions, and I'm sure to be a lot of from the audience as well. This is webcast, so use the microphone if we call on you.

Thanks, Bill. Great to be here again this year. So EVgo, we are providing essential infrastructure to this once-in-a-century sectoral trend in transportation where transportation is moving to electric, and all of those vehicles that are going electric need to be charged. So we're amongst the largest owners and operators of public fast charging in the country, and we then use the ownership of those assets to sort of create other revenue streams that are complementary to that ownership. They've been around for over 10 years. Very big network partnerships with bluechip companies, OEM, site hosts. And -- but we're really excited about us creating a great driver experience for the many, many, many more -- millions of more people who are going to buy or lease an EV in the next few years.

Great. I'm going to jump right to it. So a couple of months or several weeks ago, Tesla and Ford made an announcement last recently, GM made the announcement that they're going to use the NACS Connector and be opened up to the Tesla network. There's a lot of, I don't know, I'd call confusion in the market, but let's just say, what does this mean for the EV chargers, -- what does it mean for EVgo? How much of a threat is it? I mean, should investors make of it?

Yes. So we -- EVgo has been using whatever connectors the cars had since we've -- since our inception. So we've been around for a dozen years. EV charging land started with CHAdeMO, which is what the Nissan we use, which is what you have. And then the CCS has arrived with the German cars, and so EVgo has charges with CHAdeMO and CCS. We then CCS started to dominate, but then we added Tesla sidekicks so that we could charge Tesla's as well because Tesla the Tesla network was very -- the supercharging network is very constrained, and there were lots of unhappy Tesla drivers that wanted to come in charge on EVgo. So we, for us, we'll put water connector onto our chargers that the drivers need. And so with this announcement, what it looks like is that there's going to be even more drivers that are going to want a NACS Connector. So that's what we'll do. The bigger decision was made, actually, I think, by GM and Ford recently because what they have to do is now build a new brain inside the vehicle to be able to use the Tesla connector. So the way CCS works is that the entire brain is in the connector, right? And what -- the way the closed system of the Tesla NACS world works is that Tesla developed a system where half of the brain is in the charging connector, the other half is inside the car -- right? So what now -- as I said, with GM and Tesla are going to do is they're going to have to build that brain inside the car. That's going to take a couple of years, but we'll be ready for that. Because for us, adding the new connectors to our configurations is going to be about the same cost as 2 CCS, while 1 CCS and 1 NACS it's just as not a big drama. Practically speaking, though, Bill, I think for the next 5 years or so, look, we've already got close to 1 million EVs and American roads that are CCS only. Over the next 2 years, with Ford, GM alone, there are going to be another 1 million or 2 EVs that are CCS only. We are going to be living in a world in America where we have CCS and NACS and then the older CHAdeMO's because we're going to still want to charge you as long as you keep that car -- we'll be serving multitudes of different connectors and probably by the middle of the next decade, the world or America will have conversion on one solution. But right now, for a while is going to be people have adapters in their trunks and they use lots of chargers.

Yes. I guess the questions I've been getting recently is like what does this mean for your existing partnership with General Motors?

Our existing partnership with General Motors is as strong as ever. So if you're a Mary Barra, you want your drivers to have a great experience and you want there to be lots and lots of chargers. Right now, in America, there are somewhere under close to 30,000 fast chargers. The forecast demand is that by 2030, we'll need 300,000 of those to meet all of the demand for all of the EVs, the 150 new models of EVs that are coming. If you're an OEM, you want there to be choices for your drivers, you want there to be ubiquitous fast charging. And so we're part of that ecosystem. As far as the contract that we've got, the one that the $90 million contract to get out there and build 3,250 fast chargers, that remains. What we may do is we may be swapping out one of the CCS connectors for a NACS connector on those chargers. And again, we're working with GM on that rollout plan right now.

Okay. And then I guess another concern would be, obviously, Tesla's main business is selling cars, I guess. But they have made presumably a lower cost of capital. So the fear is that they're going to gain market share at the expense of others. Why would that be the case? Why wouldn't it be the case? I mean, I don't know, a growing market, but how would you -- how do you think about market share?

Look, I think -- EVgo business principle, which is unwavering is that whatever -- whenever we invest capital, we're going to get a return on that. So we have -- again, through our history -- since I've been at EVgo since 2017, we have invested in building stations that penciled to double-digit IRRs. We're going to continue to do that. There are a plethora of opportunities that will allow us to do that, and we will wait business to continue to deliver those returns. We will be guided by the opportunity set we've got a line of sight to over 10,000 different location stations right now that [ pencil ] to those returns. And the limiting factor there is just capital availability. So should more capital become available at good terms, we'll grow even faster, like -- so that's sort of where we are. I am -- I think that there is going to be -- given that we need to go to 300,000 charges or so in the next 7 years, there's ample room for a lot of us to play to meet drivers' needs.

Yes. Well, I mean I think the corollary in really simple terms, is if you have a gas car, you drive down the road, you'll see multiple gas stations, not one brand. So I don't know, anyway. So coming to your business, so you actually have different line items. Your core charging, you also -- you have your eXtend program. Kind of just thinking about near term and in the back half of the year, where are you seeing like the best growth opportunities for the different subsegments of your business?

Yes. So we -- what we've seen so far is fantastic growth and throughput on our network. And when you run a public network throughput is like a big giant metric, and it's up into the right, we've got over -- the top 10% of our locations have over 25% utilization, the top 20% of our locations have over 20% utilization, rideshare, we've got partnerships with Uber and Lyft. Those -- both Uber and Lyft have made commitments to go totally electric by 2030. But Jonathan, what did you say there?

They've said that they're on a -- both of them hit their goal by 2025.

Right. And so when you -- in a Rideshare driver just to remind folks, a Rideshare driver drives somewhere between 3 and 7x more than the average retail driver. So that -- and they need to charge fast because they're driving for a living. So we love them on our network. We have special pricing for our Uber and Lyft drivers because they're such frequent users. So that is going to continue. I mean our expectation to your question is that's going to continue to rise over the course of this year. We're also really excited about the deployment of our first Pilot Flying J stations through the EVgo extend program, right? So we've been working towards those. They're under construction. They're well underway, and that's going to be really, really exciting. And those are Pilot Flying J with a bit of easy-go co-branding, that's a capital-light business model for us that bolsters our revenue story at very low risk increases our geographic footprint and increases our reach. So that's some really exciting stuff. And I'm hoping -- I guess one final thing. When you ask me what I'm excited about, I always have to give many answers being I'm so excited about a lot of things. But I'm also excited for the NEVI awards process to well and truly get going, right? I mean, again, I would just sort of turn it over to Jonathan to talk a little bit about that, if that's all right with you.

Yes. No. Well, yes. I guess let's talk about NEVI, and maybe we can back up and talk about broader policy support and how that impacts your business. But yes, maybe it explains what NEVI is and then how…

We all have an acronym problem sometimes myself, very much included. So NEVI is the acronym for the $5 billion formula funding under the bipartisan infrastructure bill. So it's been almost 3 years since that became law and not a single dollar has gone to any companies yet. All the funds from the first 2 appropriations of it have gone to the state DOTs and all the state DOT's plans have been approved, but only 7 to our knowledge, RFPs have been finalized from space. None of them have made any awards yet. So to give you a little example, right, Indiana has actually published a fairly helpful calendar as far as transparency is concerned, but they haven't issued their RFP yet. That will come out in July. They're not anticipating making conditional awards until late in Q4 and not actually having the final contracts until some point in 2024. So it's one of the things where Cathy on one of our earnings calls earlier this year, said policy is a huge tailwind, but it feels like a tail breeze right now because it's not coming that quickly. And we're still on that same boat. Now it's clearly very important. If you take NEVI and the tax credits 30s with the new transferability provisions that came under the Inflation Reduction Act, those are huge opportunities to offset our CapEx, but there's still some clarification from the IRS. There's still a lot of work that needs to be finalized to make it all reality and help push forward.

Jonathan and I recently had some meetings in Washington, where the folks in D.C. were really, really excited about that we're going to -- the states are going to start issuing the RFP soon. And we are, too. Those RFPs are going to be really helpful, but you should just know the issuance of an RFP is not the same thing as getting stations built. There's still a long process that follows that. So let's get everybody hustling.

Yes. Actually, that's an interesting thing. So we've heard actually in different parts of this conference is about permitting. So what -- I mean, you're in DC. So permitting actually is a big challenge broadly, but -- and that has been an impact to some of your build-outs last year. How was that today for the permitting side.

Look Cathy and I, we're having this discussion to you yesterday, permitting, most people think permitting and especially right now in the DC conversation, it's big permitting, offshore wind, pipeline, things like that. We're talking about distributed energy projects. And we think about it in terms of our permitting is local counties or building departments saying, yes, you can build in this parking lot. It matters a lot as we go to bigger footprint, especially these charging stations we're building on land that we secure for the sole purpose. But really what matters even more to us is utility approval time lines. And unfortunately, those aren't getting a whole lot quicker. The transformer supply chain issues are still there and then sometimes is getting them to show up and do the final inspection on the utility side, that can be the limiting factor. So we need those partners to continue to up their game so that, that's not holding things up.

We also need to make sure -- so one thing that's interesting about NEVI, the implementing agencies at the state, as Jonathan mentioned, are the state departments of transportation. -- their normal day jobs have been funding bridges and major interstate projects, which almost always require an environmental impact statement or the equivalent, which is usually a multiyear process. We need to make sure that they understand what Jonathan just said, which is charging stations of 4, 6 or 8 chargers are distributed infrastructure that doesn't trigger the need for an environmental impact statement to that level. And because of their lack of experience in doing these things, it's on us to help them understand that. It's on the federal government to make sure that they don't feel that they're required to do that. I mean would you add anything?

Yes. The only other thing to add is really we had hoped that state energy offices or state environmental protection agencies would give us money. That didn't happen. But the very inside baseball, that's a good thing is that the National Association of State Energy offices sign an MOU with the Association of State and Highway Transportation officials so they can work together. And we're hopeful that they can use Colorado is a really good model. We're during the diesel gate funds. Colorado took the funds that went to their air quality district, their Department of Energy and their DOT comingled them and work together on an integrated plan. That's -- and they still moved a lot more quickly than other states that just said, "Oh, we don't know what to do with this money.

If your head is about to explode all of the Washington, D.C. acronyms, you can understand why EVgo has competitive advantages, having had some experience in Washington, D.C.

That's right. Okay. So your core business and you guys are generally more in urban or suburban areas like high utilization zones, which, to be honest, like if you think about some competitors charging stations tend to be off a highway in the middle of nowhere. But in any case, how do you -- how is this like a competitive advantage? Like what data do you have? How do you analyze it? And I guess, when you think about the needs for public charging, how does it inform where you're going to be placing all the next tranches of hundreds of systems.

Yes -- so frankly, we look at it through the lens of everyday Americans. Like what do you need to do with your life? How -- you need to get fuel in your vehicle. And if you've got an EV that's charging. You need to go grocery shopping, you need to take your children to do something at a park, whatever it is. So what we try to do is make it as easy for people as possible to combine those activities. And maybe it's because I've always been a working on and a multitasker, but like we love building our stations in grocery store parking lots and shopping centers next to a public park because the dwell time for even like today's most modern cars, you're going to spend -- if you go to a 350-kilowatt charger you've got a really powerful car. It's still going to be 15, 20 minutes. So that's a nice time to run into the grocery store and grab some things. So our theory of the case is to make it convenient for people to get their charge and to do other things in their lives. And that's borne out. Like when you look at our utilization trends and you look at our consumer responses and you look at the partnerships, I mean, Bill, when I started at EVgo in 2017, our site developer teams were having to educate grocery store operators or shopping center operators, not only what an EV charging station was, but what an EV was. And we had the bag for, can you rent us 2 parking spaces. The tables have turned completely where we now have national partners, every grocery store chain, big box stores, fast casual food like Chipotle, saying, "We want to put charging stations in every single one of our properties. And we have to say, actually, not every single location will pencil for us. So it is now like the creation of the norms of this is something that you can do while you're doing something else, I think we're well on our way to providing a convenient, reliable service. I mean it turns out that when we research our -- when we ask our customers and do surveys, what matters most to them is convenience and reliability. What actually matters less to most of them is price.

Yes, makes sense. So I want to stop and see if there's any questions before moving on. And again, we use the microphone. All right. Let's come back to partnerships. I think this is something that maybe people understand. So you've got partnerships across OEMs, Rideshare, maybe there's potential for fleet like how should we think about the -- how that looks today and what -- how it looks in the future in terms of -- across the partnership spectrum?

Jon, you want to take it?

I think, Cathy mentioned part of our DNA is the blue chip partnerships, right? And so they each have multiple apply, right? If you look at our automaker partnerships in the case of General Motors, they're helping subsidize our infrastructure build. But we're also working with them and Toyota and others on charging credit programs, which are not only ways to make it easier for the customer, they're customer acquisition engines for us. We have co-marketing programs with Nissan. These partners are all part of the entire value chain. And as we think about the opportunity segments in fleet, in particular, Rideshare is that first cab off the rank to paraphrase Cathy. But they don't just bring us more utilization, which is really nice in the public network. They're also doing essentially ride and drives for customers who may not otherwise be in the back of an electric vehicle. And so suddenly, that also helps you with your brand, with people with filling the top of the funnel. And then our logistics fleet partners, our last-mile delivery partners, even we've got a program going on Class A trucks with a company called MHX. It's early days for that kind of electrification, but by proving it out now and being that reliable partner when they scale, we're the first phone call.

Yes. I mean, look, the other thing I would add to that, Bill, is like we've got a pragmatic, realistic approach to this market will become more competitive, right? If we figured out a way to make money on this and there is a rising tide, and other people are going to come and enter. So establishment in these early days of yourself as a market leader and a trustworthy partner is really, really important in terms of securing and deepening living your competitive moat.

Maybe to that point, so I think one of the things that people ask about is like the reliability of the network and where the perception is that Tesla is ahead of everybody else. So I mean what is your thoughts on reliability? What are you doing on your own reliability? But I guess, how should investors think about that as we move ahead.

Yes. Well, Tesla was able to design a closed system where they designed the car and they designed the charger, and they had 4 models, 3 then 4 models -- would our engineers wish that with the case for us. So we EVgo, we have an open network. We have over 50 models that we're charging. We don't design the vehicles. We design a charger. We have an innovation lab that Bill has visited. We've invited -- we invite every OEM. We insist on every potential charging vendor that we might procure product from. We issue specifications for chargers and then test rigorously even after they've met our qualifications and sort of in the spec -- we test every car with every charger, and that's sort of -- that's the first way that we try to make sure that what we're doing is we're doing -- we're deploying charges that will work with EVs. But then what happens is if an OEM changes the firmware, does an over-the-air update to the car and they don't tell us that can cause problems because then our charger can't talk to that car anymore. And that's happened with a number of the OEMs that we've already mentioned to today. And that's okay, but we need to have that ecosystem work more closely. We've got a program underway right now called EVgo Renew, where we're taking a look at our entire fleet. We have many -- we've been around for a dozen years. So we've got some old legacy chargers that are 50 kilowatts. Some of them are still good workhorses -- like when we've got -- like our highest utilization charger at the moment is over as a single and a Walgreens parking a lot over in Brooklyn, 53% utilization -- like why it's utilized so much because probably there aren't any alternatives, but it's actually a great money spinner for us and is a workhorse. But there are others that are either in bad locations or they're more problematic charges because they're early generation. What we're doing is we're selectively taking those, swapping those out, either replacing them with higher-power chargers, installing an additional charger. In some cases, we're saying, this location isn't great, so we're just not going to invest further in this site. As we've been doing that, we've been undertaking diagnostics to try to understand what are the various things that are causing problems. Now our engineers will say I'm oversimplifying this because I'll say there's basically 3 buckets of challenges to chargers. There's what's happening with the chargers that includes the cables and the connectors, what's happening inside the vehicle that can cause a problem? And then what's happening with the drivers in terms of driver user error. There are 3 different buckets. Underneath that, there are probably 200 different things that cause the ERCO, and we're running all of them to ground. But we've undertaken a new program within EVgo renew called ChargeTalk, where our CTO, Ivo Steklac and our COO, Dennis Kish, are going to be click and clock like the car talk guys. And we've just shoot with these guys where they're going to take different topics, and we're going to actually work on helping consumers understand what can cause the problems because part of this is not understanding. Like on the consumer side, one of the things that we've discovered is that we've got hundreds of thousands of customer accounts. We probably actually should have even more because we -- people go through when they sign up on the app -- and if they don't give us a credit card because guess what, you do have to charge for the electronics we just sent, they haven't completed the process, but they think they had the app on their phone, they're like, "Oh, I'm all good. They drive up to an EVgo charger, they try to charge but we don't have their credit card information, so there's an error. So again, these are solvable issues that companies have to deal with. We're working really hard on those. What we're aiming to do is improve what we call it inside of EVgo one and done. What we want to do is get to a really, really very high first attempt results in a charge -- and drivers should deserve nothing less. I mean they should expect nothing less. We are actually -- we're working on that. And with all of these identification of these little problems, these hundreds of problems that have existed for years, we're getting better and better and better to create that seamless charging.

And just to keep nursing on it for one second. -- or 1 minute even. It used to be, as recently as 2 or 3 years ago that if something didn't work, there was one error on the charger. It would just say a connection error. And that didn't matter if the charger was broken, if the car was timing out, if the customer didn't plug it in properly. So we -- our team worked up 17 minimum recommended error codes, open source them, publish them on our website, said, hey, manufacturers, competitors use these so that we can at least find out, "Oh, wait, there is a problem with the power. There's a problem with the communications, there's a problem with the car. Those are really helpful to our diagnostics and our analytics that we can prevent these problems going forward. Got to see -- just check again, if anybody has any questions before moving on. Just wait for the microphone, please.

To the extent that the range of the batteries keep improving dramatically, to what extent that affects your business model?

Well, it's a great question. So there are so many EVs that need to be charged. I think we're really, really excited about the range increasing. As the batteries improve, the charge rates also improved. So one of the things like historically, we've measured utilization in terms of minutes every hour, every day, 365 days a year. But we should probably over time, measure instead the throughput for SOL because the average charge rate of EVs is going up every year. So I will bills Nissan Leaf, your max charge – Your average charge rate?

45.

45 is average charge rate. Average is 30 Something. Our CFO replaced her Nissan Leaf with the new Audi e-tron, which is double that or at least?

Yes that max is 150, it actually the average is pretty high because they…

7-year. My point is this, again, we're nerding out here. My apologies for that. My point is, for every minute, as the cars improve for every minute we dispense more of our products. So yes, the ranges will go up, but we're not charging most cars every day other than our Rideshare drivers. There are so many EVs on the road. We're not the least that troubled by range is going up and people rather than needing to charge once every 2 weeks, they need to charge once every 3 weeks. No big deal. The Rideshare drivers are still charging just about every day. Maybe they charge every 1.25 days if the ranges go up a whole lot --where actually our throughput is going to increase phenomenally because of the batteries are more powerful and we capable of sucking up more electricity more quickly and there's so many EVs. So net-net, we're pretty excited.

And to get biological for a second, the longer range is really helpful to selling the car. And then once you're driving, your bladder is going to be a limiting factor for you. So you're still going to stop, and then you're going to stop and charge while you're there.

Just to go back to the reliability question and I know that the kind of communication between car and charger is a big part of this. We talked about the different types of error codes. I'm wondering, as we think about the competing standards, to what extent does the CCS standard or the NACS once it gets actually standardized, -- to what extent should we expect error codes or communication protocols to be part of the standard -- and to what extent can that help with reliability.

That's a great question. It's really -- you might have a theory about that answer about what's going to be in the standard.

Well, so I think you have -- in that question, you've demonstrated more of an understanding of the core issue that a lot of people have, which is NACS is a connector. CCS is a protocol and a connector. So our understanding is that the Ford and GM vehicles in 2025 that will have the NACS port, we'll still seek CCS over that even to the Tesla stations. So it's really important that the whole industry come together and understand those things, what it's communicating as well as making sure that we are adhering to a standard, what Cathy mentioned earlier on, cars changing their firmware, sometimes that had a very minor but real impact of the shaved a fraction of a second off of the timeout protocol beyond the spec of the standard and then suddenly, it wouldn't work with certain chargers. So these are real -- this is why we agree that if NACS is going to be the standard for a lot of cars, it needs to be a real standard, and you can then get the benefits from it that the whole industry, including the most important stakeholder, the driver really needs.

I mean I would say, though, our observation, and Jonathan mentioned this, it's such a young sector. So effectively, we built a lab and have been -- we've been pioneering what the error codes need to be. And our manufacturers are just like, no, it's just an error code, it's like no. You've got these -- so we're happy to continue to be a thought leader on that and pass any of this over to any of the standards bodies and contribute to this. But I absolutely agree with you. I mean the -- we need some standardization in order for the charging experience for everybody to improve. I mean the truth is that a GM car that gets tossed a Tesla or adapter in the next year or so is going to have a CCS experience even on a supercharger, right? Because it's going to be working for the CCS protocol. It's not going to be speaking Tesla's going to be speaking CCS, and that's fine, but it's not -- there should be no illusion that it's all of a sudden going to be. There hasn't been a brain -- a Tesla brain has not been built inside that GM car yet, right?

Yes. So you kind of live earlier, and there's a lot of provisions for maybe site host to receive federal funding. I just want to speak to that because I think the question oftentimes, I get a last year, you were here, you were talking about a charging station being like $150,000, maybe that's coming down who knows. But what are your options? And what kind of benefits do you get from some of these programs that can offset some of these costs is a capital-intensive business.

Yes, yes. So what we've done is we've had a build plan because we have a great network planning tool that our team -- analysis team has developed. And we've looked at all the geographies that we think these are on a pencil. Then we've overlaid literally the NEVI quarters because for the first trend of funding, it really is -- it's mostly on the highway corridors. Where is the overlap between where we want to build and where there's NEVI money -- and where does the NEVI money make broaden that reach and we've identified those. So we'll be applying for that money. In addition, there are there are locations where we don't necessarily want to build, but others do like, I don't know, some of the gas stations and some of the other restaurants that are in rural areas, we have -- we can offer EVgo extend to them. Because for most of those folks, whether it's a Myer or a McDonald's, they're not necessarily going to want to become charging experts. They need to partner with somebody. And what they get if they partner with us through EVgo eXtend is we can actually do the NEVI application for them. They will own the charging asset, but we will engineer it, we will construct it. We will operate it for them. So -- and so we will collect some revenue for being a service provider, and they will get to own the asset in places where we don't want to. So look, we see NEVI being -- this first round being a big uplift for quarters and then the next round, we're hoping to get into some of the community applications.

And then that's also not even including 30C, it's a tax credit transferability provision that suddenly makes that 30% credit a lot more valuable than it was previously.

We're pretty much out of time. But just any closing thoughts, things that maybe you misunderstood about the story, what's key thoughts and investment thesis moving ahead?

We're -- like we're in such a great spot. We're starting to see real operating leverage on SG&A. Our core business model on the asset ownership is leveraged to EV adoption and leverage to this increasing charge rate, which is beautiful. And in the near term, we've got these capital-light businesses, while we're waiting for utilization and EV penetration to grow. So we just feel like we're in a really great spot.

Great. Well, thanks for the insights here, and we look forward to following the promise.

Thanks for the opportunity.