I like to write about companies that lack coverage on SA and today I want to talk about Gogoro (NASDAQ:GGR). It’s a Taiwanese battery swapping company that was listed at the start of April through a merger with a Special Purpose Acquisition Company (SPAC) named Poema Global Holdings. Overall, I like the business of Gogoro and its valuation but I’m concerned that competitors are starting to emerge, and I have doubts that the planned expansion in China is likely to go smoothly. Let’s review.
Overview of the business and financials
Gogoro was founded in 2011 and it has built a network of 2,200 battery-swapping stations for electric scooters in Taiwan that supports 10 brands and over 47 different vehicle models. The company is also involved in drivetrain technology development, and it has so far produced over 1 million battery packs.
In my view, the idea of battery-swapping makes perfect sense for the electric scooter market as it deals with range anxiety. Energy density technology just isn’t advanced enough yet to ensure long range in this market and scooters are a really popular choice for consumers in Asia these days. There are over 500 million two-wheelers across Taiwan, China, and India alone.
Gogoro has the first-mover advantage and it started deploying its stations in Taiwan in 2015. I’m impressed by the company’s growth rate as it had a market share of 82% by 2017.
According to Reuters, the company had sold more than 34,000 electric scooters by September of 2017 as it closed a $300 million funding round. The fresh funds were set to be used for an expansion in Europe, but it seems that this didn’t work out. Yet, Gogoro’s business has been doing more than well in Taiwan and its revenues in the country have been growing consistently over the year thanks to its strong hardware sales as well as a subscription-based model. The company claims that there is price parity at purchase as subscribing to the battery swapping service removes the battery cost from the purchase price, and this results in a lower total cost of ownership. Gogoro's stations can also be self-powered for a total of 64 hours, which means there is limited risk for the network in case of weather events.
As of December 2021, Gogoro had more than 450,000 subscribers in Taiwan, which translates into a growth of 23.5% compared to 2020.
Turning our attention to the financial performance of the company, 2021 revenues came in at $366 million, which beat its guidance by $39 million. Looking at the past financial performance as well as the projections for the future, we can see that Gogoro has managed to remain profitable during the COVID-19 pandemic and that growth is expected to be fast, with EBITDA surpassing CAPEX by 2024. Most of the growth in the business is expected to come from China, while India is forecast to account for $210 million of revenues by 2024.
There are about 300 million two-wheelers in China at the moment and the company has more than 140 stations in the country. The network is currently live in three cities and this number is expected to increase to six in 2022. Gogoro has a partnership with local firms DCJ and Yadea, which together have about 50,000 retail locations. It seems that electric vehicles in China are set to grow rapidly over the next few years as new environmental regulations are expected to lead to the retirement of about 270 million two-wheel vehicles in the coming years. I think that it’s the perfect moment for Gogoro to be thinking about expanding its operations in China, but I’m concerned that capturing a large market share could prove more difficult than in Taiwan. The Chinese government has recently cracked down on several industries, including technology. In my view, this could spread to other sectors of the economy in the future. Also, China’s relations with Taiwan have been strained more than usual over the past few months and local regulators might not look kindly on letting a company from this country like Gogoro take a large piece of its battery-swapping market.
Another concern is that Japan’s largest motorcycle manufacturers are entering the fray through a motorbike battery swapping program called Gachaco. Electrek reported that this is like a blue version of Gogoro’s technology. It seems that Gachaco will be initially available only in Japan, but I think that a decision to launch this product across the rest of Asia could create serious competition for Gogoro.
And finally, we have to talk about the funding situation and why the share price of Gogoro has been sliding since the listing was completed. The initial plan for the SPAC deal was set to get about $557 million of fresh funds on the balance sheet at an enterprise value of $2.35 billion. Together with the $242 million in the bank, this was set to finance Gogoro’s expansion in China and India.
However, Gogoro revealed on March 31 that it was going to receive only $335 million in proceeds from the merger, including $295 million of private investment in public equity (PIPE). Data from NASDAQ shows that there are 239.2 million shares outstanding at the moment.
Overall, Gogoro is still well funded until EBITDA surpasses CAPEX in 2024 but it will have little room to maneuver if something goes wrong with the expansion in China. At the moment, I think that Gogoro looks cheap as its enterprise value is about $873 million as of the time of writing, which means that it’s trading at less than 5x EV/EBITDA. However, there are several challenges ahead and I think the share price could continue to decrease in the near future as the market has been shunning tech companies due to rising interest rates.
Gogoro has a profitable business in Taiwan, which it wants to replicate on a larger scale in China. The company has a good track record, although it has to be noted that nothing came out of its plans for Europe. Gogoro looks cheap at the moment but too much depends on a successful expansion in China and I think that things might not go smoothly if tensions with Taiwan keep rising. In addition, Gogoro could face significant competition from Gachaco in the future. And last but not least, Nasdaq just had its worst month since 2008 and it seems that there is no end in sight to the fall in Gogoro’s share price.
Overall, I think that Gogoro could be a compelling investment but that it’s too dangerous to open a position at the moment. I plan to put the company on my shortlist, and I will consider opening a position if the initial expansion in China is successful.
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