Investors in electric vehicle (EV) charging company EVgo (NASDAQ:EVGO) have been hit hard this year. Despite a rally earlier this year, shares of EVGO stock have lost around 25% of their value on a year-to-date basis. This move has been exacerbated by the stock’s intraday decline of around 2% in early afternoon trading today.
Today’s negative price action comes despite a rather intriguing potential catalyst for the company. Today, EVgo announced a partnership with Hertz (NASDAQ:HTZ), in which electric vehicles rented from Hertz will be eligible for special charging rates across the U.S. This deal is aimed at new EVgo customers. The hope is that those who use rental cars will seek out the company’s charging infrastructure in the future.
Notably, Hertz has seen its share price surge as a result of this news. HTZ stock is up more than 6% at the time of writing. Accordingly, it appears the market believes this promotion is a much better deal for Hertz than EVgo.
Let’s dive into what investors may want to make of this news.
EVGO Stock Sinks on Promotional Push
Generally speaking, the market’s reaction to this news isn’t surprising. Promotional activity, whether by retailers or suppliers of various goods, can be viewed as a signal that demand is weak for a given company’s goods or services. If a company needs to push promotional rates to spur demand, margins can be impacted negatively. For companies that are already operating on razor-thin margins or that are burning through cash (as is the case with EVgo), that’s not necessarily a good thing.
Now, in certain cases in which customer adoption is picking up, incentivizing demand over a short timeframe can potentially result in a boost in market share and profitability down the road. That’s clearly what EVgo is after with this promotion.
However, giving up a year of monthly subscription fees in exchange for more market share is a strategy the market appears to view as risky. It’s unclear exactly how sticky these customers will be, given the range of charging options in the market. Accordingly, the jury remains out as to whether this move will be a good one over the long term.
For now, I think the market’s reaction to this partnership makes sense. Hertz stands to lose nothing as a result of this move, with users ultimately coming out the winners (and there’s nothing wrong with that).
On the date of publication, Chris MacDonald 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.
