Gogoro – Forget Latam, It’s Only Big In Taiwan (NASDAQ:GGR)

Introduction

On February 1, I stumbled upon an article on CleanTechnica about the Latin American expansion plans of Taiwanese electric scooter firm Gogoro (NASDAQ:GGR). I’ve written a total of four articles on SA about the company, the latest of which in March 2023 when I said that Gogoro was behind on its growth plans and that it was likely to be in the red for the year.

In my view, Gogoro’s expansion beyond Taiwan has been underwhelming so far, and I doubt that it can generate significant revenues from Latam anytime soon. Despite the company’s stock price dropping by more than 40% since my previous article, I’m keeping my rating at sell. Let’s review.

Overview of the recent developments

If you’re not familiar with the company or my earlier coverage, here’s a short description of the business. Gogoro was established in 2011 and is an EV battery swapping company focused on scooters. The company produces and sells electric scooters and also has a network of around 12,000 battery swapping stations across some 2,600 locations as well as more than 1.3 million smart batteries in circulation in Taiwan. Gogoro’s network operates through a subscription model, and the battery swapping service had over 570,000 subscribers as of September 2023 (slide 9 of the Q3 2023 presentation). It currently processes some 450,000 daily battery swaps per day.

Looking at the expansion plans for Latin America, Gogoro announced on January 31 that it was partnering with Chilean energy and forestry company Copec to set foot in Chile and Colombia in Q2, 2024. Under the deal, Gogoro will install battery swapping stations at Copec service stations in Santiago and Bogota and the focus of the operation seems to be on consumer and delivery riders. At first glance, it sounds like a major breakthrough for Gogoro considering Copec has more than 3,000 service stations and retail stores. However, we don’t know the number of locations at which battery swapping stations will be installed. In addition, Gogoro has a history of failing to replicate its successful business model outside of Taiwan. Let’s start with Europe. In 2017, the company raised $300 million in a Series C round to fund an expansion into the continent. Yet, Taiwan accounted pretty much for all of Gogoro’s revenues at the time of its NASDAQ listing in April 2022 when it merged with a Special Purpose Acquisition Company (SPAC) named Poema Global Holdings. As you can see from the charts below, the next expansion targets included China and India. Another interesting development was that Gogoro was planning to rely more on hardware sales and not battery swapping subscription revenue to grow its business.

Fast-forward to the Q3 2023 financial report and the earnings call for that quarter, and Gogoro was still talking about a commercial launch in India. China wasn’t mentioned in either of them even once. What’s even worse is that revenues are shrinking due to the weak performance of the hardware business. Battery swapping revenues rose by 10.4% year-on-year to $33.6 million and are far behind the estimates given less than two years ago. It seems that they could be around $135 million for 2024, while Gogoro was expecting $179 million just two years ago. In addition, around 95% of the company’s total revenues came from Taiwan in Q3 2023. Gogoro still isn’t even close to reaching positive operating income despite cutting sales and marketing, research and development, and general administrative expenses over the past few quarters.

Turning our attention to the balance sheet, we can see that the net debt increased from $145.1 million to $212.3 million between December 2022 and September 2023 as the cash position keeps shrinking rapidly despite Gogoro decreasing capital expenses to $78.7 million for the first nine months of 2023 from $102.2 million a year earlier.

Overall, I think this was another weak quarter for the company, as it seems that its growth plans were overoptimistic. The revenue guidance for 2023 was $340 million to $370 million, which means that Q4 2023 is likely to be underwhelming as well. Gogoro should release its financial results for the year around the middle of February.

Looking at what to expect for 2024, I think that revenue growth and operating margins are likely to remain under pressure. Gogoro attributed the weak scooter sales in Q3 2023 were to large discounts by Taiwanese scooter manufacturers (page 2 of the Q3 2023 financial report) and considering the company said it doesn’t want to take part in a price war, I’m expecting hardware sales to continue falling throughout 2024.

In my view, short selling is still a viable idea here, despite the share price dropping by more than 40% since my previous article. According to data from Fintel, the short borrow fee rate is 7.58%. The short interest is just 1.7% of the float, so the short squeeze risk seems small. In addition, hedging the risk through July 2024 call options seems cheap.

Looking at the upside risks, I think that there are two major ones. First, I could be underestimating Gogoro’s growth prospects in India and Latin America. It’s possible that 2024 could prove to be finally be the company’s year after so many failed plans to expand beyond Taiwan. Second, I could be overestimating the effect of the price war in the Taiwanese scooter market on Gogoro’s 2024 financial results. And if this is the case and Gogoro keeps cutting costs, positive operating income could be a step closer in a few quarters.

Investor takeaway

Taiwan accounts for about 95% of Gogoro’s revenue, despite years of ambitious plans to expand in Europe and Asia. The details about the deal between the company and Copec are few, and I don’t have high hopes for the expansion to Latin America. In my view, Gogoro’s hardware business is likely to continue to struggle in 2024 due to a price war in the scooter market in Taiwan, and I think that the company’s market capitalization could gradually decrease to around its cash reserves level over the coming months.