Gogoro Stock: Is EV Battery Swapping the Future?

We humans tend to think that anything currently fashionable or trendy never existed before, but usually that’s not the case. Take the somewhat controversial idea of swapping. The concept has been around since the Gilded Age, but never really caught on because of a lack of interest. No, not that kind of swapping. We’re talking about the business model of battery swapping as a service for electric vehicles. Way, way back in 1896, some forward-thinking engineers floated the idea of exchanging depleted batteries for new ones in early EVs like street cars. Then, in 1912, General Electric and its partners offered a battery swapping service for a modest monthly fee and a variable per-mile charge. The semi-mechanized swaps took as little as three minutes to complete, and the vehicles themselves were a third cheaper without the battery cost.

Image of GE charging station with a Baker EV in the early 1900s
Credit: Proceedings of the IEEE – Vol. 101, No. 1, January 2013

It didn’t last, of course. About a dozen years later, GE discontinued its GeVeCO battery service, as the internal combustion engine ruled the 20th century. The new century is certainly shaping up to be the Golden Age of EVs, with Tesla (TSLA) as the reigning monarch and every major automaker angling to dethrone this bold upstart. But battery swapping remains an afterthought thanks to the focus on EV charging stations. A startup called Better Place raised nearly $1 billion to scale EV battery swapping – including a $200 million Series C led by GE a century after pioneering the concept – but eventually filed for bankruptcy in 2013. That was about the time Tesla was just beginning to scale and few automakers were producing EVs.

It’s a different story today: EV and hybrid sales nearly doubled between 2020 and 2021. And while the focus remains on expanding EV charging networks, battery swapping (like wife swapping) hasn’t gone away. A new startup called Ample thinks it can succeed where Better Place failed. However, by all accounts, Chinese EV automaker NIO (NIO) has already demonstrated that the business model is viable, with revenue of $36 billion last year. And then there’s Gogoro (GGR), a Taiwanese electric scooter company that operates a network of battery-swapping stations. The company is generating significant revenues and reader interest.

About Gogoro Stock

Founded about a decade ago, Gogoro went public in April after it merged with a special purpose acquisition company (SPAC). Remember, SPACs? Well, a few of these questionable business combinations are still crossing the finish line. Like many other deSPAC companies, Gogoro emerged with a much smaller war chest than originally promised. Back in September, Gogoro and its would-be suitor, Poema Global Holdings Corp., announced the deal would net the combined company about $550 million. Instead, it gained about $345 million, with most of the cash coming from private equity rather than the SPAC trust because most institutional investors opted to pull out. That roughly valued the company at about $2.4 billion. Today, it has a market cap of nearly $1.7 billion with revenue of $366 million.

How Does Gogoro Make Money?

Gogoro currently operates almost entirely in Taiwan, an island nation (or not) with a population of less than 24 million people. It makes money from sales of its electric Smartscooters and other hardware, as well as from subscriptions to its battery-swapping network. Last year, about 70% of those revenues, or $255 million, came from the sale of nearly 72,000 electric scooters and sales-related services. Most of the remaining revenue, about 27% or more than $99 million in 2021, is linked to the company’s battery swapping subscription service where customers pay a monthly membership or a per-swap fee. Believe it or not, total revenue of $366 million was actually better than expected based on last year’s SPAC-fueled projection of $324 million, while recurring revenue from subscribers fell short by just $5 million. 

Gogoro battery swapping revenue by year.
Credit: Gogoro

To assess the long-term viability of the battery-swapping business model as an investment, it’s probably worth diving briefly into the company’s technology platform.

About the Gogoro Battery-Swapping Platform

Gogoro claims to have built everything from scratch, using the $480 million it raised as a startup to develop its own line of smart electric scooters, which use a proprietary battery that takes moments to replace at one of the company’s 2,200 GoStations in Taiwan. A single swapping station houses 28 smart batteries in the space of a single parking spot and can support up to 200 riders a day. There are also larger SuperGoStations that can provide power for up to 1,000 riders. There is now a station located at least every third of a mile in Taiwan’s six largest cities.

Gogoro platform
Credit: Gogoro

Of course, much of the operation is automated, digitized, and highly synchronized. For instance, Gogoro claims it can produce one fully functional electric scooter in about two hours. It claims its machines are priced similarly to traditional scooters but cost less to own over time. A cloud-based fleet management network tracks the health and performance of nearly one million batteries simultaneously. In addition, AI-powered algorithms learn in real-time and use historical data to optimize battery availability and improve battery health remotely through Skynet SmartGEN, the AI that runs the show. In fact, SmartGEN crunches all the incoming data about not just battery status but also populations, movements, and geography to help identify new swapping station locations and even help manage its role in the energy grid.

Not surprisingly, Gogoro claims that its “sophisticated software platform is the key to making battery swapping work at scale.”

How Gogoro Plans to Invade China (and India)

But for the business to truly scale, Gogoro will need to expand beyond the Taiwanese market, where it claims electric scooters now account for 10% of all two-wheelers sold in the country. The company also claims its e-scooters and those of its manufacturing partners, which buy hardware kits from Gogoro to adapt their machines to access the battery-swapping network, account for 97% of all electric scooter sales in Taiwan. The plan is to take what appears to be a successful – if not yet profitable – business model and export it to the world’s two most populous nations.

Gogoro markets by geography
Credit: Gogoro

The strategy is intriguing on paper, because what Gogoro proposes to do is essentially franchise its business and technology through joint ventures with Chinese and Indian companies. In China, it is working with Yadea and DCJ. The former is reportedly the world’s No. 1 manufacturer of e-scooters, while the latter allegedly owns 11% of the scooter market in mainland China. In India, Gogoro is partnering with Hero, which reportedly holds 37% of the scooter market. These joint ventures (dubbed SwapCos) are fully financed and managed by the hometown companies. In effect, most of the risk appears to be on these JV partners, which agree to buy battery packs, swapping stations, and the necessary hardware kits to adapt their scooters to the Gogoro network. In addition, these JVs also pay platform licensing fees on every dollar of battery-swapping subscription revenue.

Gogoro revenue and subscriber projections.
The old hockey stick growth chart from last year’s SPAC deck. Credit: Gogoro

One such venture reportedly launched last year in China, and a second is supposed to get underway this year in India. Gogoro is projecting that revenues in these new markets will quickly account for more than half of total revenues in just the next couple of years.

Should You Buy Gogoro Stock?

We must admit to some degree of skepticism about even entertaining the idea of investing in Gogoro stock. After all, the company is entirely reliant (at present) on a small domestic market for nearly all of its revenues. In addition, revenue dropped sharply between 2019 and 2020, but Gogoro didn’t even blame The Rona until mid-2021 when a major lockdown hit Taiwan. Revenue was then flat between 2020 and 2021. 

Gogoro annual revenues since 2019.

There is some reason for optimism. The company’s Q1-2022 revenue came in at $94.5 million, up 61% from $58.7 million in the same quarter last year. That’s significant because fewer people generally buy scooters in the winter than in the summer. In addition, guidance for the entire year is between $460 million and $500 million, which would put Gogoro back on track for real revenue growth. 

However, hardware and related revenue remains the dominant revenue stream versus subscriptions, with a roughly 70-30 split, and gross margin is relatively thin (13.7% in Q1-2022) and continues to decline over time while the company remains unprofitable. The domestic market will reach a saturation point on the hardware end sooner or later, leaving battery-swapping subscriptions as the primary driver for future revenue growth in Taiwan. What’s the gross margin on that segment? We don’t know, but can’t necessarily assume it’s a high margin consumable. Gogoro is piloting other domestic applications for its battery technology, such as powering smart parking meters in New Taipei City, but it will be a while before (if ever) it realizes significant revenue from those ventures. 

Gogoro market share in Taiwan.
EV battery swapping worked in Taiwan, but can it work elsewhere? Credit: Gogoro

That brings us back to the SwapCos in China and India, which aren’t expected to be significant cash cows until 2023 (so, next year?), with Taiwan accounting for 90% to 95% of total revenue this year (so says the company). Again, the deals in China and India could turn out to be extremely lucrative, opening up two of the world’s biggest markets for e-scooters. Partnering with local, leading companies is certainly the right strategy considering the complexities of operating in either country, but until these ventures start making money, it’s all speculation. And we’re investors, not speculators.

Conclusion

Gogoro has proven that EV battery swapping is a viable, scalable business model – at least in a controlled environment like Taiwan where scooters are the norm. Outside of Asia, Gogoro will find it much harder to expand, especially in the world’s biggest economy, the United States. For now, that doesn’t matter. Let’s see how it executes in China and India first. We’d consider revisiting the company if they start showing meaningful international revenue traction.

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