Gogoro's First Nine Months of 2023: Battery-Swapping Growth and Overseas Concerns

GGR: third-quarter and first-nine-month figures for 2023. https://investor.gogoro.com/news-releases/news-release-details/gogoro-releases-third-quarter-2023-financial-results Personally, I think they look reasonably OK. Revenue declined 10% year over year, partly because of exchange rates and partly because of lower scooter sales, attributed to price cuts by other gasoline-scooter manufacturers. This could actually have an even greater impact on fourth-quarter figures. One positive figure is battery-swapping revenue growth of 10%, or 14% excluding currency effects. This should continue to rise as GGR's electric-scooter fleet in Taiwan grows, and its gross margin should be relatively high. Gross margin was roughly flat. But the price war began during the third quarter, so its larger impact may well fall in the fourth quarter. The third-quarter loss narrowed to US$3 million, thanks to reductions or controls in GGR's selling, administrative, and research expenses. Selling expenses fell the most. Operating cash flow and EBITDA were positive. I will share some thoughts on that below. Here are several points that concern me. 1. Declining revenue and unit sales are warning signs for a startup. Even a decline in Tesla's sales “growth rate” is a big deal. 2. Taiwan still accounts for 95% of revenue, a figure that does not seem to have changed significantly since listing. 3. I now pay closer attention to startup cash flow. Operating cash inflow for the first nine months was US$31.5 million, which would generally not be too worrying for a software startup. GGR, however, remains a hardware company, and batteries presumably account for a large share of its assets. Battery depreciation is substantial, with US$73.29 million of depreciation added back in the first nine months. The difficulty is that GGR must keep buying new batteries, so investing activities must also be considered. Overall, cash outflow for the first nine months was US$84.55 million. At this stage, GGR appears to need to focus on reducing cash outflow. Third-quarter expense controls seem to have helped reduce overall cash burn. But it also seems to face greater competition from traditional scooter makers in Taiwan. Failure to expand overseas successfully and increase the overseas share of revenue would be the biggest concern. Excessively rapid cash outflow could also affect future debt-servicing capacity. There are still US$300 million in short- and long-term borrowings on the books. If cash outflow worries the lending banks and reduces the available refinancing, GGR would need alternatives to borrowing, such as a cash equity offering, to strengthen its finances. At the current share price, though, an equity offering would be somewhat awkward.