World Reimagined

Beyond the Electric Car: Why Investors Need to Pay Attention to Charging Stations

Electric car
Credit: iStock photo

More often than not when a new device captures consumer and investors’ attention, be it the smartphone, intelligent speakers, wearables, or electric vehicles, the focus is on the end product. Understandable given these innovative products tend to change the playing field by bringing innovative functionalities and technologies and providing a delightful consumer experience. As investors, however, we need to look beyond that, and the electric vehicle space is one place where looking past the shiny object can yield a great investing thesis. To wit, the EV space is growing rapidly, but the one thing all these vehicles need, regardless of manufacturer, is to get a charge.

We’ve become creatures of habit when it comes to charging our smartphones and wearables, to the point where many of us carry either a portable battery pack or charger because no power means no device. It’s a bit more complicated with electric vehicles, which need to be charged on the go, lest one become stranded. Even though electric vehicles have experienced leaps in battery technology that have expanded their range to as much as 350 miles per charge (possibly nearing 500 with the new Mercedes-Benz EQS), past a certain point they need to be recharged in order to continue one’s journey. The frequency of charging is of course greater for those EVs with shorter ranges, such as the 2020 Hyundai Ioniq Electric (202 miles according to Edmunds) and 2020 Tesla Model 3 Standard Range Plus (232 milers per Edmunds).

Thus far, we’ve yet to see a portable battery pack big enough to charge an electric vehicle, and we have to wonder how big it would actually be, so for now drivers of EVs need access to the electric vehicle equivalent of the gas station, better known as the charging station.

The EV market is expected to explode

There are a number of factors spurring the adoption of electric vehicles, including rising awareness of air pollution, increasing preference for the use of renewable and environmentally friendly energy sources, and government initiatives across the globe to promote the adoption and manufacturing of EVs. And while it hasn’t passed yet, President Joe Biden’s infrastructure plan contains roughly $300 billion for EVs in the form of purchase incentives, clean-energy infrastructure, and clean-energy manufacturing. A few months ago, China's Ministry of Finance cut subsidies for electric vehicles (EVs) which varies by the EV’s range by 20% for this year to roughly RMB14,400 vs. the standard payout of RMB18,000 in 2020.

In its December 2020 market forecast, IHS Markit called for the global EV market to soar 70% in 2021 from ~2.5 million units. IHS Markit forecasted this market to reach 12.2 million units in 2025, which suggests an EV market share of all new cars sold near 10% compared to 1.8% in 2020. In the U.S., Frost & Sullivan sees the EV market growing to 6.9 million units in 2025, up from 1.4 million units in 2020. Even longer-term forecasts, like the one from IDTechEx that sees over 100 million plug-in EVs on the road globally by 2030, including passenger cars, buses, trucks, and vans, vs. the just 7.5 million exiting 2019.

And according to the data, the majority of EV owners buy another one when they're ready to trade their current electric car in. Those factors explain the burgeoning pivot by auto manufacturers such as Ford Motor (F), General Motors (GM), Volkswagen (VLKAF), Honda Motor (HMC), Daimler AG (DDAIF), BMW AG (BMWYY), and others toward EVs as well as the rise of EV-only auto companies ranging from Nio Inc. (NIO), Xpeng (XPEV), and of course Tesla (TSLA).

EV Charging Stations

Even though we have seen improvements in charging and battery technology, including ultrafast charging that can fully charge an EV in roughly 15 minutes, the reality is that every year we will have more and more EVs on the road from a growing number of manufactures that will need to be charged. An October 2020 report by the European Automobile Manufacturers’ Association revealed EVs sales increased 110% over the previous three years in Europe but the number of public charging points grew by only 58%. Similarly in the U.S., the growth of the EV charging market has lagged EV vehicle adoption. By mid-2020, there were only 1 million public EV charging stations globally. By 2030, the UK alone is expected to need 400,000 public charging stations, and to meet that goal, the annual rate of charging point installations has to reach 35,000 compared to the current rate of ~7,000.

That slow rollout of charging stations has been one of the gating factors for consumer adoption of EVs. According to a 2020 survey conducted by Plug-in America, more than 50% of current drivers experienced problems with public charging, although these problems were more prevalent in those who drove non-Tesla EVs.

Pain points tend to drive solutions, and the current mismatch between EV adoption and EV charging stations is expected to be addressed over the coming years. According to an IDTechEx forecast, by 2030 the global EV charging infrastructure market will be worth $40 billion per year. We are already seeing initiatives to address this problem. In January, California Governor Gavin Newsom proposed a fiscal year 2021 budget that includes up to $300 million to install EV chargers at every state-owned facility where vehicles are parked or serviced. Included in President Biden’s $2.3 trillion infrastructure package, the White House is calling for 500,000 new EV charging stations as part of the $174 billion plan to boost the EV industry.

Investors looking to capitalize on the expected spending to address this pain point should examine the shares of ChargePoint Holdings (CHPT) and Blink Charging (BLNK). EVgo recently tapped the public markets through its merger with the Climate Change Crisis Real Impact SPAC (CLII) and Volta is merging with Tortoise Acquisition Corp II (SNPR). We’d note that EVgo has teamed with General Motors to build more than 2,700 fast-charging stations over the next five years.

In addition to other private companies that are targeting the space, Volkswagen’s Electrify America had roughly 500 charging locations and over 2,200 individual charging units near the end of 2020 and Tesla has roughly 20,000 Supercharger stations. Not to be outdone, privately held EV maker Rivian Automotive recently announced it will build an exclusive, fast-charger network for its coming R1T pickup and R1S SUV. One wild card to watch for could be a move by the companies behind gas stations today, such as Royal Dutch Shell (RYDAF), Exxon Mobil (XOM), and BP PLC (BP), into charging stations. After all, location, location, location is key and legacy gas stations already have a lock on those corners.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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