Energy

Chicken-and-Egg Problem: EV Adoption and Buildout of Charging Networks

Charging electric vehicle EV

The need to decarbonize transportation is prompting a revolution in the industry. Several countries have committed to electrifying their passenger vehicle fleets, which requires promoting the adoption of Electric Vehicles (EVs). The increasing cost of gasoline and diesel is also leading to demand destruction for Internal Combustion Engine (ICE) cars. Furthermore, EVs have been in a deflationary curve as their main component, lithium-ion batteries, has become increasingly price competitive, making the low carbon alternative to ICEs more appealing. Lastly, we have new players like Tesla (TSLA) that are launching EVs with very high UX – low maintenance being a popular feature. Put these elements together and we see most major automobile manufacturers working to launch of EV products.

In its 2021 Annual Report, EVGo, a leading fast charging network provider, points out that around 20 automakers will be launching about 40 EV models in 2022. General Motors has announced plans to phase out ICE vehicle sales by 2035, Ford is working towards making 40-50% of its global vehicle production electric by 2030, and Mercedes-Benz and Volvo are both planning to be all electric by 2030. EVGo also says that the U.S. Department of Transportation and Bloomberg New Energy Finance estimate that approximately 5.8 million EVs will be on American roads by 2025, with the figure rising to 25 million by 2030 and reaching 114 million by 2040. This would account for more than 40% of all automobiles in the U.S.

Building the Network While Promoting Grid Stability

EVs are a headline solution in the race to decarbonize our economy. The charging infrastructure on which they depend on may be less glamorous, but it’s no less important. Many, in fact, have highlighted its potential to either obstruct or catalyse the widespread adoption of electric vehicles. The question often asked is can building a charging infrastructure lead to an uptake in electric vehicles or vice versa? This is effectively a classic chicken-and-egg problem.

Beyond promoting EV adoption, it is also important to emphasize that EV charging networks play a crucial role in achieving grid stability once we have millions of EVs on our roads. Research has shown that most EV owners currently charge their cars at the end of the working day, exactly when electricity demand is at its peak. The overlapping demand as EVs increase in adoption is worrisome, since the draw on the grid of a single EV is equivalent to that of an entire house.

Historically, grid operators would meet such an increase in peak demand with additional power plant capacity, but that can’t be done on a grid powered by renewable energy. This is where the EV charging network can be a game changer. It can promote “Smart Charging” and leverage technology that will enable Demand Side Response (DSR), remunerating EV users to shift charging habits and  move demand to the benefit of the grid.

Matching Speed, Devices and needs

Different speeds, currents and voltages are needed to support the various types of charging needs. When talking about the charging network, figures tend to exclude single family residential charging. Current charging infrastructure refers to public locations, which is a broad group that includes EV charging in publicly accessible locations or along highways, workplace, which refers to EV charging for employees during the workday, and commercial and fleet, charging EV fleets, which includes municipal/private fleets, car sharing and transportation network platforms.

According to the National Renewable Energy Laboratory (NREL) around 27,500 Direct Current (DC) Fast Charging and 601,000 Level 2 EV Supply Equipment (EVSE) ports would be needed across the U.S. to support a scenario in which 15 million light-duty EVs are on the road. The Biden administration wants to promote the development of a national public charging network of 500,000 EVSE single port charging by 2030. In the same report, the NREL points out that by the end of third quarter 2021, there were 23 EV charging network players in the U.S. market, with 19,985 public and workplace DC Fast Charging EVSE ports and 97,673 public and workplace fast charging (classified as Level 2) EVSE ports in operation.

Building the Infrastructure of the 21st Century

Drivers of ICE cars get all their fuel from retail fuelling stations. There are over 150,000 of these in the U.S. For EV charging, there will be a very different dynamic, as charging at home or at the office will be the main way to “fuel” the cars with electricity. EV charging stations are also needed to support distance driving, although people often forget that they only need to fall in line with our biological needs – often termed the “bladder range.” This prompt drivers to stop along highways even if they do not need to pump petrol into an ICE. Therefore, different business models for this digital and distributed infrastructure are unfolding.

As digitalization, 5G, IoT and EVs converge, more optimization solutions are adopted. Grid operators are likely to offer different rates for EV charging, with low overnight off peak energy tariffs as well as low, solar-linked tariffs during the day, plus higher tariffs in late afternoon and early evening to discourage peak hours charging. Price sensitive customers would have to change habits. High tech users may use smartphones and other electronic solutions to manage their load. In parallel with this process, key EV charging companies already leading the space are working on additional business models that move away from a pure tariff per charge (which ties profitability to utilization rate) to more subscription-based models. This is for the peace of mind of being part of a larger network of fast charging locations to the ancillary grid services of the lower charging aggregators.

Here are some key players in the space:

EvGo (EVGO) is the operator of the largest public fast charging network for EVs in the U.S. and it was the first to be powered 100% by renewable energy. The company reported 2021 annual results with revenue up 52% over the 2020 fiscal year, reaching $22.2 million. EvGo ended the year with 850 locations, 1,900 stalls in operation and a pipeline of over 3,100 stalls. It serves over 3 million users across 30 states. Last year, the company was chosen by General Motors to be its preferred charging provider. This is a perfect example of EVGo’s strategy to partner with fleet owners at the corporate level. It does this while promoting a subscription-based model, moving away from a single charge fee.

For the fiscal year that ended in January 2022, ChargePoint (CHPT) announced revenue at $242.3 million, which was 65% above 2020 sales, and reiterated guidance of revenue for the current fiscal year to be between $450 and $500 million. The California based player also operates in Europe, with over 140,000 places to charge on the company’s network. ChargePoint’s customers are the ones that own the charging sites or stations, creating a more capital light business model and a revenue model predicated on hardware sales bundled with high-margin, recurring software subscription and services.

Blink Charging Co (BLNK) is an owner, operator and provider of EV equipment and services. The Miami based company focuses on vertically integrating the offering, unlike competitors that they believe are either equipment sellers or network operators. With an owner operator model, Blink benefits from the ongoing utilization of the assets. Their revenues are derived from charging service revenues, network fees and ride sharing services. In fiscal year 2021, its revenues reached $20.9 million, which was more than a threefold increase over 2020. The company is also planning an international expansion, with offices in Europe, Israel and India.

The chicken-and-egg conundrum is being solved. Investments in the space and the adoption of EVs re happening much faster than many analysts expected, and this is also accelerating the build-out of the charging network. Much more than fuelling stations, this infrastructure of the 21st century aggregates and optimizes the powerful mobile batteries of the low carbon cars of the future.

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

Gabriela Herculano

Gabriela (Gaby) Herculano has over 25 years’ experience in finance and in energy. She grew up in Brazil, is also a proud citizen of Portugal and has lived and worked in the U.S., Singapore and the UK. Gaby started her career in equity research, covering the Latin American electric utility sector at Lehman Brothers. After business school, she moved into the buy side, where she worked at greenfield project finance and M&A at energy developer AES Corporation and as an Executive Director at GE Capital’s Energy Financial Services team in London.

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