Surviving the four possible futures of EV charging

EV charging part 2 of 2: The long term future of EV charging

For part one (the trajectory of EV charging in the short term) click here.

Photo by Aditya Chinchure

I think we can all agree (or at least hope) that over the next 10 years the US will get its act together to fix our grid and meet public EV charging demands.

In fact, there appears to a relatively healthy dynamic emerging amongst automobile manufacturers and the US government. For example…

1. Tesla has opened up vast swaths of its Supercharger network to nearly everyone.
2. BMW, General Motors, Honda, Hyundai, Kia, Mercedes-Benz, and Stellantis have started a joint venture to build a network of over 30,000 new EV chargers.
3. The federal government has committed to 500,000 chargers by 2030 with the goal of stringing them 50 miles apart at the furthest.

We can be relatively certain about EV charger deployment and standardization, but that’s pretty much where the certainty ends.

Electricity is a commodity. There’s nothing special about one electron or another. Sure, maybe chargers can stand out with their user interface, reliability, and battery treatment / protection. But at the end of the day, this feels like less differentiation than gasoline additives (like Chevron with Techron), which have long struggled to move the needle on value capture.

Ask your friendly local economist and they’ll be happy to tell that low differentiation breeds highly competitive and efficient markets. Already EV charging is an extremely low (or negative) margin business today. In the long run, only the most profitable EV chargers will survive.

So what makes an EV charger profitable? It’s relatively simple — high revenue and low costs.

Costs include manufacturing, installation, maintenance, electricity costs, land, etc. These are likely to become relatively stable and standard as time goes on.

Revenue is likely to have a lot more variability. It can be broken down into three main components:

1. sale of electricity
2. government incentives
3. capture of other consumer value

Sale of electricity revenue can be increased with higher utilization rates, however in an efficient market margins on this electricity are likely to be small.

Government incentives today include the IRA and NEVI. They provide significant funding for EV chargers that are placed in low income areas and along federal highways.

Capture of other consumer value is the most complicated. You can think of this as revenue captured by neighboring businesses when drivers spend money on food, clothes, and other goods while waiting for their car to charge up. More on this later.

These three revenue drivers will determine where future EV chargers will be placed and the businesses that will benefit from them. And there are two uncertainties that will have significant impact on these revenue drivers…

1. Government funding: will the federal government continue to support generous EV charging programs for low income areas and federal highways? Current programs run until 2032, but what about beyond that?
2. Charging technology: will EV charging get faster (similar to the speed of filling a tank of gas) or will it bottom out near the current speeds (at the fastest, 80% of a battery in 30 minutes). Samsung and others claim to be getting closer to a solid state battery, but experts warn their commercial viability may be a decade or more off.

The direction each of these uncertainties takes will dramatically change the landscape of public EV charging in the future.

The four possible future scenarios of public EV charging

At the intersection of these two uncertainties, four very distinct future scenarios emerge…

1. Gas station model: If government funding ends and charging speeds increase, we’ll see a world very similar to the one we have today with gasoline. Charging at home will remain a cost-effective option (for those lucky enough to have access) but road trippers and apartment renters will frequently stop at extremely fast charging stations that leverage revenue from attached convenience stores.
2. Convenience premium: At the intersection of continued government funding and increased charging speeds, drivers will have more options. They can wait in line or drive long distances to charge up at government-sponsored locations (in low-income areas, along federal highways, etc.), or they can pay a premium to quickly fill up at convenient locations (likely existing gas stations).
3. Synergistic charging: If government funding ends and faster charging is not achieved, we’ll see a big shift in EV charging. Only locations that can leverage consumer spending synergies (such as malls, supermarkets, and restaurants) will survive. In this scenario, road trips will remain stressful and EV adoption will be slow.
4. Minimal change: With continued government funding and charging speeds similar to today’s, the world will be strikingly similar. Chargers will crop up organically in high-traffic areas with retail synergies, but they’ll also be made available for a reasonable price in government-sponsored locations, such as low income areas and federal highways.

So who stands to gain or lose?

Gas stations stand to lose the most. If faster charging technology does not emerge, they simply won’t be able to compete with retail hubs. Think about it. If you’re on a road trip and you need to recharge your vehicle for 30+ minutes, would you stop at an ExtraMile or would you prefer to hit the mall, where you can do some shopping or grab a warm bite to eat? Plus, those businesses can subsidize the cost of the charger with the extra earnings they’ll gain from higher customer traffic. To mitigate against this risk, gas stations should consider offering more premium shopping, food, and entertainment options to attract customers to come and spend money while they charge.

Retail players could have a huge opportunity on their hands. Malls, supermarkets, and restaurants can take advantage of slower charging to enable growth. They could see installing EV chargers as an investment to grow their business by attracting more customers that have time and boredom to kill.

Finally, residential landlords have an opportunity in any scenario where government funding is less significant. At home charging will always be most convenient, and as long as the government is not significantly subsidizing public charging, it will also be the cheapest. On-site charging will be an increasingly valuable amenity. As more people purchase EVs they’ll be willing to pay higher rent to access on-site charging.