Investing in Public Electric Vehicle Charging Networks

The world’s largest public electric vehicle charging network today is made possible by a company called ChargePoint that’s taken in a whopping $532 million from investors like Chevron, BMW, Toyota, Siemens, Daimler, and American Electric Power, to build a network of more than 60,000 electric vehicle (EV) chargers. Gas-powered cars need gas stations, and electric vehicles need charging stations. That’s the “picks and shovels” investment thesis which is why some investors are looking at investing in charging station providers. Companies building the gas stations of the future should grow proportionately to the market they are serving, right?

According to the International Energy Agency’s Global EV Outlook 2018, this is true for private charging stations. As the total number of electric cars worldwide passed 3 million in 2017, the number of private charging stations was just shy of 3 million. Passenger car owners primarily use their charge points at home, opting for public charging in the rare occasion when they take longer trips. With the range of EVs increasing about 15% with every model year, we’re slowly inching towards the 400-mile median range of gasoline cars, where long-distance trips become more frequent and the demand for pubic charging

networks is likely to grow. Here’s a look at that growth so far.

Credit: The International Energy Agency, Bloomberg

The Economics Behind EV Charging Stations

Public chargers need to be quick. Nobody wants to spend a Saturday afternoon in McDonald’s waiting for their car to power up and getting fatter. Not all chargers are create the same, and right now there are three types of charging stations available with varying performance levels.

• Level 1 chargers practically mean plugging your car into the wall socket to provide overnight charging. These are typically what EV owners use at home.
• Level 2 chargers use double the standard voltage and deliver 10-60 miles of range per hour of charging,
• DC Fast Chargers (Level 3 and up) offer 60-100 miles of charge in just 20 minutes.

Naturally, the better the charger’s performance, the more it costs to install and maintain. A standard Level 2 commercial charger has an initial investment of around $2,800 while a DC Fast Charger costs more than ten times that much up front. Whoever installs and operates future charging stations has to factor the initial cost of the charger into what they charge users. In other words, quicker charging should cost more.

A paper titled “Charging the Future – Challenges and Opportunities for Electric Vehicle Adoption,” published by the Harvard Kennedy School in September 2018, analyzes the economics of charging infrastructure at length. The paper establishes that commercial fast chargers can only offer electricity prices competitive with home charging systems if utilization rates stay above 20%, four times the market average today. The paper also models the return on commercial charging stations with electricity prices compared to the cost of gasoline at varying levels of efficiency – from 24 mpg to 40 mpg. All but one of these scenarios generate losses, and only the most optimistic scenario reaches the breakeven point. The analysis concludes that residential Level 2 charging is the best option for most of an EV owner’s charging needs at the moment, and that commercial chargers need to ensure a utilization rate above 20% to remain competitive both with home charging and the cost of maintaining a traditional car.

The Growth of Public Electric Vehicle Charging Networks

The sector is facing a chicken-and-egg situation at the moment: chargers will keep making losses until there are enough cars on the road to keep their utilization above 20%, yet the masses are reluctant to switch to EVs until they see better commercial charger coverage. Still, McKinsey MBAs guesstimate that the EV industry would require 40 million charging stations across China, Europe, and the US by 2030 based on current adoption trends, charging profiles, and available technology. This represents a $50 billion investment until 2030, five billion of which should happen by the end of next year.

Credit: McKinsey

The fact that EV charging points are incurring losses at the moment doesn’t deter manufacturers and operators from growing their network. ChargePoint, the leading charging technology developer we mentioned earlier, plans to expand its network to 2.5 million units by 2025, a forty-fold increase compared to its current coverage. Volkswagen’s subsidiary, Electrify America, plans to invest $2 billion over the next decade into a network of fast chargers in the US. As there is no particular stakeholder group that solely stands to benefit from charging networks, the installation and operation of EV charging points remains a fragmented industry. Various stakeholders have various needs as seen below:

• Governments were the first movers to build networks to support “green” policies that perhaps have political motivations
• Carmakers need charging networks to ramp up sales of their new models and increase revenues
• Utility companies aim to diversify revenue streams and maintain revenues in a period of decreasing consumption patterns
• Oil companies want to hedge the risk of decreasing demand for oil (and increase their ESG scorewhile they’re at it)
• Charging technology developers are looking for growth and an added revenue opportunity from operating their own networks
  

  Charging point operators differ in key regions – Credit: Bloomberg

How the industry will pan out in the long run is beside the point for charging technology startups that see enough demand from stakeholders to be able to grow in markets where EV adoption is increasing. Let’s look at seven startups across the globe that are approaching the demand for public charging networks with a diverse set of business models (list courtesy of CB Insights).

Founded in 2010, San Francisco startup Volta Charging has raised $62.3 million to build a charging network that targets retail establishments. Volta offers free installation and free charging to hosting venues that meet its requirements and is wholly dependent on advertising revenues.

Credit: Volta Charging

The company claims their chargers are the most highly utilized in the industry, used during 80% of retail hours. According to Volta, the stations drive a 70% increase in EV-driving customers, and 68% of customers who drive traditional cars consider going electric after seeing a Volta station (whatever that means). The startup currently has 741 chargers in operation across various metropolitan areas in the U.S.

Founded in 2014, San Leandro, California startup FreeWire Technologies has raised $30.2 million from investors like BP, Volvo, and Macquarie Bank to develop a mobile Level 2 EV charger, a Level 3 EV charge point, and an electric generator to replace traditional, diesel-fueled generators. The startup targets EV fleet owners, corporate campuses, utility companies, and entertainment venues with its products and helps future operators with optimal placement and quick installation. The software that comes with the charging stations tracks energy usage and measures sustainability benefits for the operators as well.

Founded in 2015, Stowmarket, UK startup EO Charging has raised $16.4 million to develop a range of home, fleet, and public EV chargers. The Level 1 and 2 chargers are compatible with all brands and cost between $380-$1850. EO offers a charging-as-a-service business model as well for public providers, where the startup retains ownership of the equipment and takes care of all necessary upgrades and civil works in return for a fee of $2.5 per charger per day under a 5-to-10-year contract. The company has partnered with the Suffolk County Council and renewable energy provider Bulb to deploy the UK’s first fully public pay-as-you-go network in Suffolk that will consist of 400 chargers across 100 key locations.

Founded in 2018, Melbourne, Australia startup Chargefox has raised $15 million to build an ultra-rapid charging network that will connect the main cities of South-East Australia from Adelaide to Brisbane. The startup’s chargers can deliver up to 400 km of range in just 15 minutes, making them the fastest chargers available in the country.

Chargefox ultra-rapid chargers deliver 400 km of range in 15 minutes – Credit: Chargefox

Besides their own network, Chargefox offers charging stations to businesses, workplaces, and real estate management companies to operate independently. The stations come with a charge management dashboard that manages revenues, costs, and utilization.

Founded in 2010, Los Angeles startup EVgo has raised an undisclosed amount from investors to create America’s largest public network of Level 3 DC fast chargers. The startup currently manages 1,100 Level 3 chargers across 66 metropolitan areas and partners with retail, utility, and government entities to grow its network further. EVgo owns and operates the stations while partners only provide the space and the demand. The company offers a charge management software that integrates into fleet management apps and 24/7 customer service for fleet and ridesharing clients as well. EVgo has partnered with automakers BMW and Nissan to allow eligible EV owners discounted or free charging.

Founded in 2010, San Diego, California startup Nuvve has raised an undisclosed amount to develop vehicle-to-grid charging technologies. The startup’s chargers work both ways and transform EVs into energy storage cells by taking energy from the car battery while it is parked, if and when the energy grid requires it. EV owners can plan their necessary range for the day, regulate the electricity grid in peak hours with the extra battery capacity, and receive compensation for their service.

Vehicle-to-grid charging benefits both the electricity grid and the vehicle owner – Credit: Nuvve

This energy storage model is particularly helpful in storing renewable sources like solar and wind, where output is heavily dependent on the weather and time of day. Nuvve currently offers fleet solutions that include Level 2 chargers and a platform that regulates the direction and flow of energy for each vehicle. The company is currently developing a DC fast charger as well, and a pilot program for residential chargers that can reduce EV drivers’ home electric bills. Nuvve is present in Europe and the U.S.

Founded in 2013, Charlottesville, Virginia startup Fermata Energy has raised $2.5 million from TEPCO, the Japanese electric utility holding recently made famous by the Fukushima nuclear plant disaster. The startup develops vehicle-to-grid chargers similar to Nuvve’s and has installed four bi-directional Level 3 fast chargers in Danville, Virginia to serve municipal and commercial fleet operators. The pilot project has been in operation since November 2016. The startup will use the new funding to expand nationally and globally, starting with another pilot launched in Nissan North America’s headquarters and design center.

Conclusion

If we look at average numbers, charging stations will largely incur losses because EV adoption is at the early stages. Startups, like the ones we’ve talked about in this article, are growing networks of chargers in carefully selected, busy locations where they can keep utilization rates high. There are many different business models and players to consider when thinking about how this might all pan out in the long run. What we can be sure aof right now is that there enough demand to fuel fast growth in charging networks financed by groups of stakeholders that are all looking for a return when EVs become the majority.

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Source: nanalyze