The EVolution #23: Fueling the future
Charging networks, gas stations, utilities, and others vie to shape the new normal
Two surprising facts about gas stations in the US:
Most gas stations are independently operated, not owned by a major oil company. They typically sign contracts to source their gas from, and use the brand names of, the likes of Shell, Exxon, and Chevron
Gas stations make very little money from selling gas. In most places, there is plenty of competition, and retail prices sit in a narrow band not much above wholesale cost. That’s why most gas stations are attached to convenience stores selling soda, hot dogs, and cigarettes. Gas brings in the customers, but Slurpees pay the bills
And there’s the obvious: gas stations have a monopoly on fueling occasions for traditional cars. There’s nowhere else you can fill up your car!
Public EV charging networks, though, don’t have a monopoly on electric fueling occasions. Over time, a majority of Americans will most often charge at home, where overnight even a regular wall outlet can add more range (~60 miles) than the average daily driving distance (~40 miles).
The business of charging
Still, there will always be a sizable public charging need. For now there’s not fierce competition in most areas and network operators generally have flexibility to set prices. But in the long run—and to be clear, this is many years away—once charging options are prolific, “selling electrons” becomes commoditized with prices pretty close to cost. (Having seen this play out with gasoline sales, C-store giants Circle K and 7-Eleven want to sell candy and Gatorade to EV drivers, too. It’s yet unclear whether they’ll buy and run all of their own charging stations or partner with third parties.)
The ultimate role played by independent EV charging network operators, who rent placements for their stations in retail parking lots and other public spaces, is still in flux. Dynamics must shift if they are to capture a meaningful share of the economic value generated from customers charging at supermarkets, pharmacies, gyms, and hardware stores. Will retailers and station operators find a way to share the revenue that drivers spend while their cars are charging?
Without snagging a portion of that spending, and if there isn’t a meaningful additional revenue stream (for example, my employer’s stations double as strategically placed, in-demand outdoor advertising platforms), this is a low margin business. Nonetheless, operating an EV charging network can still be a high revenue business, because of the ability to be in far more locations. The physical requirements of gas stations mean they can’t go just anywhere, but charging stations—particularly moderate-speed L2 (much cheaper to install and maintain than DC fast)—can be placed in a vastly greater number of locations.
Keep in mind that unlike, say, a software product, more or less built once and then sold at virtually zero marginal cost to new customers, charging infrastructure is a “CapEx-heavy” business. It takes a boatload of money to pay for digging holes, running electrical conduit, pouring concrete, and operating a physical, high wear-and-tear product that needs to be supremely reliable 24/7/365.
Hence, independent network operators exist so that businesses can focus their capital allocation on their core operations rather than on installing and maintaining stations. (It’s also why it’s grossly inefficient for automakers to now set up their own vehicle-specific networks; Tesla did so only because they came to market several years before widespread third-party charging was in place.)
There’s a related debate as to the extent to which electric utilities should be running charging networks themselves. Sure, they could cut out the “middleman”—but having utilities responsible for providing stations everywhere is impractical, especially given the unlikeliness of their customers accepting higher rates (necessary to fund the high development costs). Narrower efforts with a clear public benefit, like that of the National Electric Highway Coalition or installations in underserved communities, are more likely to characterize utility-operated charging.
One other major implication of high upfront costs: for charging networks to make money, it’s critical that stations see high utilization from early in their lifespan. Government funding to subsidize installations helps solve the current chicken/egg paradox, wherein:
Consumers are reluctant to purchase EVs due to lack of chargers
Charging networks have difficulty profitably expanding in many areas until more EVs are on the road
The passage of the bipartisan infrastructure bill (“IIJA”) last year and Inflation Reduction Act (“IRA”) this month should make a significant difference.
Not a “winner-takes-all” market
Capital constraints, different expectations for financial returns, and custom use-cases (e.g. exclusive rideshare/delivery charging?) are the main reasons that, long run, there will be a hodgepodge of national, regional, and hyper-local players in this business. In some ways it’s not too different from retail gasoline, except that the barrier to entry in EV charging is ultra-low (virtually anyone can buy and “white-label” charging hardware and software).
The upshot for drivers: low prices and plenty of options!