Electric vehicle charging has come a long way in recent years.
Until somewhat recently, road-tripping required lots of advance planning. Charging speeds were slow, necessitating stops that easily stretched past 30 minutes. Sessions were stymied by broken or vandalized equipment or inconsiderate fossil-fueled car owners blocking the charging points.
Thankfully, those days are largely over. Charging networks today are larger and more reliable, and many new EVs can add a decent amount of range in just 20 to 30 minutes. But that doesn’t mean the market is not ripe for disruption.
Public charging has improved dramatically in recent years, yet it’s still not nearly as quick or convenient as using a gas station. And while it’s true that most EV charging today is done at home, many prospective buyers still have concerns about public charging infrastructure. In a recent survey, 61% of Americans said that concerns about charging logistics are holding them back from buying an EV. Broad EV adoption will depend on the speed, distribution and reliability of charging networks.
Next-generation EVs will charge even faster, alleviating some of those worries, but they’ll also demand more robust equipment and grid connections. McKinsey estimates that between now and 2030, the U.S. will need 1.2 million public chargers at a cost of $35 billion.
But I’d wager that’s a fraction of the market’s potential value. No single business model dominates the EV charging market. When one does, it’ll probably come from a platform-like approach, one that will use the core charging infrastructure to unlock more value in other profit centers, which will help solve two pain points — slow chargers and poor maintenance — that can make EV charging a sucky experience today.
Shocking lack of profits
Today’s EV charging business models fall into three main categories — networks run by manufacturers to spur EV sales, networks that focus on consumers directly and networks run as a service for property owners or managers. (That’s a bit of an oversimplification since some use elements of all three, but it’s close enough. There are also attempts to use advertising to support EV charging, but I’m skeptical that’s a standalone model — advertising is a cutthroat business and highly cyclical, a combination that doesn’t jibe with long-term infrastructure investments.)
The first model, in which networks are run by manufacturers to encourage sales, was pioneered by Tesla. The company has won over many converts on the strength of its Supercharger network, which continues to be a terrific selling point. Electrify America partly falls under this model, too. Initially formed as a part of Volkswagen’s settlement in the wake of the diesel-emissions cheating scandal, Electrify America has become the network of choice when auto manufacturers want to offer charging perks with new EVs.
That model is unlikely to last forever, though. As competition helps drive EVs down in price, profit margins will slim and automakers will start to balk at supporting vast infrastructure plays. Plus, as competing networks improve their reliability and fill in their gaps, drivers won’t be reliant on automakers’ largesse. In-house or subsidiary charging networks won’t be as strong of a selling point to consumers, and OEMs won’t see much profit upside in them.
The second model, where networks sell electricity via charging sessions directly to consumers, is unlikely to become profitable because fast-charging will turn into a commodity. Today, having reliable equipment that delivers speedy charges is enough to differentiate Electrify America, for example, but eventually, that’ll be table stakes. (After all, no one walks around saying, “I’m very happy with how quickly and reliably Acme gas stations dispense my gasoline. I think I’ll come back more often.”) And since one charger’s electricity will be the same as any others, networks will have to find some other way to stand out.
Location is an obvious differentiator. If charging stations are in the wrong places, they’ll be useless to consumers, underutilized and unprofitable. Which is why a number of companies are working with property owners and managers to site, maintain and operate chargers on their premises.
For restaurants, shops and more, the sales pitch is a simple one. They gain an amenity without having to worry about permitting, construction oversight and maintenance. Sometimes, they’ll even get a cut of the charging fees. In theory, it sounds win-win.
In practice, it often leaves much to be desired. Since fast chargers are expensive to install, many networks opt for slower Level 2 chargers that only add a couple dozen miles per hour. For some people, that’s barely enough to justify the trip to the charger itself. And once they arrive, they might find chargers that are poorly maintained, meaning that customers can’t count on them when they need them.
Some 40% of respondents in a 2020 California survey said they had to contact customer service when attempting to plug in their cars, mostly because the charger wasn’t working or the plug was broken. Even expensive DC fast chargers are frequently out of order. Another recent study in the San Francisco Bay Area found that nearly 25% of DC fast chargers were broken in some way.
It’s hard to pinpoint exactly why EV chargers are so unreliable. It could be that the entire concept is relatively new and kinks need to be worked out. DC fast chargers that hit 150 kW or more are recent developments, and as any early adopter knows, problems with new hardware aren’t unusual. Different locations and times of year may pose their own challenges, too. During a summer trip on a hot day last year, for example, I encountered a 350 kW Electrify America charger that kept tripping offline. Its cooling fans were quite loud, leading me to wonder whether the device had simply overheated.
Looking for inspiration
To make EV charging better and more reliable, networks will have to solve those challenges and more. That will take time and money, which makes it all the more vital that charging networks find business models that work for EV drivers’ unique use patterns.
It’s unlikely they’ll be exactly like gas stations. The dynamics of EV charging are different than filling a fossil fuel-powered vehicle. People will use them a little bit longer, probably on the order of 15 minutes, but less frequently since most charging for daily needs will be done at or near home or work. That infrequency coupled with the longer dwell time makes EV charging a poor fit for the pop-in simplicity of the convenience store.
But observing how tightly coupled gas stations are with other businesses is illuminating. Gas stations are in many places synonymous with convenience stores; that’s how inextricably they’ve become linked. That’s because most gas stations don’t make their profits selling liquid hydrocarbons but on what’s sold inside the store.
Grocery stores, big-box retailers and warehouse clubs use gas as a loss leader to get people in the door. It’s hard to imagine EV charging being any different.
Restaurants are another option, especially if it’s a fast-casual or fast-food chain. The meal will have to be quick enough to order, prepare, serve and eat within the usual charge time. But while restaurants may make sense in some places, they’re unlikely to be a big driver of charging network profits. People on road trips don’t need to eat a full meal every two to four hours, so it’s hard to see that being a big draw.
Porsche, Audi, Electrify America and others are testing out lounges next to their charging stations, sort of like an airline club for drivers. People can pop in to refresh themselves, grab a quick bite or some coffee and be on their way. It’s a great concept and one that may catch on among more wealthy drivers. But it’ll probably remain niche, serving more as a differentiator for the charging networks than a profit center.
Dead and dying malls might be a better fit than restaurants, convenience stores or drivers’ lounges. EVs don’t emit noxious fumes, so mall owners could theoretically retrofit some indoor space to house charging stations. Luxe indoor parking while charging would certainly get a few people in the door. Then they could get out for some brief shopping or dining while they wait. Or if they prefer to stay in the car, the mall could run a concierge service that might bring stuff from the stores and restaurants straight to their car. Malls provide a range of activities that convenience stores or restaurants don’t offer, meaning that drivers can loiter longer and may spend money even if they’re not hungry.
I’m not saying “dead malls” is the right answer, and I’m not pretending to have one up my sleeve, either. But I do know that EV charging will need a business model that will make it both attractive to drivers and profitable for investors. It’s a bit of a “know it when I see it” case, and right now, I know that I haven’t seen one yet.