How do we make money out of EV charging?

Amid conflicting and often inflammatory headlines, what is the real state of our transition to electric vehicles (EV)?  Across Europe, government mandate is driving us toward an inflection point after which demand for EVs and the charging infrastructure that refuels them will increase dramatically to a zero-emission future. 

In his series ‘Ramping Up: Passing an Inflection Point in Demand for EV Charging’, Steer EV lead Alex Georgianna explores the true state of our EV landscape and what this means for investors and operators throughout the automotive, energy and real estate sectors. ‘Ramping up’ brings clear insight to technical, commercial and policy aspects of our EV transition here in the UK, across Europe and throughout the global new vehicle market. 

EV charging is essentially the sale of energy on either a retail or contracted basis. A chargepoint can be considered an energy “shop” from which to attract demand as a function of its convenience, reliable availability, affordability and overall customer experience. This isn’t rocket science and financial return is a function of well-established precedents of the retail, energy and transport sectors. 

While investors take comfort from the mandated expansion of EV adoption that drives demand, such mandate doesn’t really help identify which shop owner to back.  However, from our experience in serving chargepoint operators (CPO) and their financial backers, we’ve identified five key capabilities demonstrated by CPOs that successfully yield return on investment:

Hunt and secure high potential investment opportunities

Mission one for any successful CPO is pounding the pavement to secure access to the best and most promising investment opportunities. Site selection results from a robust analysis of where, when, how and for what price EV drivers will ultimately chose to re-charge their vehicles. The best CPOs will succeed in securing sites from which to secure the brass ring, more than their fair share of market demand. 

Maintain efficiency in project development

Sure, this begins with mitigating excess construction cost, but in intermediating between energy supply and driver demand, successful CPOs adroitly navigate obstacles in grid access, equipment availability, labour supply and local regulation. They demonstrate their efficiency in securing competitive equipment supply agreements, establishing opportunistic access to installation resources and maintaining productive relationships with local authorities and district network operators.

Preserve retail markup over the cost of well-procured energy

Like any retailer, CPOs must secure energy inventory at sufficient scale and economic cost, but to maintain the margin that drives financial return, CPOs must also provide that “just works” experience that seeds customer loyalty.

Over the longer term, we anticipate that enhanced competition in an expanding EV charging market will pressure retail margins. However, at this rather early stage in our EV transition (and as reflected below), we observe retention and even periodic expansion of retail margin in an uncertain wholesale pricing environment.

Optimise utilisation defined as energy sold per hour, per day and per week

Utilisation is often a misleading concept obscured by vastly differing definitions. At its core however, we’re focussed on the amount of energy sold, generating the cash flow that yields against the cost of expensive infrastructure. We observe that the level of utilisation reflects three key factors:

• Macro – Changing rates of EV adoption and expansion of the charging network strongly impact utilisation.  When the rate of EV adoption exceeds the pace of charging network development, utilisation goes up.
• Commercial – We observe that customers will return again and again to charging resources that “just work”.  CPOs presenting customer-friendly access to reliably operational chargepoints attract more than their fair share of market demand.  EV charging isn’t just infrastructure, it’s a business in which CPOs actively develop their markets to attract market share. 
• Technological – Faster charging speeds reduce the “dwell” time of any charging session leaving more “void” time available to attract additional customers.  Last quarter, Fastned reported utilisation of nearly 15% on a realised charging speed of 66kW.  However, most of the latest model EVs report maximum charging speeds of 150kW to 250kW and recent announcements from China promises speeds far in advance of that.
  15% utilisation of 64kW charging (with an average purchase of 30kWh) reflects 8 transactions and 240kWh of energy sold per day.  However, as sketched below, 15% on 100kW charging facilitates 4 additional transactions delivering a total of 360kWh per day.   A more commercially focussed CPO able to influence certain customers’ charging behaviour (perhaps with off-peak discounting) might attract even more customers to faster, conveniently located and reliably available chargers. 

Mitigate operating overheads and regulatory compliance

Finally, in converting hard-earned revenue into attractive cash flow, successful CPOs will engage technology, systems and business processes that enhance customer satisfaction while also satisfying administrative and regulatory compliance.

As only a single element of our global transition away from fossil fuels, EV-related energy demand is both substantial and predictable as a function of regulatory mandate. The nearly $3 trillion auto manufacturing sector is already well on its way to supplying a 100% EV paradigm to the largest new vehicle markets throughout Asia, the Americas and Europe. 

Our EV transition relies on charging resources that yield to attract private investment. Our challenge isn’t so much that the sector won’t yield properly, but rather in picking the right store owners to back.