Charge Point Frenzy: the EV transition

In any country where everyone drives an electric vehicle (EV) there will have to be a comprehensive network of charge points. It may be that those who facilitate the EV revolution will prosper more than those who manufacture EVs, writes Victor Hill.

The road ahead

A report out last month from the Society of Motor Manufacturers and Traders (SMMT) estimated that the UK will have to install hundreds of new EV charge points every day if we are to drive only new electric cars by 2030 and only new electric vans by 2035. The think tank Policy Exchange reckons that we need to install at least 35,000 new charge points every year for at least the next decade to power the huge number of EVs that will be driving around. We shall need about at least 400,000 charge points nationwide; currently we have 40,000. The cost of building this EV charge infrastructure will be about £5-10 billion.

The UK government has decreed that only EVs will be available to buy new from 2030 – though presumably there will continue to be internal combustion engine (ICE) powered cars on our roads for some time thereafter which will continue to need petrol from the pump. BMW (ETR:BMW) is planning that half of its car production will be EVs in 2030 and the other half with still be ICE-powered. (Though not for sale in the UK: I wonder if the Extinction Rebellionpeople will try to punish the Bavarian icon.) The SMMT also warned that the network of EV charge points will have to be adequately maintained. Currently, about one in ten EV charge points in the UK is out of order. That’s not good enough.

UK motorists are disproportionately dependent on public charge points because one in three British households does not have dedicated off-street parking where they can charge up their EVs from their home electricity supply. That is why the government has been offering subsidies. Homeowners and landlords in the UK can apply for grants of up to £350 to have charge points installed in driveways.

According to Zap-Map, a charge point database, there are currently just 20,000 public charge points available to private motorists in the UK. New charge points will have to be located strategically so as to ensure that motorists do not run out of power on long journeys – an event which could cause accidents on motorways. Over the last year, just 7,000 new charge points have been installed.

Policy Exchange fears that, if left to market forces alone, the distribution of charge points across the country will remain lumpy. It therefore proposes that charge point installers should be offered government subsidies akin to those that have stimulated the expansion of offshore wind power.

Right now, the UK’s busiest EV charge point is reckoned to be BP’s Talgarth Road facility just off the Hammersmith flyover in West London. This charges on average 115 vehicles a day. 

EVs accelerate

In Mr Sunak’s 11 March budget, the government subsidy for the purchase of new EVs was cut from £3,000 to £2,500 and the price cap was reduced from £50,000 to £35,000. People who can afford a Tesla Model 3, which comes in at around £40,000, most probably would not be swayed one way or the other by this subsidy. Nevertheless, the SMMT believes that the subsidy cut sends out the wrong message. Other countries are increasing subsidies on new EVs. The RAC has even proposed that the government should scrap VAT on new electric cars.

Just 4.6 percent of all new cars purchased in the UK last year were EVs. Overall, the car market in the UK has been depressed with total sales falling by 14 percent year-on-year in the month of February – down to 105,000. (As this goes live, it looks like the March figures are rosier.) This was the 18^th consecutive monthly decline. This was partly due no doubt to the economic impact of the coronavirus pandemic with car showrooms closed: but there seems to be a secular trend at work too – young people do not seem to be as keen to buy cars as their parents’ generation.

Looking at the figures in a more positive light, ownership of EVs increased by 50 percent last year. By the end of 2020 there were 86,000 privately owned EVs on Britain’s roads, up from 56,000 in 2019. But that was just a derisory 0.27 percent of the total 32 million vehicles licenced with the DVLA. When company and commercial vehicles (including EVs operated by local councils) are added in, there are a total of 213,000 EV’s on our roads. And including hybrids, its nearer 500,000. Delivery vans, taxis and lorries tend to charge up at depots. Most commercial EVs will continue to charge up at work.

According to the RAC, the densest concentration of private EVs is the London Borough of Barnet with 1,235 owners. The area with the lowest concentration of EVs is South Wales (Merthyr Tydfil and Blaenau Gwent). Unsurprisingly, London has more than 100 charge points per 100,000 people, while the North West of England has just 40 per 100,000. By 2030 there will be, according to industry estimates, 10 million EVs on Britain’s roads, so hundreds of thousands more charge points will be required.

Many people are still reluctant to make the switch to EVs for several reasons. Firstly, EVs are regarded as expensive to buy new and there is a somewhat limited market for second-hand models. The basic petrol version of the Vauxhall Corsa costs about £16,000; while the Corsa-e starts at £27,140. The main reasons behind this are economies of scale, and battery costs which represent roughly 40 percent of an EV’s cost of production. Given greater volume production, the cost of EVs should come down in the future. UBS recently opined that VW will be able to manufacture the EV version as cheaply as a current ICE-powered Golf model by 2025.

EV manufacturers should make more of the fact that EVs cost less to run than ICEs and incur lower maintenance costs. Even parking costs are often less these days for EVs. High-mileage drivers will probably gain most from driving EVs; but, then again, road charging – inevitable after EVs reduce the government’s tax-take from fuel duty – may erode that advantage in the future.

Secondly, people are apprehensive that they may not be able to get access to a convenient charge point on long journeys. This is now called range anxiety. For people to be confident that they can charge their EVs in good time charge points will have to become as ubiquitous as petrol stations are today.

Third, as mentioned, many people are unable to charge their EVs at home. Even people who live in flats but have access to garages often do not have electric power there.

Fourth, public charge points are considered unfriendly. Last month, Rachael Maclean MP, a UK government minister whose brief includes the future of transport, claimed that women are being put off electric cars because they are often placed in the dark corners of car parks where women do not feel safe.

There may well be a tipping point between now and 2030 when people collectively decide that the value of their petrol cars will decline precipitously as the deadline approaches. (Though that might also mean that there are golden years ahead for second-hand vintage ICE-powered car dealers.) As we get nearer to the government-imposed deadline, so we shall concentrate more intensely on our EV future.

Hybrids

The government plan is to ban the sale of new hybrid vehicles by 2035. But it could well be that hybrid cars fall out of favour before then. The consumer watchdog, Which?, recently tested 22 models of plug-in hybrid cars and found that they were up to 72 percent less fuel efficient than manufacturers’ figures suggested. The best-performing model was the Toyota Prius – but even that was found to be 39 percent less fuel efficient than its official fuel economy rating. Which?proposed that prospective buyers who have access to charging at home would be better off by buying an EV. Notwithstanding this, in 2019, the sale of plug-in hybrids jumped by over 90 percent to 66,877 vehicles.

Charge point infrastructure: key players of note to investors

ChargePoint (NYSE:CHPT), founded in Silicon valley in 2007, runs the world’s biggest network of plug-in EV charge points with around 114,000 charge stations across the USA and Europe. It claims to have recharged EVs more than 82 million times. When it launched on the NYSE last year it was valued at over $8 billion, though it has since fallen below that level. That represented a major pay-back for initial investors who included BMW, Daimler-Benz and Siemens. The company had revenues of $145 million in 2019, though analysts think these fell back last year. It expects to declare profits by 2024. Its share price has been on a downward trend this year, though it rebounded somewhat during the first week of April.

ChargePoint sells charge points to homeowners, businesses and fleet owners. Then it allows them to set the price for the electricity consumed. Like Airbnb which does not own hotels, ChargePoint does not own any charging stations.

Then there is the Netherlands’ Fastned (AMS:FAST) which has a 10-year track record. The company claims that its rapid chargers can add almost 220 miles to an EV’s range in just 15 minutes. Its share price has rocketed over the past year – but watch out, it has been very volatile. The stock price has fallen away in recent weeks as growth stocks have fallen out of favour. At time of writing, it has a market valuation of over €1 billion on 2019 revenues of €6.4 million and a €12 million accounting loss. 

Fastned builds its stations on virgin sites and makes them visible to motorists with distinctive canopies covered in solar panels. Its network now extends well beyond its core network in Holland – to Belgium, Germany, Switzerland and Britain. The company generates a lot of its own energy via solar panels and claims that all its electric supply is from renewable sources. It supplements revenues with sales from cafés and shops.

Also of note are Ecotricity (private), headquartered in Stroud, and the French electricity giant EDF (EPA:EDF), which is also a major player in this space. 

Shell (LON:RDSA) recently bought Ubitricity, the largest EV charging network in the UK with more than 2,700 charge points and about 13 percent national market share. BP (LON:BP) owns BP Pulse which combines Chargemaster and Polar. BP aims to have 16,000 charge points across the UK by 2030.

Why can’t the oil majors in their downstream operations just add EV charge points to their existing petrol and diesel forecourts? Apparently, this is not so straightforward as there are safety issues: EV charge points could conceivably ignite petrol vapour and cause explosions. And most forecourts are simply too small to accommodate a separate space for charging EVs. Those that do often find that low usage does not cover the cost of installation and maintenance.

But the oil majors still have ambitious plans to roll out charge point networks as they transition from oil companies to diversified energy companies. One of the most interesting business conundrums will be to decide when to decommission their networks of conventional filling stations. I suspect we shall still have filling stations for quite some time to come.

Charging at home

Several domestic energy suppliers such as Ovo Energy and Octopus Energy already permit EV drivers to sell electricity from their cars back to the grid. This is attractive when they don’t need the power, and when electricity is in greater demand. The idea is that the more smart-charging in the system, the more efficient it becomes.

One issue is that the UK electricity grid is not yet equipped for mass EV adoption, especially at peak times. National Grid (LON:NG.) is planning to expand its energy infrastructure along motorways to meet demand. When all cars on Britain’s roads run on electric power then total electricity production will need to be about 30 percent greater than it is now. Right now, when a charge-point developer requests additional grid capacity, that can take up to nine weeks to satisfy in the UK currently. That needs to change.

Newbies versus legacy manufacturers

In terms of the automotive manufacturing sector, the question that is still not clear for investors is whether the new generation of EV-only manufacturers such as Tesla (NASDAQ:TSLA) will be able to maintain their edge over the volume legacy automotive manufacturers such as VW (ETR:VOW). The latter have the stated purpose of going all-electric very soon, while still producing gas-guzzlers until at least the end of the decade. Tesla aspires to build 20 million EVs a year by 2030; VW plans for 26 million. VW and its partners also plan to roll out 18,000 fast charge points across Europe by 2025.

The valuation attributed to Lucid Motors, a Silicon Valley producer of high-end luxury EVs which hopes to go public next year, disappointed prospective investors. Lucid is majority owned by the sovereign wealth fund of Saudi Arabia. Shares in Tesla (NASDAQ:TSLA) and its Chinese rival Neo (NASDAQ:NEO) have also been under downward pressure of late, not to mention electric truck manufacturer, Nikola (NASDAQ:NKLA). Tesla’s brand may have been damaged by Mr Musk’s linking the EV manufacturer’s fortunes with those of Bitcoin.

On the other hand, Arrival (NASDAQ:ARVL), based in Banbury, Oxfordshire, another prospective maker of electric trucks in so-called microfactories, successfully launched on the NASDAQ via a SPAC in late March. At time of writing this outfit is worth nearly $10 billion – despite never having produced a single vehicle.

EV motor and battery technology

We should not assume that all EVs will have identical engine – or, rather, motor – technology and battery configurations.

Advanced Electric Machines (AEM), a British start-up which has been spun out of Newcastle University, is seeking £30 million of funding to develop an electric motor which does not rely on expensive and increasingly scarce rare earth metals. AEM claims to have solved the challenge of switched reluctance motors – a technology which goes back to 1838. These motors can operate without permanent magnets. Instead, they generate electromagnetic fields with the result that they can be made from abundant metals such as steel. Until now such motors have been regarded as unstable – but AEM believes it has cracked this. Its motors are lighter and more powerful than traditional magnet-powered electric motors, meaning they are likely to be more energy efficient.

AEM is already in talks with major automotive players including Bentley and electric truck maker Tevva Motors. The plan is to produce 100,000 motors a year relatively soon. If this technology goes mainstream it could be a game-changer. It is not clear whether EVs using this motor technology would have different charging requirements.

In terms of batteries, as I wrote in these pages in February, battery manufacture is currently dominated by a few Asian companies, including South Korea’s LG Chem and Samsung SDI, along with China Contemporary Amperex Technology (CATL) and Japan’s Panasonic. Though Germany’s Volkswagen AG has ambitions to catch up (and its share price has doubled over the last 12 months).

Batteries also require rare earth and precious metals such as lithium, nickel, copper, cobalt, tin and silver. The World Bank estimates that demands for battery raw materials could increase five-fold by 2050. We are still awaiting an announcement from Britishvolt that its £2.6 billion Gigafactory in Northumberland will definitely go ahead.

The lithium market is effectively controlled by just six players, of which the big four are Albemarle (USA), SQM (Chile), Tianqi (China) and Rio Tinto (LON:RIO) (UK/ Australia). About half of commodity broker Glencore’s (LON:GLEN) earnings are derived from copper, cobalt, zinc and nickel. Cornish Lithium, which recently shared a £9 million government grant, is looking at the possibility of constructing a lithium plant is St. Austell. Industry insiders suggest that it takes seven years to create a lithium mine and two years to build a battery plant – so let’s not hold our breath. It might even become necessary to start mining on the seabed in UK waters – controversial, I know.

The future of car ownership

Electrification of vehicular transport is going to happen – though the last gas guzzling ICE vehicle will probably reach the end of the road sometime well into the second half of the century. The long-term curve ball is: will people 20 or 30 years from now want to buy cars at all?

One model of future car ownership is that private individuals will buy in EV transportation as and when they need it. That implies that many people will prefer not to become car owners. Massive fleets of self-driving all-electric Uber and Lyft-style hail-only vehicles will ferry us and our families to the theatre in the West End or the rugby match at Twickenham. The supermarket shop will increasingly be accomplished online and delivered using self-driving EV wagons. And then there will be flying taxis, as I have explained here.

But who will be responsible for charging the driverless cars? Ah! The robot engineers are already working on that. Self-driving cars will be programmed to recharge themselves – optimally, of course. So maybe the real upside will be in the chip (microprocessor) manufacturers.

There are still many unknowns. But one thing is for sure. You are going to hear a whole lot more on this theme.