An electric vehicle charger is seen.
Credit: Reuters File Photo
By David Fickling
When’s the last time you visited a gas station that sold nothing but gas? If the answer is “never,” you’ve hit on one of the key problems for the rollout of battery vehicles.
There’s been a run of bad news for a promised rapid transition to electric cars in rich democracies. Volvo Car AB had proposed one of the most aggressive shifts to a full-battery fleet by 2030. Last week it said would instead reduce conventional vehicles to less than 10 per cent of the mix, and would include in the remaining 90 per cent plug-in hybrid cars, or PHEVs, which have both batteries and gasoline-burning engines. Just hours later, ChargePoint Holdings Inc., operator of the largest US charging network, said it would cut jobs by 15 per cent, its third such reduction in the past year.
Many of these issues can be traced back to charging. It’s no coincidence that China, with 70 per cent of the world’s public car plugs, is where 60 per cent of the world’s electric vehicles were sold last year. The success of PHEVs relative to other EVs is an indicator of a burgeoning market of consumers keen for electrified transport but not yet convinced they can survive without a gasoline backup. To solve that problem, we need to fix the broken business model of public charging.
That will be easier said than done. Since the dawn of the automobile, selling just fuel has been a cursed business. Commodities are usually priced competitively, so margins are thin — but overheads are fat, because it’s not cheap building and running a chemicals storage depot on prime real estate. For decades these operations were more commonly known as a “service station” than a “gas station” because early cars were so unreliable that owners made their money as mechanics rather than retailers.
Convenience stores and diners were gradually added to the revenue mix, but it was always precarious, supported by oil companies for the greater good of mass automobile adoption.
The basic facts haven’t changed much. Alimentation Couche-Tard Inc., the Canadian chain currently weighing a bid for 7-Eleven operator Seven & i Holdings Co., gets three-quarters of its sales from fuel but less than half its profits: the margins in convenience retail are about three times higher.
Switch to electric, and the problems mount. DC fast chargers — the ones that can power up an EV in an hour or less, and the only practical alternative for a service-station model of electric refueling — are an order of magnitude more costly and complex than the domestic or workplace chargers that trickle out electrons over the course of a day or night. Some of the fast ones carry so much charge that they need cooling systems in their cables to stop the wires overheating. Most will also require trenches to be dug, transformers to be installed, and costly surveys to be completed.
In California, a DC fast charger comes in at $1,999 per kilowatt, before government rebates that reduce the cost by about two-thirds. On that basis, the full price for a 350-kilowatt station that can recharge a car at gas-pump speeds is close to $700,000. That immense capital expenditure must be paid off in a market where you’re not just competing with rival retailers, but against workplace and home chargers whose electricity far cheaper.
This suggests governments have vastly underestimated the work they need to do to get fast charging off the ground — which is a precondition of hitting their targets on electrifying the vehicle fleet. One study last year estimated that rolling out the 500,000 stations promised under the US Inflation Reduction Act would cost $74 billion with DC chargers, about 10 times the funding allocated in the law. Another last month found that an operator in El Paso, Texas would lose money unless it either added a convenience store partner, and perhaps public funding as well.
None of the listed charging networks is profitable at this stage, BloombergNEF analyst Ryan Fisher wrote in April, while operators are in a ferment of experimentation as they try to find the model that will work.
The good news is that none of this is rocket science. Indeed, the trail has already been blazed by the existing fuel retail industry, and government rebates already being offered are a recognition of the challenges ahead. Retailers, keen to target cashed-up EV owners and seeing an opportunity to grab market share from gas stations, have been active participants; Carrefour SA is in the process of setting up 5,000 stations and Walmart Inc. wants 10,000 by 2030.
That’s likely to be the most viable future for fast charging — as a loss-leader that tempts shoppers to buy things on which a profit can be made. That doesn’t sound a very tempting proposition, but it’s the principle on which the $4.2 trillion oil and gas industry was built. The world has solved the problem of fuel retail in the past. It will solve it again in the future.