The EV charging business needs to figure out a viable model

Volvo had proposed one of the most aggressive shifts to a full-battery fleet by 2030. Last week, it said it would instead reduce conventional vehicles to less than 10% of the mix and would include in the remaining 90% plug-in hybrid cars with batteries as well as petrol-burning engines.

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Just hours later, ChargePoint, operator of the largest US charging network, said it would cut jobs by 15%, its third such reduction in a year.

Many of these issues can be traced back to charging. It’s no coincidence that China, with 70% of the world’s public car plugs, is where 60% of the world’s electric vehicles (EVs) were sold last year.

The success of hybrids 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 petrol backup. To solve that problem, we must fix the business model of public charging.

That will be easier said than done. Since the dawn of automobiles, 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 to build and run a fuel storage depot on prime real estate.

For decades, these were known as ‘service stations’ 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 automobile adoption.

The basic facts haven’t changed much. Alimentation Couche-Tard, the Canadian chain keen on buying Japanese-owned 7-Eleven, 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 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 refuelling—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.

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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 is 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 added a convenience store partner and perhaps public funding as well.

None of the US 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 a business 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 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; Europe’s Carrefour is in the process of setting up 5,000 stations and America’s Walmart 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.

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That doesn’t sound like 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. ©BLOOMBERG