Hurry up and wait – How to make the best of charging bottlenecks

Not many people are still pessimistic enough to assume that EVs are a passing fad. Practically all the prominent EV adoption forecasts point to many more EVs in use by 2030 & beyond. The uncertainty that remains here, is which of the following scenarios will we end up with?

• A. EV adoption continues to accelerate to meet emission targets,
• B. Adoption accelerates and we exceed emission targets, or
• C. Pace decreases, and we miss vehicle emission reduction targets

To make sure we don’t end up with the third scenario we need to consider the switch from refilling gas tanks to recharging batteries. There is plenty of skepticism about whether we’d be able to meet this demand due to a variety of factors, some of which we’ll go over. For this, the first question to address is, “How much charging capacity will we need?”. Thankfully, the folks over at McKinsey have taken a pass at figuring this out to estimate that by 2030, there will be a demand for 230 terawatt-hours of energy by EVs, compared to just 11 TWh in 2021.

Considering that the vehicle charging industry barely existed 10 years ago, there has been a major boom. This brings us to the next question: “How will vehicle charging happen?”. To understand how vehicles may charge, we need to consider a lot of factors including range, battery capacity, trip type, use cycles, charger availability and weather. Considerations for each of these will vary by vehicle model to determine if the vehicle is charged at home, work, at a depot or ‘on the go’ (e.g., on a road trip.)

According to another report, 40% of charging demand in 2030 will come from fleet depots and 'on the go' categories. These facilities typically require access to large amounts of electricity, lots of capital, and at least 12-18 months of lead time in perfect circumstances.

The charging boom has produced scaled proof of concept success with the likes of Tesla's network which recently hit 50,000 superchargers. But now, as more players enter the mix, we need to answer the next question: “Can the supply meet the demand?” The short answer is, “not yet.” Some reasons include:

• Long lead times on facility development: after an initial facility plan (this includes number of chargers, types of chargers, layout, safety, electric loads, etc.) is created, developers need to work closely with utility companies to ensure they can get power from the grid. Outside of this, they can explore off-grid solutions like solar. Regardless of the path forward, it takes a long time to get to the first charge at a site. Best in class execution has achieved this in 12 months, but increased demand and associated complexities (e.g., environmental studies) can mean up to five year lead times.

• Critical hardware supply shortages: demand spikes for charging equipment (e.g., converters, switchgear, filters) have caused them to be in short supply. This is especially crucial for high voltage direct current (HVDC) components. They are necessary for charge times to come close to that of gas stations. There isn’t any manufacturing in the US, and according to the DOE, there were only 350 HVDC systems worldwide in 2022. Compare this to a projection showing we need 140,000 DC fast charge ports by 2030. Supply for lower voltage equipment also remains limited due to competing demand from other semiconductor applications which has been limited since the pandemic.  

• Rapidly evolving demand patterns: EV adoption is just now crossing over to the era of mass adoption. With this comes growing pains. For example, there are reports of auto dealers turning them down as customer demand starts to cool. It comes on the heels of remarkable growth in 2022 that led to expanded production from automakers who were barely able to keep up with demand. Early EV adopters were willing to put up with one of the dominant pain points in EV ownership is charging. Service providers need to maintain a certain level of flexibility in their plans to maintain proper asset utilization rates, but whatever changes they make may cause even more waiting.

For EV buyers, this makes the prospect of adoption more complicated. Most charging is done at home and projected to stay that way. But experiences at fast charge facilities will be hampered. No charger provider (except arguably Tesla) currently has a large enough network to reliably provide charging across the country. This means consumers are left adopting a hodgepodge approach – signing up for multiple services while not receiving a consistent charging experience.

On the commercial side of things, the build out of charging corridors will be critical to achieving emissions objectives while maintaining profitable operations. We can break things down by fleet size using info from Freight Waves to differentiate demand types:

1. Large fleets (over 1,000 tractors) account for 19% of for hire trucks. These fleets are most likely to build private depots with DC charging. For example, FedEx, the largest of this group had installed over 500 charging stations as of last summer.
2. Mid-sized fleets (over 200 tractors) makeup another 20% of the group. They are unlikely to build dedicated charging depots, but may install some fast chargers at their key facilities. They will need to rely on predictable capacity from public chargers to sustain their operations.
3. Small fleets (less than 200 tractors) make up the remaining 60% of for hire trucks on the road. Nearly half of this highly fragmented sub-segment is made up of owner-operators who need to feel their way around different charging operations that work for them (e.g., public charging depots, Level 1 & 2 charging, etc.)

This brings us to the final question: “What now?” The best laid plans are at risk driven by fundamental economic factors of supply / demand, and accordingly, there are a few options to weather the storm, all of this will depend on the available financial runway and internal objectives.

• Spend your way out of it – a lot of equipment suppliers offer options to skip places in the queue by paying for the privilege. This inevitably puts pressure on return on investment calculations. It could be justified with a strong customer acquisition narrative that prioritizes the gaining share as the industry grows larger and more fragmented
• Coalitions – joining forces with competitors may help improve footprint by ensuring coverage along critical routes for customers in affiliated programs. This will give customers a reason to adopt your offerings while working through delays. However, it could lead to consolidation which may be seen as inevitable evolution.
• Use the time wisely - a slower growth pace should allow for increased focus improving operational margins. Prioritize efforts that allow you to get great at delivering superior customer experiences, while reducing waste. This may mean creating a customized fleet management solution, or developing long term partnerships with large fleets (see announcement from Zeem and Hertz).

Like other disruptions, the transition to EVs is entering a critical period which could accelerate or stall the momentum. Charging infrastructure is on the critical path for widespread EVs adoption. Its future as a permanent curb fixture will require more than just deep pockets, but also some ingenuity and grit.

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