EV charging is a tough business. But legacy fuel retailers are well-positioned to make it work.
Direct current (DC) fast chargers, in particular, are not fast money. Capital expenditure is typically in the hundreds of thousands per site, while the margins made on the energy sold to drivers are cents on the dollar. Plus maintenance is a surprisingly high ongoing cost for any truly reliable site. The upshot is that even for the busiest sites, the payback period on the capital invested can approach a decade.
So how to make EV charging an appealing business proposition? Two main approaches have emerged and promise varying degrees of success.
The first and primary approach has been for original equipment manufacturers (OEMs)–that is, car makers–to subsidize the installation and use of chargers. The most obvious example is Tesla, which has made its Supercharger network free for Tesla owners for much of its history, and has paid for the network’s construction and operation through vehicle sales (and ever-increasing stock value). Similarly, OEMs that don’t own chargers can simply pay third-party charging operators to provide their vehicle owners free or subsidized charger network access. Ford, for example, offers its customers 250kWh of complementary charging at Electrify America (EA) stations (which were created as part of VW’s deal with the U.S. government after its emissions scandal and are, somewhat ironically, funded through the sale of diesel vehicles). Hyundai offers two years of free charging at EA stations.
The second approach has been government or utility subsidy. Local, state, and quite recently federal government agencies have offered funding to cover the capital expenditures associated with installing EV chargers. This is helpful and perhaps necessary, especially in this early phase when EV adoption is just ramping up and all sites may not be fully utilized right away. Drastically reducing the ROI timeline allows EV charging operators to expand more quickly, and also incentivizes them to build sites that aren’t immediately busy and generating maximum revenue but are necessary to enable long-distance travel. These sites are critical in encouraging widespread EV adoption, and so the subsidies make sense, but we can’t expect the government to foot the bill in building these stations forever.
Recently a third option has emerged: using advertising on chargers to supplement the charging revenue.These chargers incorporate a large screen to show ads not only to those charging, but also to passersby. While this model makes operating a charger much more financially sound, it makes the most sense in dense areas like cities where a high volume of people can be expected to view the ads. It doesn’t necessarily work for corridor locations where fewer people will be able to see them.
The challenges facing EV charging should sound familiar. There is another player in the transportation industry that faces high capex, extremely low margins, and long ROI timelines: fuel retail.
Gas stations cost even more to build than EV charging stations, and with gas stations so ubiquitous that they are often across the street from each other, competition on pricing is stiff. Most stations make only a few cents per gallon on fuel. What makes these businesses profitable? The food and convenience stores attached to them. One regional fuel retailer told me in 2018 that they are willing to sell fuel at a loss to be the cheapest in town, so that drivers will fuel up with them, and hopefully buy a sandwich and a coffee while they're at it. Costco similarly breaks even on fuel, and uses its cheap fuel stations to coax shoppers into its stores and onto its membership rolls.
So it makes all the sense in the world that companies like 7-Eleven are getting into the EV charging game. These companies are accustomed to long payback periods on high capital investments, and crucially, they have the experience and supply chains to make money from drivers waiting to charge. During my time at Tesla, convenience stores were among our most enthusiastic partners. They were more than happy to host Superchargers, even though their parking lots were often quite small, because they knew there was a high probability that drivers would come in for a snack while they waited.
These retailers are positioned to scale quickly. They already have the land required, and largely in the right locations to serve drivers needs. They are experienced in building complex construction projects and dealing with the knotty planning, zoning and permitting required to get projects approved in the first place. They have the maintenance infrastructure to keep everything in top condition. Most importantly, their incentives are aligned with those of EV drivers. Because they make their money on convenience retail and not fuel, they have every reason to invest in a sufficient number of the fastest chargers available to maximize the number of customers who visit their store, and to maintain them so that drivers return. They don’t lose much in creating redundancy and building chargers that might sometimes sit empty. The charger itself can be a loss leader, as long as the charging experience is so good it brings drivers to their property.
So while the government is currently kickstarting EV charging to get the flywheel moving, it will be more sustainable for the 7-Elevens, Sheetzes and Walmarts of the world to lead the charge in the coming years. The true value to businesses to be gained from charging is not a markup on electrons, but the time and money drivers can be expected to spend on their property while they charge. Fuel retailers should be preparing for the future by applying the skills and infrastructure they already have, and EV charging companies should be looking to the past for lessons on how to make financial sense out of charging when the subsidies dry up.