The news headlines in the U.S. right now are full of stories stating that electric vehicle (EV) sales are slowing down.
They’re not. Per Bloomberg NEF, EV sales in North America were likely up 47% y-o-y in 2023 are are projected to be up 32% in 2024. Yes, that’s a slower growth rate. But it’s still amazing growth relative to almost any other segment of the massive transportation industry. More and more EV models are coming out, and even as some OEMs whine publicly about sales growth not meeting their expectations, that probably says more about their planning abilities and corporate execution than anything about the underlying growth of the category.
But from my vantage point as an investor, I see one major reason why sales growth will likely slow down in the near term: Chargers.
People want EVs. Companies want EVs. The incentives in the US and Canada to adopt EVs are now strong. EVs are better than traditional internal combustion engine (ICE) on a total cost of ownership basis for many use cases already, and the incentives make that even more obvious. Emerging financing options can now solve the upfront cost issue and unlock the economic value of switching to EVs. (Full disclosure: My firm Spring Lane Capital has investments into two related platforms, Spring Free EV and EVCS)
One reason consumer adoption of EVs has taken off so strongly over the past few years is that the charging dilemma has often been solved for many of them already. If you own a standalone home, installing a charger is now relatively easy. Many parking lots and retail establishments have low-level chargers. Even for those without a charger at home, there are an increasing number of “charger hubs” for EV owners close to their home base. If you buy an EV as a personal commuting vehicle you’re driving a fairly predictable distance with predictable charging at either end of the route, and as battery capacity has improved you probably don’t need to charge up every time anyway. As for long-distance driving, there are emerging DC fast charger solutions, especially for Tesla
TSLA
Unfortunately, this is not yet the case for many commercial and industrial vehicle fleets. Or for consumer vehicles for long-distance drivers. There are several reasons why charging networks in particular will soon start to put a damper on further EV adoption growth — in the near term, at least.
First, fleet lots are a problem. For commercial and industrial fleets of vehicles that park in fleet lots overnight (for example, vegetable distributors, utility lift-trucks, commuter vans, etc.) the existing lots were not chosen for their location relative to electric grid capacity. If you’re going to charge a bunch of large batteries overnight, you need a good amount of electricity. Even if a high-power line is just across the street, accessing it can be an issue. Furthermore, these types of heavier-duty vehicles have as of now fewer name-brand and proven EV models available. If you’re the corporate decision-maker charged with transitioning to electric vehicles, this presents a significant chicken-vs-egg problem. To solve this, there are some really interesting entrepreneurial efforts underway to solve both problems at once — helping choose the vehicles, helping arrange the chargers. But that’s a lot easier said than done and such corporate decisionmaking rarely happens quickly (and when it does happen quickly, it’s usually flawed, ahem Hertz). This is promising but early and thus will start slowly. Which will hold up EV adoption among that cohort.
Secondly, permitting and long-lead items are significantly gumming up the works. Yes, some forward-thinking places like California have accelerating permitting queues for EV charging stations, but still it can take way too long to come through. Meanwhile, getting ahold of good electrical connection equipment and even the chargers themselves is a problem right now, thanks to lagging production capacity and supply chain disruptions. These issues then hold back the pace of rollout of charging networks or electrified fleet lots, despite a lot of good intentions and lots of infrastructure capital standing by. So even if a fleet owner or long-distance driver wants to switch to EVs, the availability of chargers is lagging for many of them, which then gives them pause about doing the switchover immediately. As a side note, I love the resulting opportunity for solar + battery microgrids to help address this problem and do an end-around on the whole “connect to the grid” problem.
And finally, the lack of good online standardization cripples driver and fleet owner comfort that they can get charging when they need it, aside from their “home base”. There are actually lots of charging stations available for drivers across major populated areas now. EVCS alone (see disclosure above) has hundreds of sites across the west coast. There are apps that will tell you where they are. But drivers complain that they don’t know if the charger they’re heading for will work, how fast it will actually charge (versus “rated speed”), and if the charger is available or already in use. Anyone who’s driven a Tesla long distance knows the comfort of pressing a button on your dash display and seeing supercharger options, whether they are occupied or not, and even projections of how busy the site will be when you get there. It’s the peace of mind people need. Unfortunately, aside from Tesla the charger equipment manufacturers don’t have standardized interfaces or open data and so at least so far it’s been difficult to provide a similar feature to Tesla’s for all other charging networks and EV OEMs.
The good news is, all of this is to be expected for a market that is growing so quickly from such a small early-adopter base, and lots of very smart entrepreneurs are working on solutions for all of these issues. So in the long run, these obstacles will be temporary.
But over the next couple of years, such obstacles will likely seriously impede the growth potential of EV adoption, particularly in C&I fleets. This is both a problem, and a big opportunity. As an investor, I see it as a set of big areas for attractive investment. But knowing news editors, I expect the rash of negative headlines about this huge transformational market opportunity to continue to be overly negative for some time to come, since lagging charging capacity will likely soon start to hold back the growth of EV adoption.
Read the full article here