In the March 2022 quarter, Tesla (TSLA) produced 305,407 electric vehicles (EVs), delivered 310,048, and confirmed that its current capacity could produce more than 1.05 million EVs per year even as capacity in its Berlin and Texas factories are ramping production. In recent weeks, other EV companies ranging from Nio Inc. (NIO), XPeng (XPNG) and Li Auto (LI) reported March quarter deliveries that were up significantly year-over-year as have other traditionally combustion engine focused auto manufacturers including Ford Motor (F), General Motors (GM) and Volkswagen (VWAGY). We’re even seeing luxury car makers such as Ferrari (RACE) working on electrification efforts with its first EV set to arrive in 2025.
Simply put, we are seeing an acceleration in the adoption of EVs, which accounted for 8.3% of global light-vehicle sales in 2021. IEA predicts that the world will have 300 million electric cars on the road by 2050, accounting for more than 60% of new car sales.
With most industry transformations, there are pain points, and the need to charge EVs is currently one of them. Even with internal combustion engine (ICE) powered vehicles, consumers need to fuel up depending on the nature of their trip or how long they’ve been out and about. With EVs, refueling or re-charging has been one of the pain point items cited by consumers who have been hesitant about switching from a traditional vehicle to an EV, especially those outside of metropolitan areas. However, pain points for some can provide powerful investing opportunities for others.
While the larger focus tends to be on the adoption of EVs in the auto market, the transformation isn’t just for passenger vehicles. It is also for medium and heavy-duty trucks, bikes, motorcycles, ATVs, boats and eventually aircraft. All of this will drive demand for recharging capabilities and charging stations. According to figures published by the U.S. Department of Energy, there are roughly 47,000 public EV charging stations in the U.S. compared to more than 145,000 fueling stations per data from the National Association of Convenience Stores. As EV adoption unfolds, we are also likely to see EV penetration per household start to rise above 1 per household as well. That likely translate into demand for more than one charge point per home like how smartphones per household penetration drove demand for multiple chargers and charging cables.
In Europe, the European electric vehicle market is expected to witness robust growth in the coming years owing to the efforts of the European countries to reduce carbon emissions in the EU. That was already expected to drive the EV charging point market but with the EU looking to cease buying fossil fuels from Russia by two-thirds by the end of this year and altogether by 2030, we could see an even greater push for EVs.
Earlier this year, the U.S. Departments of Transportation and Energy announced funding of nearly $5 billion over the next five years that will be made available under the new National Electric Vehicle Infrastructure (NEVI) Formula Program established by President Biden’s Bipartisan Infrastructure Law. This use of NEVI is to build out a national electric vehicle charging network of high voltage chargers along designated Alternative Fuel Corridors, particularly along the Interstate Highway System.
The total amount available to states in Fiscal Year 2022 under the NEVI Formula Program is $615 million. States must submit an EV Infrastructure Deployment Plan before they can access these funds. A second, competitive grant program designed to further increase EV charging access in locations throughout the country, including in rural and underserved communities, will be announced later this year.
The framework leaves more detailed questions unanswered about how the chargers should work, but officials said they will issue technical standards in the coming months. We’d note there are now only a handful of months until the August 1 deadline for states to submit plans for using program funds. If states don’t submit a plan or take steps to implement it, the federal transportation department can withhold money or give it to local governments. The Federal Highway Administration is set to approve plans by Sept. 30.
There are roughly 116,000 public charging ports in the country, according to data from the Energy Department, which are mostly lower speed “Level 2” chargers that are heavily concentrated in California. Cost estimates for installing chargers vary widely. Tesla has proposed the government cap costs at $75,000 per port, which would mean 80,000 chargers with the new federal funding and matching state dollars. On a combined basis that suggests roughly 200,000 total charging stations, which is a long way off from President Biden’s stated goal of 500,000. This likely means other incentives could come to help close that gap.
For investors, there are a handful of pure-play companies targeting the EV charging market with varying degrees of exposure to the commercial EV charging market and the residential market as well. These companies include ChargePoint (CHPT), Evgo Inc. (EVGO), Blink Charging (BLNK), Wallbox (WBX), and Volta (VLTA). While timing in Washington can slip, as has happened before, the probability of the overarching structural change toward EVs continuing is high. As that happens, we are poised to see revenues for these companies grow and bottom-line losses morph into earnings over time.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.