The Real Reason the Electric Vehicle Revolution Is So Hot
Electric car charging is operating on a version of the freemium model — cheap only until you are hooked
Over the last few months, three big U.S. electric vehicle charging companies have announced multibillion-dollar reverse mergers to take themselves public. In the latest, Volta Industries said Monday that it will go public at a value exceeding $2 billion and walk away with $600 million in cash to build out its charging network. It is part of a massive expansion of EV charging that is underway — one that, according to McKinsey, will grow to as many as nine million U.S. charging points by 2025.
The public consensus about our EV charging future — from industry experts, analysts, and investors — is unusually unified: What we pay for our electric fill-ups is modest and will continue to be, making the prospects of EV ownership much more affordable than the gasoline-propelled past. This is almost certainly true — but only for the next few years. Currently, charging companies supply electricity as a loss leader, since EVs cost considerably more than the equivalent conventional vehicle. While establishing their market, these companies must more or less give away the electricity in order to get people to buy the vehicles and begin building charging brand loyalty. It’s a version of the freemium model — cheap until you are hooked.
But beginning around the middle of the decade, increasingly cheap batteries will bring down EV prices, and the vehicles will begin to cost the same or less than their conventional cousins. EV sales will naturally rise, and they may even go mass-market. At that stage, charging station proprietors will be liberated to raise the price of an electricity fill-up. And they will do so.
EV Charging Prices Are Going to Go Way Up
It’s standard economics — a product’s price usually rises to the level of its closest rival
That’s why charging company SPACs are worth $2 billion-plus valuations today: Like broadband, streaming, and cellphone companies today, charging will be a good business, earning high profits to fill up your EV. It’s true that the future of EV ownership will look simpler and cheaper, since electric vehicles contain relatively few parts. But the “fill-up,” as we have come to call buying gasoline, is almost certainly going to cost about the same.
EV fill-ups will probably continue to be cheap for slow, “Level 2” charging — giving you 20-to-40 miles of added battery during the hour you plug in while having a bite at a nearby restaurant or going shopping. But if you want to be at 80% of your battery, and don’t have a big chunk of your day to wait, you will opt for fast-charging, and that is where you will pay the big bucks. As evidence, look no further than Europe, where EV sales are the highest in the world. One widely dispersed charging network is Ionity: When you charge your 75 kWh EV to 80% of capacity from 10%, it will cost you roughly $50, a third cheaper than gasoline, say, in France, and around the same on average as filling your whole tank in the U.S.
Volta currently has about 2,000 chargers at some 500 sites in 23 states, and now has the money to add a lot more, including 100 fast charging points this year alone. Tyler Lancaster, a principal with Energize Ventures and a lead investor in Volta, told me that under the startup’s current business model, it earns its money selling digital advertising that motorists watch on screens while they are filling up. In the future, he said, Volta will raise prices for fast charging, but only a bit. “Fast charging won’t be free, but it will be priced modestly per kWh,” he said.
Lancaster disagrees with my thesis that fast-charging prices are likely to be modeled on the tank of gasoline. The argument is that, in most cases, people will charge up at home while they sleep at night, while parked at work, or while out on errands. But think of how people really behave: Suddenly, you realize you’re late for a meeting, late to drive the kids somewhere, or (before the pandemic) late to get to work. You forgot to fill up the car. Without much of a thought, you zip down to the gas station, pump a bit of gas, and you are on your way. That is the EV future — a frequent demand for fast charging, supplied at a premium.