Mark Odendahl
Welcome back to Industries In Motion podcast from RBC Capital Markets. This is where we'll be exploring what's new and what's next in today's fast moving markets and industries to help you stay ahead of the curve. Please listen to the end of this podcast for important disclosures. My name is Mark Odendahl and I'm head of US Capital Markets Research. Really excited today to bring on Chris Dendrinos who is RBCs us Clean Energy Analyst. Chris has spent many years at RBC on the energy team and the industrial team and has recently initiated on several sectors or sub sectors in the US clean energy area. Today we have him on to talk about a report that he published in September, which acts as a very comprehensive primer for the US EV charging infrastructure. Chris, welcome to the podcast and really looking forward to talking to you today.
Chris Dendrinos
Thank you so much. It's great to be here.
Mark Odendahl
So, Chris, excited to get into it here. Let's, let's just kick it off. You know, you wrote a very in depth report here essentially a primer. What was your top takeaway that you would let everybody know as we start this conversation?
Chris Dendrinos
Yeah, absolutely. So I think it's really, really interesting the just amount of charging demand there's going to be in the size of the potential market. So when you think about it, compared to a conventional gas station where the infrastructure needs to be built on site, it's expensive and it's very large and complex. EV charging can occur anywhere there's a charging port. And so what that does is it decentralizes the market and completely changes the game for how people will utilize their cars and charge them. So, you know, the simple stat is that everybody who has access to charge at home will charge at home and we'll do that because it's extremely convenient, and it's going to be the lowest cost access point. But not everyone has home charging. There's a huge portion of the population that doesn't have a garage who lives in apartments or lives in multi-unit dwellings where they have to share access. And so they'll be looking to charge elsewhere.
Mark Odendahl
I was really impressed with this report, Chris. You did a lot of fundamental research. What is most underappreciated about the US EV infrastructure?
Chris Dendrinos
Right now, there's almost 35,000 ports available in the United States. Tesla alone operates about 2500 individual stations. The common misconception is that the access does not exist. And the reason for that is because there's not the advertising that goes on along the highway systems that tell everybody who doesn't own EV. “Hey, there's charging here.” So this past weekend actually drove from Minneapolis down to Texas. That's a 1200 mile trip down Interstate 35. I saw a lot of signage for gas stations, but I saw exactly zero EV charging station signs. So the issue is there's no advertising along the road system and I think that adding that would go a long way in helping to educate the consumer.
Chris Dendrinos
The second point is that charging infrastructure it can be decentralized. Because charging can occur anywhere there is a power outlet. This gives consumers the ability to charge where they want and when they want. And we see in the data that the preference is to charge at home where it's most convenient and cheapest. We estimate that around 75% of charging is currently done at home. But we think that rate kind of declines over time as EV adoption grows and access to home charging declines.
Mark Odendahl
So, Chris across the EV ecosystem, how are stakeholder interests driving network expansion?
Chris Dendrinos
Yeah, so current market demand for charging, it's still far lower than the infrastructure required to create a seamless network of coverage to prevent range anxiety and to promote travel. So fortunately, there is actually a diverse set of stakeholders with all differing motives that are helping to support this large infrastructure build out. Stakeholders supporting this development. It includes the OEMs your charging port operators, so you're that's going to be your small sort of pure-play type companies out there. You've got a large private network of poor owners and then you have a lot of public as well as private investor support in the space.
Mark Odendahl
How is the IRA impacted this industry? And will it change it in the coming years?
Chris Dendrinos
Really, I guess more broadly, there's another funding package that is known as NEVI funding. Ya, so the largest funding package is actually from the bipartisan infrastructure law that provides $7.5 billion in funding and that's being made available directly to EV charging infrastructure and expansion. How this is playing out is the government is allocating dollars to the states and then the state's turn around and figure out where they think the dollars will be best used. That funding goes out over the next number of years. And so the growth opportunity is there to continue expanding the network. As demand increases, and EV adoption increases.
Mark Odendahl
So let's talk about the demand forecast. And, you know, and what trends do you anticipate will support that demand growth?
Chris Dendrinos
Our work with the RBC elements team, what we did is we looked at various networks where there's a lot of EV demand, and then other markets where there's little demand and we compared to markets, and we looked at who's adopting EVs. What we found is that infrastructure is leading EV adoption. And so in markets where there's small amounts of adoption, the amount of infrastructure is almost two times greater per vehicle than in markets where EV adoption is actually the highest. So what we're seeing is that infrastructure is leading the market to drive additional EV adoption. At the end of 2022 there are about 3.4 million EVs on the road. We forecast that number to grow to about 36 million in 2030. And right now, the way we're thinking about it is there's almost a single port needed for every single EV on the road. So our forecast is that by 2030, there's going to be about 32 million charging ports needed in the United States to support the demand for EV growth.
Mark Odendahl
Wow. And did you do any work on current utilization? And what's that mean for the build out?
Chris Dendrinos
Yeah, so utilization rates right now are actually quite low. They're call it mid-single digits. But they're rapidly increasing. And the reason is, is that EV adoption continues to grow. There's workers who are going back to the office that's driving additional demand for charging in parking lots. And then you just have broader adoption of EVs by people who don't own homes. And so if you're a homeowner with access to a garage, you're going to charge at home. The places where charging occurs most frequently right now is actually in workplace parking garages and at retail shopping centers. And so if you think about how people utilize those, they're coming to the stations, they're parking, and the dwell times are very, very long. If you contrast that with the DC fast charging network, which is going to be along those highways, that's destination charging, and so people pull up the charge quickly, and then they leave. And the power outlets at those stations is actually much higher, and it can output a lot more power so you're going to charge your car a lot faster. The current utilization rates of those, those stations is actually a lot lower. But the amount of power that's being provided by those stations is actually quite a bit higher.
Mark Odendahl
How do you think the charging away from home will evolve or grow? Are there any interesting business models out there that you see that can take advantage of that?
Chris Dendrinos
Yeah, so I think right now initially, EV adoption it occurs at the level of least resistance. So the people that are driving EVs today and we see this with the elements work that we did and looking at consent, census tract level data. It shows the adoptions by single family homeowners who have high levels of income. That has to change over time. And so, charging demand, it naturally increases from just more EVs on the road, but also the consumer who's buying those EVs will need to charge at public places more frequently. I guess the business model that we see being adopted the most right now is if you think about a, a gas station, or a grocery store, or conventional retail storefront, they can buy these charging stations as a point as a way to drive traffic to their storefront. And so what they're doing is they're buying a level two charger, which is a slower charging station. They're offering charging for free. And so someone will come to that charger, they'll plug in, maybe they'll get, you know, three or $4 worth of electricity for free. But they'll go spend $150 at that storefront.
Mark Odendahl
So Tesla's obviously had a head start. And they've built out a lot of infrastructure. What are the chances that it's a, you know, a one man game? Or are there are there very viable alternatives that could provide some growth to the infrastructure?
Chris Dendrinos
Yeah, so this is one of the I guess, aspects of our research that we found most interesting. And it's that, you know, coming in, we thought that Tesla basically had a monopoly on all the best locations, what we found is that is completely not true. Because the charging network can be decentralized. And you can basically put a port wherever you want, wherever there's electricity, there's ample locations for anyone to compete, where Tesla wins right now is they have a cost structure that is, you know, almost probably about half as expensive as the other players, and they're truly vertically integrated. And so what that means is that they can offer charging for a much lower cost and be profitable than some of their peers.
Mark Odendahl
Are there companies that can catch up to that scale and that profitability?
Chris Dendrinos
Yeah, I think so. And I think it comes down to demand. Demand needs to pick up so that you have economies of scale with the other manufacturers. And then on top of that, Tesla doesn't necessarily compete in every single market. Really, their focus right now is on that DC fast charging network. And they're developing that network in order to drive people to come and buy their cars. Whereas other players such as like a Charge Point, they're focused more on level two charging networks. So they're looking to partner with apartments, they're looking to partner with shopping centers or restaurants, to provide public access at those locations. So they're competing in sort of a different layer of the market. And so, the cost structure, there are two are two completely different things. The DC fast charging network is a lot more expensive than the level two charging stations. So there's an opportunity for these smaller players to come in and compete.
Mark Odendahl
So Chris, do you think that there are markets that are oversaturated? Right now where we have high adoption for EVs?
Chris Dendrinos
No, absolutely not. When you look at the data, and you can pair regions where EV adoption is the highest and where EV adoption is the lowest, the utilization rates in those two markets is actually very, very similar. But what you find is that the , number of ports per square mile is much, much greater in markets, where EV adoptions are the highest. So you initially have this build out of infrastructure, which is two times greater in undeveloped markets than in developed markets. And so you have infrastructure leading EV adoption, but then that settles out. And then the market reaches a point of equilibrium where afterwards port growth kind of meets demand growth for those ports. And so, you know, the opportunity for additional charging stations just continues to grow as EVs grow. And it does not look like you have any sort of market right now where there's an oversaturation.
Mark Odendahl
Did you find that location, and the performance of some of this infrastructure is based on the grid and the grids’ ability to supply the electricity to these charging stations?
Chris Dendrinos
Yeah, so you know, this question comes up all the time. You know, there are grid challenges, most certainly. And so right now where the development is actually occurring is where it can occur. And so if you look at the data, you'll see if you take EV Go, for example. They are developing 350 kilowatt charging stations and they're developing 100 kilowatt charging stations have. There are strategic reasons why they're doing it that way. But one of the reasons that it does come up is access to electricity and just how much power they have at any one location. But what we're what we're finding is that there's ample electricity in certain spots to develop the grid out right now. So, in the future, does that become a bigger issue? Probably. But right now we don't see as like an inhibiting factor to putting more stations and where they need to be.
Mark Odendahl
So maybe we'll end up with kind of a surprise question, and, and we'll work our way through it here. But you know, if we're having this podcast five years from now, how would this report differ? How would the number of companies in this industry differ? And what's the what's the charging infrastructure going to look like?
Chris Dendrinos
Yeah, I think it's a great question. The challenge is, is that, you know, economies of scale makes sense. But you can have regional models for business development. And the entry cost to building out charging infrastructure, I think, is actually quite low. And so that creates an opportunity for, you know, a large number of small players to develop networks in markets where they know the streets and they know the roads and, and the storefronts really well. Ultimately, though, I think there needs to be some level of consolidation. Because, you know, unlike gas stations, the EV network is totally interconnected. And so you have, you know, the need for software development. That doesn't exist with gas stations. So if you think about a gas station, you know, those have been around for 100 years, there's not a lot of innovation going on in the technology around those stations. But right now, there's a ton of development technology going on, with EV charging. So charge rates are increasing, there's a lot more vehicles coming on the road. And there's standardization in the port, but there's not standardization in the technology at the vehicle level. And so these companies right now, are spending a lot of money to make sure that the cars can connect to the charging network. And that needs to continue to grow. And that's very expensive software development. So early on, I think it does sort of favor a market where you have, you know, a smaller number of players, if you will, but as that challenge gets solved, I think there's an opportunity for growth of a lot, a lot more players a lot more smaller regional players to come in and take advantage of their local knowledge to develop their network.
Mark Odendahl
And then another question I have is, you know, where's the innovation gonna be in this industry?
Chris Dendrinos
Yeah, so I think charging time is certainly a major factor right now. You know, it's interesting, on average, US consumers only drive about 40 miles a day, they only drive 100 miles a day, six times a year. But everybody believes they need a vehicle that can go 500 miles and can charge extremely quickly. But in order to get people over the hump, you're going to have to meet them where they are. And that means charging needs to be extremely fast, it needs to be similar to gas station fill-up speeds.
Mark Odendahl
So Chris, this has been fantastic. And thank you, and congrats on getting the report out. And, you know, we all look forward to your research in this in this area throughout the coming years. And I appreciate you spending time with us today.
Chris Dendrinos
Great, thank you.
Mark Odendahl
What else lies ahead in today's ever evolving markets and industries. We'll keep track right here on industries in motion. Thank you very much for joining today. This episode was recorded on October 13, 2023. Make sure you subscribe to industries in motion, wherever you listen to your podcasts. If you'd like to continue this conversation with Chris or have any interest in the report. Please contact your RBC representative directly or visit our website, www.rbccm.com/industriesinmotion for further insights. Really appreciate the time today. And hopefully you learned a lot about the EV infrastructure here in the US. Thank you.