2018.09.20

Disruptive Impact of EV’s: The Rapid Expansion of Charger Infrastructure

In this week’s update we focus on a much-reported study from Wood Mackenzie on exponential growth potential for the electric vehicle (EV) charger infrastructure and the disruptive impact of EV’s across the energy sector. With Tesla’s second quarter announcement of strong sales of the Model 3, it seems that Elon Musk, at least for now, has managed to bat back Tesla doomsayers. Finally, in a move that warmed the hearts of litigation lawyers nationally, the EPA and Department of Transportation announced a freeze on emission standards and a roll back of California’s right, in place since 1977, to set stricter standards.

Wood Mackenzie forecasts that with EV’s growing to 11% of new car sales by 2030, the expansion of the EV charger market to support that growth will be rapid. They forecast the addition of over 1.2 million public chargers (versus circa 50,000 today) in North America alone and 40 million globally. Focusing on the North American market, Wood Mackenzie estimates that building the EV infrastructure will generate $2.7 billion in the next two years alone and over $18 billion by 2030.

Looking to the future, the participation of EV infrastructure in the smart grid, allowing two-way energy delivery (to and from the car) and bi-directional communications, will be a disruptive force in energy markets. The involvement of EV’s and the charger infrastructure represents significant new sources of revenues for a number of participants. Wood Mckenzie (“EV growth will require massive charging infrastructure build-out”.)

Tesla earnings muzzle critics (for now)

The EV auto news this week has been dominated by Tesla and the Model 3 in particular. With a strong second quarter, driven by demand for the Model 3, Tesla roundly beat stock analysts’ earnings forecasts. Tesla said it produced 53,339 vehicles in the second quarter and delivered 22,319 Model S’ and Model X ‘s and 18,449 Model 3’s, totaling 40,768 deliveries. It also announced that it can consistently meet its goal to produce 5,000 Model 3’s per week. With sales of the Models S and X remaining largely static, it also does not seem to be cannibalizing the more expensive Tesla models CNBC (“Tesla shares surge as upbeat Musk sees profitable second half”.)

July 2018 sales forecasts indicate that the Tesla is outselling competitors’ internal combustion engine (ICE) in the small/midsized luxury market segment by a wide margin. Sales of the Model 3 equaled the combined sales of the next three top selling cars in that market segment-the Mercedes C class, the BMW 5 Series and the Audi A4. Toyota also reported a more than 20% drop in July 2018 sales of the Camry and Prius versus July 2017 and It appears that the Model 3 is also eating into Toyota’s market share. CleanTechnica (Tesla Model 3 Sales Skyrocket, US Toyota Camry & Prius Sales Plummet – Coincidence?”.)

One preliminary conclusion from all this data is that the Model 3 is able to compete not just in the small to mid-sized luxury market but in every market segment. While there are still reasons to be concerned about Tesla’s future but, at least in the short term, Tesla is driving the EV market and, it seems, the auto market more broadly. Axios (“Why the electric vehicle revolution still needs Tesla”.)

EPA Freezes Emission Standards

Last week, the EPA and Department of Transportation moved to meet President Trump’s promise to undo Obama era rules forcing automakers to reduce pollution and increase fuel efficiency. The proposals set to freeze standards at 2020 levels. In additional, the administration is seeking to undo Clean Air Act rules from 1977 that permit states to choose between following federal rules or California’s stricter standards. Currently, 12 states follow California’s stricter standards, representing over a third of the US car market sales.

The Obama rules increase average fuel economy from 37 miles per gallon in 2020 to 50 miles per gallon by 2025. According to the EPA’s own projections, this would reduce American oil consumption by 1.2 billion barrels, cut half a billion metric tons of carbon pollution and save consumers billions of dollars in fuel costs.

Transportation is the largest contributor to greenhouse gases in the US. Undoing those rules and rolling back California’s stricter emission standards would represent a severe setback to attempts to combat climate change. NY Times (“Trump’s Biggest Climate Move Yet Is Bad for Everyone”.) However, it is likely that the EPA and Department of Transportation will have an uphill legal battle in rolling back California’s standards. At a minimum, these rules will result in protracted litigation. For the auto industry, this could lead to the realization of their worst fears-substantial uncertainty over the next several years over target emission standards (as they plan future model launches) and divergent rules across the country, which would increase production costs.