The electric vehicle (EV) market is primed for enormous growth in the years ahead. According to the International Energy Agency (IEA), there could be as many as 230 million electric vehicles on the roads globally by 2030. That would represent a 14-fold increase from the number of EVs on the road at the end of 2021. Greater affordability, improvements in battery technology, growing awareness of the environmental benefits of EVs, favourable economic incentives, and increased availability of charging facilities are some of the main factors driving the EV growth story.
When it comes to EV stocks, companies such as Tesla and NIO, as well as traditional automakers such as Ford and Volkswagen — which are making huge investments to go electric — come to mind. And for good reason. These companies all make great electric vehicles and have attractive long-term growth prospects. Yet, there are plenty of other ways to play the theme. Utilities stocks — which can be found in TBanque’s Utilities Smart Portfolio — are a great example. Over the next decade, the world’s utilities companies are set to play a massive role in the EV revolution. Here’s why.
The key to mass EV adoption
While the electric vehicle market has enjoyed strong growth in recent years, there are some things that have held the industry back and prevented EVs from going truly mainstream. One is the lack of charging infrastructure in place today and the “range anxiety” that is linked to this.
This is illustrated when we look at EV statistics from the US — where the industry has been slow to take off. In 2021, EVs only accounted for about 3% of overall US auto sales, versus 9% in Europe. Meanwhile, in a recent study by Ernst & Young Global Limited, only 29% of US respondents said that they intended to go electric with their next vehicle purchase (as compared to 52% globally). A lack of charging infrastructure was the main reason that over 70% of American car buyers said they weren’t interested in electric vehicles at the moment.
This attitude of American drivers is understandable when you think about it. According to the Department of Energy, there are less than 50,000 public charging stations across the US right now for the two million or so electric vehicles registered in the country. And, of those, just 5,600 are DC fast-charging stations that can charge an EV battery 80% in less than an hour. America is a nation of long-distance drivers. Cross-country road trips are part of the culture. The current ratio of EVs to charging stations just isn’t going to cut it. In order to see mass adoption of the technology, the US — and every other country — needs to see large-scale deployment of EV charging infrastructure as well as upgrades to grid infrastructure.
Utilities will power the EV revolution
This is where utilities, such as electricity companies National Grid, American Electric, and NextEra Energy, can have a major impact. These companies, along with EV charging network businesses such as Chargepoint, auto manufacturers such as Tesla, and energy companies such as BP, will be responsible for deploying charging stations and home chargers across the world. This means that they are in a unique position to facilitate mass EV adoption globally.
The world’s utilities companies are already working hard to improve the situation. For example, over 50 utilities across the US, including Duke Energy and Exelon Corp, recently came together to speed up the build-out of EV charging stations in America. The group, which is known as the National Electric Highway Coalition, is aiming to fill charging infrastructure gaps along major US travel corridors. Each member of the coalition must commit to creating a fast-charging network across its service territory using “any approach they see fit” by the end of 2023.
The Edison Electric Institute (EEI), an association that represents all US investor-owned electric companies, estimates that the US will need more than 100,000 fast-charging ports by 2030 (and 9.6 million charging stations in total) to support the nearly 22 million EVs that are projected to be on US roads by then.
Meanwhile, experts at McKinsey estimate that America will require 1.2 million public EV chargers and 28 million private chargers by 2030, assuming half of all vehicles sold by 2030 are zero-emission vehicles (ZEV), in line with federal targets.
So, the EV charging station rollout is likely to keep utilities companies in the US very busy in the years ahead. The good news is that they should be able to receive government support. In Joe Biden’s $1.2 trillion infrastructure bill, which was designed to improve and modernise the country’s infrastructure, $7.5 billion was set aside to create a nationwide network of EV charging stations.
Grid management will be crucial
In addition to being responsible for the deployment of charging infrastructure, utilities will also have an important role to play in grid management in the future. While the grid impact from EV charging infrastructure is modest today, demands may increase rapidly as the number of electric vehicles on the road increases in the years ahead. This could potentially result in power outages. Going forward, utilities will need to reduce grid impact by analysing data from software embedded in EVs and charging locations, and shifting power loads to optimise and balance grids.
Energy storage systems (ESS) are likely to play a key role here. These provide storage for renewable energy that is later transferred to power grids. They are effective as backup resources to help manage power grid fluctuations.
Utilities will need to be proactive
It’s worth pointing out that the large-scale rollout of EV charging stations won’t be easy.
Effective deployment of charging infrastructure will require both robust planning and careful execution, as well as close coordination between utilities and other stakeholders involved in these projects. Right-sizing charging infrastructure will be crucial to avoid unnecessary project delays and minimise costs. Utilities will need to ensure that public charging stations are economical, appealing to use, distributed sensibly, and wired to a robust power grid.
When developing strategies to support EV growth, utilities will need to assess the needs of all segments of the market and all types of customers. They should consider the requirements of single-family home residential customers, multi-unit dwelling residential customers, commercial customer workplace sites, commercial and public fleet depots, and shared, public charging sites. As the number of EVs on the roads increases, the world will need an increasing number of charging sites of multimegawatt scale. This will require more in-depth planning than the planning that has been required for the smaller charging sites built to date. A proactive approach will be important to prepare for these new loads.
Paying attention to emerging transportation trends will also be crucial. The transportation sector is poised for major disruption in the years ahead, with many experts anticipating a shift from the private vehicle ownership model that is the norm today to mobility-as-a-service (MaaS) models using autonomous vehicles. This may require high-speed and automated charging hubs to fuel these new fleets.
If executed well, however, utilities can support one of the biggest energy, and automotive, transitions ever seen. By deploying the EV charging infrastructure, utilities can play a major role in the electric vehicle revolution by being the driving force behind mass adoption. Ultimately, this should result in many benefits for these companies including higher revenues across the industry over time. This should lead to attractive long-term opportunities for investors both in the utilities space and the EV industry.
How to invest in utilities stocks
Those interested in investing in utilities companies may want to check out TBanque’s Utilities Smart Portfolio. This is a fully allocated, diversified investment portfolio that is focused specifically on utilities stocks.
Designed for long-term investors, this Smart Portfolio provides exposure to a number of utilities companies spearheading the EV charging station rollout, including the likes of Duke Energy, American Electric Power, Edison International, National Grid, Exelon Corp, and First Energy. You can find out more about the Utilities Smart Portfolio here.
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