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
In his confirmation hearing yesterday, Pete Buttigieg, the nominee to be transportation secretary, reiterated a promise that President Joe Biden made again and again on the campaign trail: The administration will seek funding to build a half-million electric vehicle (EV) chargers by 2030.
But if forecasts for EV demand are borne out, the U.S. will need a lot more charging points. In a report earlier this month, McKinsey puts the required number at five to nine million by 2025 and double or triple those figures by 2030. To get there, private industry is probably going to have to build most of them, and to justify the capital expense, it is going to have to see a reasonably steep upside.
If you go by economic history, here is one probable scenario: In the middle-late part of the decade, as EVs are selling at much a higher clip because they have become much cheaper, fast-charging stations will begin to price their power at the equivalent of gasoline. That is, it will cost you roughly the same whether you are “filling up” your EV or your gasoline-driven vehicle. To put hard numbers to this thesis, if you have a 20-gallon tank, you are currently paying an average of $50 for a fill-up compared with about $10 to charge an EV.
To understand why the price of EV charging may very well rise to somewhere near $50, consider the meatless burger — the Impossible Burger to be precise. At Burger King in Adelphi, Maryland, the Impossible Whopper is $8.99. That’s a dollar more than the regular Whopper. At Red Robin in Northridge, California, the Impossible Cheeseburger is $14.89, about $2 more than the regular Master Cheese Burger. Is it mere coincidence that the prices are so close?
Not at all. This is economics: The price of a new product will generally rise right around that of its nearest competition.
Here is another example, from when I was based in the former Soviet Union: One of the biggest U.S. policy ventures of the 1990s was to undermine Russia’s influence in the southern half of the former Soviet Union, the eight countries known colloquially as the “Stans.” The focus of this battle was oil and the construction of a giant, independent pipeline that would carry the Stans’ oil to market without crossing Russian territory. The U.S. favored a tortuous route through Turkey, about 1,000 miles of pipeline going up and down steep mountains. But BP, the British oil company, was influential in the region and favored a shorter line that would instead go through Iran. BP said that route would be much, much cheaper. Against U.S. wishes, Iran put together a proposal for BP. The cost of the resulting Iranian proposal? A few dollars less than the Turkish version. Why when it was so much shorter? Because of the competition — Iran’s position was why should it be sold short. If Turkey was going to earn all those billions, why should it earn less?
There is a range of opinions on whether this economic principle holds in the case of EV charging. Bill Loewenthal, a senior vice president of ChargePoint, an EV charging app, rejected the premise. In an email, he said the vast majority of EV drivers “top up” their batteries rather than seek a full recharge when they are out and about, just like they do with their cell phones. Full fueling stops will not materialize, he asserted, but we instead will see quick-charge top-up electric sockets at retailers, workplaces, and hospitality locations. Tyler Lancaster, principal at Energize Ventures, said much the same, and that electric prices will stay low. “Even if EV charging companies were to double prices, it still would represent a more than 50% cost savings relative to the comparable price of gasoline,” Lancaster told me.
But Brian Johnson, an analyst with Barclays, told me that it depends how concentrated the charging market becomes. If EV charging becomes an oligopoly, prices would indeed rise to match gasoline, he said. Dan Ives, an analyst with Wedbush, said that if charging prices do rise to that of gasoline, they will stunt the growth of EV sales. “That is ultimately one of the risks to much more full-scale EV adoption,” he said by phone.
That a vast public charging network is coming seems all but certain. As I’ve written previously, the average mainstream driver — agnostic on things green and simply interested in a vehicle — will buy an EV only if there is a visible, reliable network of fast-charge stations, providing a lot of driving miles in 15 minutes or less. I get much pushback on this point, with the argument that most charging will be done at home while the motorist is sleeping. But those making this claim are almost always people who are already green. The crucial point on whether EVs go mainstream is eliminating all fear of running out of electricity, failing to find a charging station, and becoming stranded. People are accustomed to gas stations, so that is the likeliest successful format for the new charging age.
Home electrical upgrades are currently $500 to $1,000. But for a single commercial fast-charge charging point, the cost, even for low-end equipment with 50 to 150 kilowatts of capacity, is about $30,000, according to McKinsey. Multiply that out by the number of charging points at each station, in addition to software, safety equipment, and hookup to the grid, and you have the capital cost.
Short of an improbable full government buildout of stations, that is the cost that entrepreneurs will be seeking to recover, with a tidy profit on top.