What the Costco hotdog can teach us about EV charging networks

If you've talked to me in the past year you'll know that I'm a huge EV evangelist and I'll defend EVs as the future of transportation till I'm out of breath. Even I'll say though that EV charging still sucks. There are moments when it's fine, simple, and even painless but unfortunately, on average, it is still so much worse than filling at a gas station.

This isn't just my opinion either. 77% of Americans surveyed by Ipsos stated that charging availability was a major impediment to buying an EV. Specifically, EV charging is a poor experience for users for several reasons:

1. Poor reliability. Studies by J.D. Power and others have shown that ~20% of attempted charging sessions fail. While that data is a bit old and the networks continue to improve, that's... bad.
2. Weird locations. You gotta (not) love parking in the corner of a Walmart or some random hotel. Bonus shitty points if it's at night and you're alone.

3. Poor access to refreshments. Fueling up your car is a great time to grab a quick drink, eat a snack, or use the restroom. Most EV chargers (at least the fast ones), don't have that luxury though. You're lucky if the charger is near a gas station or perhaps a McDonalds in the same parking lot.

4. No overhead protection. Am I the only one that thinks it's strange that just because we drive EVs we no longer need overhead protection while plugging in our vehicle? EV drivers aren't huge fans of getting pummeled by snow / rain either it turns out.

5. Rising electricity prices. As EV charging networks push for a sustainable and profitable business model, they've had to raise prices to cover both the incredibly high CapEx as well as the sneaky expensive operating costs including hefty demand charges to the utility. In my area (NYC, admittedly very expensive), I've seen prices push past $0.60 per kWh.

So the everyday EV driver isn't having a great time but this has gotta mean the EV charging networks are just making money no problem right? Wrong. They aren't having a great time either. Even with the billions pouring into infrastructure development, the margins on charging are incredibly small and the payback periods are long. McKinsey published an excellent study which shows how, without subsidies, fast chargers are a negative margin business (~-15%). Even with subsidies (which may fundamentally change with the upcoming election), the profits are ultra thin pulling in just ~10% of revenue. Of course, as utilization improves and if utility demand charges fall, chargers can look more appetizing to investors even without subsidies. For now though, they are a tough sell. No wonder the chargers are unreliable, don't have simple overhead structures, are in cheaper / weirder locations, or have high prices. The business model is terrible!

And that's just it. Most of the EV charging network build out in the US so far has used the wrong business model. Rather than treating the charging as a marketing engine, we've treated the charging as the single driver of value. Look to the humble Costco hotdog. It costs $1.50 and you get a drink with that. Costco loses money on each hotdog sold or at best breaks even. It gets you into the Costco though and then you can't help but buy something else with much higher margins. EV charging should be the same and gas stations have known this forever. Ask any gas station owner and they'll tell you that they make almost nothing on the gas itself. Some stations make only a penny or two per gallon sold. The profit is in the snacks and drinks. It's time we rethink our public fast charging business model. Some companies have already started the transition but we aren't there yet.

Fast Charging

Signs of a transition

Go to most fast chargers still and you'll find the same, stale model. Chargers tucked away deep in a parking lot with few businesses nearby to engage with and a largely no-frills charging experience. However, we've started to see some exciting changes to this model.

Electrify America opened up their flagship charging station in SF recently. The charging station is indoors, has nice areas to work, and has a few vending machines. While they probably missed out on opportunities to monetize the captive attention of the drivers parked there, it's a step in the right direction.

An even better implementation goes to Mercedes and Bucc-ee's. It's so obvious to install chargers in the parking lot of one of America's most loved gas station / convenience store / general store brands I'm surprised it didn't happen sooner. The opportunity to monetize the attention of those EV drivers is immense making the business model finally make sense for once. The drivers will also enjoy the ease of access to goods and services they actually want.

Where we need to be

It's quite simple then for where fast charging should be. Charging networks should:

1. Have concessions built into the station to ultimately drive profits and take advantage of the captive 15-30 minutes the stations "bought" by getting a driver to recharge there.
2. Keep charging prices at a level which just clears the operating cost. The profit isn't in gouging drivers for their charging. The charging should be treated as a CAC. Both drivers and ultimately networks will be happier with this approach.
3. Retrofit existing gas stations with EV charging infrastructure wherever possible instead of building entirely new stations. The gas stations already have the car washes and concessions capabilities to drive profit which lowers that upfront capital investment. However, most gas stations are independently owned meaning they are unlikely to have the capital to be able to install EV chargers on their own. Networks need to work up creative financing deals, perhaps profit-sharing, to build chargers on gas station property and share in the economics. Done right, this could be a great opportunity for wealth creation and sharing for America's lower and middle class.

Conclusion

We've burned billions of dollars to get to this point but I think we can confidently say that a few chargers mounted in the corner of a desolate parking lot isn't a great experience or business model. We should have known this earlier - just imagine a gas station with 6 gas pumps, no cover, and no store. I wouldn't want to invest in that nor fill my car up there and we shouldn't have thought it would be any different for EVs. It's clear now where we need to take the business and the industry will need to act quickly as subsidies potentially wane. If not, we are at risk of entering a dangerous circle of suck. Poor charging experiences and high energy prices means fewer people buy EVs or charge them at public chargers. Lower utilization means higher prices for the charging network to break even. Before you know it, we're in a no fun game where everyone loses.

Level 1 and 2 chargers also have a role to play here which I'll write about in my next piece. Those to, should have their value more explicitly linked to the economic activity they drive in the communities around them rather than the revenue they bring in on their own.

Either way, let's use the hotdog (charger) to sell 40 rolls of toilet paper (snacks) and make everyone happier.