Inst’l Investors Take a Cautious Look at EV Charging

When a blast of arctic air settled over much of the country in mid-January, many electric vehicle owners were rudely re-awakened to the fact that their car batteries don’t have as much range, and charge more slowly, in bitterly cold air.

That led to long lines at many public charging stations – and served as a cold reminder that even as more consumers and businesses purchase EVs, the nation’s public charging infrastructure remains far from adequate.

That ongoing need for more charging stations – and the need for cash to fund the construction of those stations – is making EV charging an intriguing option for many institutional investors around the world – even as challenges persist.

“There’s a lot of money and a lot of interest, because a growing number of people view EVs as inevitable,” said Geoff Eisenberg, partner at Ecosystem Integrity Fund. “They see it as being where solar was about 10 years ago.”

EIF has made two investments in EV infrastructure companies: eMotorWerks, which it sold to Enel Group, and EV Connect, which Schneider Electric bought in mid-2022.

There’s been plenty of other recent investment activity around funding for EV charging, in the U.S. and in other countries where EV uptake has been faster:

  • EQT Infrastructure in January paid an undisclosed amount to acquire InstaVolt, which runs EV charging stations across the UK.
  • In December, Los Angeles-based EV charging operator EVCS said it was looking at a $20 million funding round and had already raised about $7.5 million of that target. The company raised an $18.8 million Series A round in July 2022
  • Also in December, Macquarie Capital took an undisclosed equity stake in Indian EV charging startup ChargeZone. Earlier in the year, ChargeZone had raised $54 million in a funding round led by Swiss impact investor BlueOrchard Finance, a Schroders subsidiary.
  • Last August, Canada’s OMERS Infrastructure and Dutch pension manager APG Asset Management jointly acquired Kenter, an energy infrastructure firm from the Netherlands whose many business lines include EV charging and fleet electrification. OMERS and APG had paired up on an investment in another Dutch energy company with a strong EV charging component, Groendus, in November of 2022 as well.
  • In July, ev.energy – a London-based startup that develops software platforms to operate EV charging stations – raised $33 million in a Series B round. The round was led by National Grid Partners, with participation from existing investors Energy Impact Partners, Future Energy Ventures and ArcTern Ventures.
  • Last May, APG invested €250 million ($270 million) into French electric vehicle charging company Driveco, joining existing owners like Natixis Investment Managers affiliate Mirova and solar developer Corsica Sole.
  • Britain’s EO Charging last February took an $80 million equity investment from investors including Zouk Capital and Vortex Energy, a renewable energy investor whose backers include sovereign wealth funds and family offices.

That range of investments shows broad geographic interest in EV charging – but the modest numbers also indicate that there’s a distance to go before EV charging really takes off as its own niche within the broader category of the energy transition.

“Institutional investor interest in renewable energy remains strong, as that is where almost all growth is in the power sector,” said Keith Martin, partner at Norton Rose Fulbright. “EV infrastructure attracted some interest the last few years, but I would not call it a flood.”

For those institutional investors that are putting money into EV charging, some like it as a way to help decarbonize their portfolios; others see it as a straightforward infrastructure investment, one with a good long-term outlook given the forecasts for strong long-term growth in EV sales.

Many investors “are looking for infrastructure-like returns – high single digits to low teens,” Eisenberg said. “Others are looking for private equity or venture capital-type returns.”

Shivika Sahdev, partner at McKinsey, characterizes investor interest in EV charging as “strong but cautious.” A major challenge, she says, “continues to be around finding the right target profile with the right business model.”

It doesn’t help that the sector has seen negative headlines of late. Besides the long lines at many charging stations this winter, several publicly traded charging companies had rough years in 2023, “which has put some questions on the fundamental ability of players in the sector to be self-sustaining and provide a positive return on capital,” she said.

Fears of a looming recession have been a major headwind as well: ChargePoint CEO Rick Wilmer told BNEF that he saw a lot of hesitation among clients last year around building chargers due to the uncertain direction of the economy.

Still, EV sales continue to set record numbers in terms of annual sales in the US and globally, despite recent headlines about a “slowdown” in EV sales. Sales are still rising, just not as fast.

BNEF, for instance, notes that EV sales, including plug-in hybrids, more than doubled in 2021 and rose another 62% in 2022. But that growth rate fell to “only” 31% last year, and could decelerate again to 21% this year.

And ARK Investment Management, whose CEO Cathie Wood is closely listened to by investors, says electric vehicle sales will grow 33% for the next seven years – from about 10 million in 2023 to 74 million by 2030. There is, ChargePoint said in a report on the upcoming year, “ a clear need for more infrastructure to meet EV drivers’ charging needs.”

Fleet charging is up next

This year, there’s a general expectation that fleet charging – big charging stations for fleets of delivery trucks, taxis and other vehicles as companies move to EVs – should see a lot of interest from developers and investors.

“Fleet charging is coming,” Eisenberg said. “It’s not really here just yet, but everyone expects it will be. So that’s attracting interest” as developers and investors look to be among the first into this developing market.

Sahdev agreed that there should be growing interest in “commercial EV charging projects, whether large scale consortiums for public commercial infrastructure or investments in depot-based charging.”

A key reason for that is that more commercial fleets are adopting EVs. Just as importantly: “The fundamental economics of commercial charging are considerably more attractive than public passenger car, and there is much better fit with institutional investor hurdles on return profiles, risk appetite, and predictability of cash flow,” Sahdev added.

There are already hiccups here, though. Hertz, for instance, was an early proponent of EVs and bought tens of thousands for its fleet of rental cars. But it said in January it will sell off about 20,000 of those electric vehicles – about a third of the total number it owns – due to high repair costs and weak demand among consumers.

Martin said that, as someone who has rented EVs from Hertz, that’s not surprising. “I can attest to how difficult it is to bring the vehicles back with a 95% charge” – a situation that, of course, underscores the need for more public charging stations to be developed.

Looking ahead, government subsidies will be necessary for EV charging to really take off, many experts think.

For the short- and medium-term, “There are a limited set of business models in EV charging that are self-sustaining without some kind of economic subsidy or support,” Sahdev said.

Several states have offered a range of programs aimed at spurring developers to build EV charging stations. And in early January the Federal Highway Administration announced $623 million in grants to fund EV chargers in 22 states and in Puerto Rico, with funding having been earmarked through the Infrastructure Act of 2021.

The federal Inflation Reduction Act also included the renewal of a 30% tax credit for installing EV chargers that can offer up to $100,000 for charger installations, though there are restrictions on where these stations can be placed and still be eligible for the credits. At least partly due to those limits, Martin said there’s not been a “major uptick” in installations due to the IRA.

Despite the many challenges, it looks all but certain that EV adoption will continue, which will spark the need for ongoing investments in EV charging infrastructure. Even some of the oil majors are getting into it, like BP, which in 2021 bought fleet charging startup Amply Power, hiring its founder Vic Shao and rebranding it in 2022 as BP Pulse Fleet.

EV and EV charging “is going to take over, and the fueling providers today, oil companies or otherwise, that are not leaning in as BP is, they won’t be in business in 10 or 20 years,” Shao said at a CleantechIQ forum late last year, shortly before he left BP at the end of the year.

“I feel pretty strongly that this is the economic outcome for transportation,” Shao said, adding the “momentum will accelerate over the next two to three years.”

Post Comment

Your email address will not be published. Required fields are marked *

Featured News Topics