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The world is rapidly moving towards electric vehicle adoption with almost 7m units sold globally in 2021. This is good news for the environment, particularly with transport now the world’s largest carbon emitter. But impressive as this growth is, the migration towards EV’s could, and should, be greater. So what is holding car purchasers back? In a word, infrastructure. More specifically, the lack of it.

EV’s – key to net- zero

Before looking at the obstacles to greater EV adoption, let’s look at why greater roll-out matters. Other sectors, such as utilities, have made tremendous progress in reducing emissions over the last decade, replacing coal and gas with renewable alternatives, such as wind, wave and solar. However, this progress has now elevated transport as the largest contributor to carbon emissions in many countries.

With around 70% of emissions from the transport sector coming from road vehicles, it is obvious that electrification of cars, trucks, buses and motorcycles will be critical in achieving net- zero targets.

Build it and they will come

With such clear environmental benefits moving towards electric vehicles, what disincentives are acting to discourage even greater migration towards EV’s? Ask potential EV purchasers what stops them buying an EV and the answer is almost universal. Lack of charging infrastructure is quoted by 70% of potential purchasers as the prime reason they will not buy. Led by range anxiety, charge time or lack of charging stations, the relative lack of charging facilities is the biggest obstacle to even wider EV adoption.

With estimates suggesting EV’s will account for between 60-80% of all new cars sold within the next 20 years, this is an issue which needs to be addressed.

The investment opportunity

It is estimated $1.4tn of investment will be needed to build electricity grids and EV charging infrastructure. But for investors, where do the financial opportunities lie within this expansion of EV’s? These will range from vehicle and battery manufacturers through to miners of key minerals such as lithium and nickel. However, with emergent EV technologies, picking the winners is risky. The certain beneficiaries, however, will be providers of the infrastructure required to fuel this transport revolution.

Caution is warranted, however. Over recent years, numerous EV charging infrastructure companies have listed, but few have prospered. Business models vary including manufacture and sale of charging hardware, installation and maintenance of hardware, and software for subscription-based charging networks. Initial investor excitement has, however, given way to reality. Low gross margins, few barriers to entry and supply issues have often led to heavy losses.  

In our view, it is likely that regulated utilities with existing electricity distribution networks will present the more compelling opportunities. With the appropriate policies and regulatory frameworks already in place, utilities are well placed to deliver a coordinated rollout of a consistent product at an acceptable cost. By including the EV charging infrastructure rollout costs in the regulated rate base, along with the required distribution and transmission network upgrades, costs can be shared across the customer base.

Renewables leading the way

Power grid investment will not be the only focus for investors though. EV customers will likely expect that the electricity used by their vehicles are generated by renewable sources. This will lead to additional investment in solar, wind and wave generation and associated transmission lines. Smart grid solutions will also be required to better manage the current disparity between renewable generation peaks and actual demand.

Conclusion

We believe the EV revolution presents compelling opportunities for infrastructure investors, particularly within regulated utility and electricity distribution networks. Additionally, there is an expectation that the electricity required to power EV’s will be green. This can open, up further opportunities for investment in renewables. Overall, the future is bright, not only for transport but also for investors who have a critical role in making this revolution a reality.

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