BEV Buy-In Depends on Charger Build-Out

LAS VEGAS – Demand for battery-electric vehicles slackened in the second half of 2023 and dealer inventories climbed. But that was after several big-ticket luxury and foreign BEVs fell off the list of vehicles eligible for the $7,500 federal tax credit. According to a study by global consulting firm McKinsey, that and other key factors are keeping consumers on the sidelines – particularly charging angst.

Last year, following clarification of the policy by the U.S. Department of Energy, the number of vehicles eligible for the tax credit fell from 43 to 19. Among the vehicles dropped from eligibility were Tesla Model 3 Rear Wheel Drive, BMW X5 xDrive50e, Audi Q5 PHEV 55, Cadillac Lyric and Nissan Leaf. Dealer inventories ballooned to over 100 days, while inventories of ICE vehicles were half that.

Vehicles that were dropped from eligibility last month included Ford Mustang Mach-E and some Tesla Model 3 trims. In all, nearly 70% of models originally listed lost eligibility.

Even with that body blow to the market, sales of BEVs in 2023 were up 43% year over year.

“There is no question that (B)EVs will eventually dominate new-vehicle sales, but the pace of that transition is dependent on a lot of factors and industries and it’s not going to be a straight line to 100% EVs,” says Philipp Kampshoff, senior partner of McKinsey’s Center for Future Mobility, presenting the study here during CES24.

[Editor's note: WardsAuto classifies battery-electrics, hybrids, plug-in hybrids and fuel cells as electrified vehicles (EVs); battery-electric vehicles are specified as BEVs.]

Public Charging Speedbumps

A recent report by McKinsey speaks to lingering apprehension about charging that won’t be solved until reliable public charging infrastructure is as ubiquitous and profitable as gas stations.

Governments and automakers are subsidizing the buildout of public chargers. But those stakeholders cannot speed up the often complex and time-consuming improvements to the electrical grid and electricity infrastructure that will require tens of billions in investment: more high-voltage transmission lines to transport electricity from power plants to demand centers; modernized distribution lines and transformers; and hardware such as inverters that allow customers with home batteries, EVs and solar panels to feed excess energy back into the grid.

In the meantime, McKinsey points to another problem: lack of reliability of public chargers and lack of charger profitability – both of which add up to a slow and bumpy rollout of chargers.

McKinsey’s study samples consumers in the U.S., Germany (a proxy for Europe) and China. Perhaps not surprisingly, 45% of global BEV customers charge at home, while 33% are primarily charging at public facilities, such as Tesla outlets. The remainder are using chargers at their place of employment and on the go, which reflects chargers at retailers, etc.

Access to public charging remains a top consideration for non-BEV, “skeptical” owners. Forty-two percent of respondents say they are waiting for public charging to become as available as gas stations. Another 42% say they are waiting for larger battery capacities and greater driving range among EV offerings. The price of gas also is a factor, with 26% saying they would consider buying a BEV if gas prices were 20% higher than at the time of the survey. Experience with BEVs also is meaningful, with 22% saying they would more seriously consider a BEV if they could test-drive one.

Time Is Money

McKinsey’s findings indicate that BEV owners and those on the fence place charging speed highest among considerations when using a public charger. Forty-two percent placed speed at the top of their decision factors, followed by cost at 35% and safety of charger locations at 21%.

Charger downtime remains a nettlesome problem and has contributed to much of the negative publicity around BEVs. McKinsey says downtime at chargers in the U.S. is at 30%. That problem, says Kampshoff, is exacerbated when you consider that working spots may be occupied when a driver approaches, and the assumption is that it will take too long for the car ahead to vacate before one can charge one’s own vehicle.

Equipment failure ranges from unresponsive charger screens, payment system failures, network failures, broken connectors, software failures and vandalism. The transition to BEVs has ignited high emotions, with some politicians decrying efforts to phase out internal-combustion-engine vehicles, and about 15% of chargers suffering vandalism, usually by cutting charging cords.

Public charging is not and is unlikely to be profitable for decades without government subsidies, according to McKinsey. Without subsidies, each charger, assuming 15% utilization, loses $40,000-$50,000 per year. With subsidies, each public charger assuming the same utilization rate makes only $25,000-$30,000 per year. The study shows that pricing and utilization are the two biggest factors in achieving profitability. Another factor determining total profitability of chargers is the development of full-service charging stations similar to big gas stations with premium retail and gaming areas, operations that greatly augment the revenue per consumer visit.

BEV owners can be more profitable than ICE drivers. McKinsey says 44% more BEV owners stop at a full-service retail fueling location than do ICE drivers. BEV drivers spend 29% more than ICE owners at these locations, and BEV owners spend 20% more on takeaway food than ICE owners.

The bottom line, supported by the McKinsey report, is that BEV adoption and the road to more than 50% of new vehicles being BEVs is going to be very bumpy. OEMs, suppliers, utilities and governments all need to be on the same page for timing of investments. A lot of parts to the process must mature, and households, especially those with one or two vehicles and/or those that buy used vehicles instead of new, are going to need time to feel comfortable and secure with a whole new mobility model.