Governments want to get even more electric vehicles on roads — but they won't be able to go very far without the infrastructure in place in order to charge them up. Solactive’s head of research Konrad Sippel tells Opto that while EV manufacturers such as Tesla might be stealing the spotlight, investors would do well to look at what’s needed behind the scenes to propel the industry’s success.
Growing demand for rapid charging equipment infrastructure for both long-distance electric vehicle (EV) travel and day-to-day charging in EV owners’ homes and places of work has become one of the biggest investment trends so far in 2022.
Konrad Sippel, head of research at index provider Solactive, explains that the theme has grown as part of the “mega trend shift towards non-fossil fuel engine cars”. “The number of countries committing to ending the sale of these cars such as the UK and Germany by 2030 is pretty impressive,” he told Opto. “Everyone understands that EVs are going to dominate future sales and that more than half the cars on the road by 2040 will be electric.”
“Everyone understands that EVs are going to dominate future sales and that more than half the cars on the road by 2040 will be electric” - Konrad Sippel
Investors looking to capitalise on this trend initially cheered the launch of HANetf’s EV Charging Infrastructure ETF [ELEC] at the end of April, lifting the fund to an intraday high of $602.57 on 5 May before it closed 11.2% down from its debut on 9 May.
The EV Charging Infrastructure ETF tracks the Solactive Electric Vehicle Charging Infrastructure Index, which is composed of companies active in the field of EV charging stations and battery charging hardware. Solactive is also bullish about the growth prospects of the EV charging infrastructure industry, citing the theme in its recent Future Trends 2022 report.
Cars race ahead of chargers
Automotive stocks such as EV maker Tesla [TSLA] have powered forwards in recent years. The Tesla share price has soared 398% over the past two years and a further 1,120% in the past five years. Its rival Nio [NIO], meanwhile, has seen its share price rise 264% over the past two years.
But electric cars churning out of factories aren’t going to be going very far if there aren't enough places to charge them up. As Solactive’s Future Trends report noted, while incentives and technological advances have already increased the number of battery powered vehicles on the road, the charging infrastructure remains relatively underdeveloped.
The need to develop public charging points and private wall-boxes is essential to facilitate EVs on the roads. “When you get in your electric car you need to be as sure that you are going to find a charging point on route as you do just now with petrol stations,” Sippel explained. “At present, this isn’t a given. We need a lot more charging infrastructure.”
The Future Trends report also highlighted a study from The European Federation for Transport and Environment that stated that, in order to keep up with projected EV numbers, 3 million charging points will be needed in the EU by 2030. That’s compared to around 225,000 today — and only 25,000 of those are suitable for fast charging.
The US is in a similar situation, with a goal of getting 26 million EVs on the road by 2030, requiring 2.6 million charging outlets. So far, the US has only 113,000. President Joe Biden, as part of his Infrastructure bill, has pledged to spend around $5bn on building 500,000 EV charge points. “It is a big step, but only a quarter of what they need,” Sippel says. “It is a huge gap both there and in Europe.”
EV charging share prices go flat
It’s not just a physical or numbers gap, he adds, but in many ways a psychological one. Investors ‘get’ the Tesla story, but haven’t given as much attention or cash to those companies building the critical charging infrastructure that will make that vision a reality.
The share prices of these companies have, therefore, “not performed particularly well,” Sippel points out.
ChargePoint [CHPT], which is a holding in the Solactive EV Charging Infrastructure Index and runs a network of EV charging stations in North America and Europe, has seen its share price plunge 74% since the end of 2020. Another constituent, fast-charging station group Fastned [FAST.AS] has seen its share price fall more than 75% since last February, although it is up 236% since March 2020.
“These are fairly young, companies with not a lot of backtest available. They are growing but don’t yet have the scale of user base because EVs are still only a small percentage of total car sales. You also have the costs of building up the software or hardware product,” Sippel explains. “There is an opportunity here to get into it before the valuations, like the manufacturers, go through the roof.”
“There is an opportunity here to get into it before the valuations, like the manufacturers, go through the roof” - Konrad Sippel
He picks out Fastned as a leader in its home country of the Netherlands. It develops and operates fast-charging infrastructure charging electric vehicles with up to 300km of range in 15 minutes.
“A few metres on from every gas station on the motorway in the Netherlands there is a Fastned charging point,” he says. “We talk to people there and they look blankly at you when you mention issues around EV charging infrastructure. Because there has been a sense of urgency in the Netherlands, they see charging stations everywhere. But we explain that it is just not like that anywhere else and that EVs won’t take off unless the charging infrastructure, particularly for long distances, is there.”
The future of home vehicle charging
Off the road, Sippel also identifies US firm Wallbox [WBX], which makes EV chargers for use at home and in the office. The stock has seen its shares go up 17% in the last 12 months. “You could have an Airbnb of Wallboxes where you charge people to use your charger,” he considered.
Although the main focus of the EV Charging Infrastructure Index is on those making the chargers and those building the station networks, there could be another area of interest. “There could be a side theme to innovation in battery technology, enabling them to charge faster or putting bigger batteries in cars,” Sippel noted.
There are challenges ahead such as interoperability of charging hardware and software to make life easier and less expensive for EV drivers, as well as supply chain issues and chip shortages hindering development. Sippel also raises concerns that the fossil-fuel lobby could put pressure on governments to delay car bans beyond 2030.
“The charging companies have to prove that they can scale. There is a risk that some won’t be able to,” he says. “But this is a field right in the EV future mobility ecosystem whose prices haven’t inflated yet. It could be worth a look for investors. Just as the adoption of personal car use in the 20th century required a network of petrol stations, EV adoption will require a huge build out of charging infrastructure. The demand for these businesses is there.”