April 17, 2018 /11:25 AM/ Fitch Ratings
Technological advances and political backing have paved the way for a rapid acceleration in the adoption of electric vehicles (EVs) in EMEA in recent years. The largest automakers, such as VW, Toyota, Daimler and Ford, forecast that EVs will constitute a growing share of total vehicle production, up to 30% in certain cases, within less than 10 years, Fitch Ratings says.
However, successful, widespread use of EVs requires material investments in comprehensive EV charging infrastructure. While there has been some progress, with a growing number of charging points across Europe, a dense and convenient charging infrastructure is still lacking and might become a hindrance for further advances in EV adoption.
A material drop in battery costs has made the manufacturing economics of EVs comparable to those of internal combustion engine (ICE) vehicles. This, along with strong political support for a more ecological fleet, has led to a rapid increase in the number of EV on the roads, now estimated at over 3 million worldwide.
At the moment, EV users typically rely on charging their vehicles at home or at work, and, according to official surveys, one of the main reasons why people refrain from buying EVs is so-called "range anxiety" - the fear of running out of charge. This is due to the range one can travel on a full charge in an EV still being a fraction of that for an ICE vehicle. Therefore, a convenient, rapid and easily accessible network of charging points is of paramount importance for the further adoption of EVs.
This comes at a cost: in the UK, recent research commissioned by the Committee on Climate Change estimates that investment in around 25,000 additional chargers across the country would cost roughly GBP530 million.
Several market players have announced investments in charging points: oil companies such as Shell and BP are the prime examples as they look to counteract reduced demand for petrol. Energy utilities and grid companies have also been investing in charging stations. Other smaller, private-sector players are also entering the market, often backed by private equity funds.
The business model for EV charging infrastructure in EMEA is still evolving, with Norway and the Netherlands leading the way given their highest EV penetration rates in Europe. Much needs to be resolved in terms of interoperability among the different charging providers.
Regulation is also evolving with respect to interoperability standards, building codes and permits and financial incentives, presenting further challenges for the establishment of the sector. Furthermore, engagement with the grid operators or local distribution network operators will be crucial as a growing number of EV charging points would require investments in the reinforcement of the distribution grid.
EV charging networks will also develop into investment opportunities for debt investors. An example of debt financing raised is that of Fastned, the Netherlands-based EV fast-charging network developer and operator, which raised EUR12.3 million through the public issuance of bonds in late 2017.
Debt financing transactions would have to be large enough to attract interest. In addition, charging volumes, patterns and pricing structures would need to have developed some stable history to support the reliability of cash flow projections for project finance EV charging infrastructure transactions.