Tesla’s GM Deal Is Good for EVs and Bad for EV Charger Firms

The frenemy of my enemy is my friend, as the old saying goes. Things are getting complicated in the exciting world of electric vehicle charging standards — especially for companies such as EVgo Inc. that want to make a living from it.

For makers of the EVs, on the other hand, things are actually getting a bit simpler. General Motors Co. has swiftly followed its rival Ford Motor Co. in striking a deal with Tesla Inc. to let GM-branded vehicles use Tesla's fast-charging network. As before, GM's existing EV owners will need an adapter to use Tesla's type of plug — known as the North American Charging Standard, or NACS — and future GM models will come with that type of socket as standard.

This is good marketing, alleviating drivers’ concerns about sparse chargers on the road, and, by extension, becoming an enabler to using cheaper batteries with less range (see this). Tesla, meanwhile, gains another big brand to monetize its in-house charging network (including via access to subsidies) and likely sets off a stampede to make NACS the dominant plug type in the US (expect Stellantis NV et al to follow shortly). As a bonus, Chief Executive Officer Elon Musk on Thursday got to indulge in his new favorite hobby, hosting frenemy auto CEOs on Twitter Spaces (who knew Musk's social media synergy would end up being … car plugs?)

The EV makers, despite their rivalries, have a common interest in coaxing drivers toward the electric vehicles they make. These charging deals are a means to that end.

For companies such as EVgo, ChargePoint Holdings Inc. and Blink Charging Co., however, it is more a means to their end. This is a nascent business, which means there is growth potential: Bloomberg NEF's latest long-term EV outlook, which dropped this week, projects the current North American public fast-charging network of about 16,000 connectors to reach almost half a million by 2030 and over a million by 2040.

As a business model, however, public EV charging is not the venture capitalist's ideal. As with a lot of clean tech, as opposed to regular tech, it is tough to scale a business requiring the installation and maintenance of lots of hardware. The Sand Hill Road types’ eyes start to glaze over when your pitch veers into how quickly you can dig trenches for cabling and negotiate demand charges with regulated utilities.

A lot of money has to be spent upfront to service a vehicle fleet that is at an early stage itself, meaning patience is more than just a virtue here. Tesla built its proprietary network essentially as a loss leader to stoke demand for its EVs, and it could do that in part because of Musk's rarified knack for persuading investors to cover his losses. The three charging companies mentioned above have a combined market cap of about $5 billion, cash on hand of $550 million and expected cash burn across this year and next of more than $600 million. Their life is complicated enough. And now this.

The path to turning a profit on public chargers is like any piece of industrial hardware: Get more people to use it so it doesn't sit idle. The threshold for profitability with charging depends on many factors, though I’ve seen one useful estimate of 30%, or roughly seven hours of charging every day (see this). As it stands, EVgo, which is weighted more to fast-charging, said on its last earnings call that the top fifth of its charging stalls enjoyed utilization above 20%.

By striking deals with Tesla, Ford and GM (and whomever comes next) will give their drivers the option of using the biggest fast-charger network by far across the US instead of the chargers owned by EVgo et al. Moreover, Tesla's network is also the most reliable. Turning up at a public charger and finding it doesn't actually work is a ridiculously common experience for EV drivers (to which I certainly can relate). A more subtle, but also important, aspect here is that even if the charger works, it can be fiddly to get the right app or fob deployed to get the process going. Charges also differ quite markedly.

In part, all these difficulties reflect the fact that, outside of Tesla, public chargers rely on the seamless interface of multiple providers — the charger operator, the payments handler, the electricity provider — in order to function well. That creates multiple points of potential failure and, therefore, friction for drivers in a nascent EV market requiring the smoothest customer experience possible to lure people away from gasoline engines.

As with the old video standard wars, these deals raise the question of whether NACS will end up completely displacing the combined-charging standard, or CCS, plug common to non-Tesla chargers in the US. That is something that will play out over the longer term, especially as CCS is embedded in some subsidy programs. For the public charging companies, there is nothing to stop them adding more, or retrofitting, NACS plugs, which are already a fixture on some of their stations — as EVgo pointed out in a rather defensive tweet issued Thursday evening (more synergies for Musk!). Of the three, ChargePoint's less capital-intensive model of serving independently-owned charging stations may shield it somewhat from this sudden shift in the landscape.

At the very least, though, Ford and GM (and whomever follows) have gained leverage over the charging companies to force them to up their game on reliability (read: spend even more). The last thing they needed was closer competition with a $700 billion-plus gorilla that collects enemies, and now frenemies, with relish.