Should I Start a Business of Electric Vehicle Charging Stations?
Well, if you’re an entrepreneur looking for new business opportunities, you may have thought about starting a company to install and operate electric vehicle (EV) charging stations. On the surface, this seems like a great idea – the EV market is exploding, governments are pushing for more charging infrastructure, and who wouldn’t want to be part of the sustainability solution, right?
Well hold your horses for a minute! Starting any new business comes with risks and challenges. And the EV charging station business is no different. There are definitely some major opportunities out there, but also some potential pitfalls you need to look out for. Let’s dive into the key factors you need to consider before taking the leap into the world of EV charging.
First, you need a realistic perspective on the current size of the EV market and how fast it’s growing. While EV sales are certainly on the rise, they still represent a very small percentage of vehicles on the road today. In 2021, EVs made up only around 4% of new car sales in the U.S. The vast majority of drivers are still using good old gasoline-powered vehicles.
However, the trends definitely point toward rapid growth ahead for EVs. Most analysts predict EVs could make up over 50% of new car sales in the U.S. by 2030. So if you’re looking 5-10 years out, it looks like there will be tens of millions more EVs on the road. But it’s important to understand, we’re still in the early days of the transition away from gas cars.
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The charging infrastructure available today is nowhere near ready for a massive influx of EVs. There are currently less than 50,000 public charging stations across the entire U.S. To really enable wide adoption, we’ll need a massive build-out of charging stations over the next decade, with some projections showing a need for over 100,000 fast chargers and over 1 million level 2 chargers by 2030.
So in summary – huge growth is coming, but the EV revolution is still in its early phases. If you jump into the charging station business now, you’re making a bet that growth will continue accelerating rapidly. Definitely assess the market carefully and make conservative projections.
Of course, if you’ve spotted this opportunity, many others have as well. And some massive players are already staking their claims in the charging market.
Tesla is aggressively expanding their proprietary Supercharger Network, aiming to triple the number of stations over the next few years. They obviously want to provide a premium charging experience specifically for Tesla drivers.
The traditional oil giants like BP, Shell and Exxon are buying up EV charging companies so they can remain relevant. You can expect them to leverage their huge resources and vast networks of gas stations to blanket the country with chargers.
And startups like ChargePoint and EVgo have raised hundreds of millions in funding to build out charging networks. ChargePoint already has over 150,000 ports around the world. These well-funded startups will make the market ultra-competitive.
The point is, by the time you get your new charging business up and running, some very deep-pocketed competitors will already dominate the landscape. You need to make sure you have a truly differentiated offering, strategic partnerships, or some unfair competitive advantage. This is not an easy space to just waltz into as a small new player.
Here’s another reality check – charging technology is evolving at light speed. Just look at how smartphone batteries and charging capabilities have improved over the last decade. EV charging is on a similar innovation trajectory.
For example, today most public charging stations are Level 2 (240 volt) or DC fast charging stations that still require plugging in. But wireless (inductive) charging is coming on strong and could eliminate the need to plug in at all. If you invest heavily in plug-in stations, they could be obsolete quicker than you think.
New battery technology and chemistries are also coming that could charge in a fraction of the time compared to today’s EVs. So you have to try to future-proof your business model as much as possible for fast-changing charging standards.
Maybe start with less expensive Level 2 chargers to test the waters, then upgrade to next-gen ultra-fast chargers as the technology evolves. The point is, don’t assume the charging stations you install today will meet the needs of EVs 5 years from now. Build flexibility into your plans.
Here’s another crucial question – how much will drivers be willing to pay to charge up at public stations? After all, you’re investing a lot of money upfront, so you need healthy ongoing revenue to be profitable.
Well, surveys show most people don’t want to pay too much, especially if they mostly charge at home and work. Home charging with a Level 2 charger costs about $1-2 per hour typically. So when asked, most survey respondents said they’re willing to pay around $1-3 per hour for public charging.
Of course, a small percentage of people said they don’t care about the price. And when they really need to charge up to get to their destination, customers may be willing to pay more. But for the most part, public charging will need to be priced competitively with the low cost of home charging to attract drivers regularly.
Can you operate a profitable business with the slim margins this likely means? Especially when you consider the high real estate costs of locating stations in prime spots? Making the unit economics work will be tricky – more on this next.
If you want your charging stations to be utilized regularly, the best locations are along major intercity highway routes and at hospitality businesses where people park for extended periods, like hotels, restaurants and shopping centers.
But of course, these prime locations come at a huge premium in terms of real estate costs. And you’re competing with gas stations, restaurants and other high-traffic businesses for the best spots. Can you negotiate a revenue share or subsidy from businesses benefiting from the extra foot traffic you’ll bring?
You may need to get creative – partnering with grocery store chains, big box stores, mall operators and other retailers that have large parking lots with space to spare. Starting in high-cost downtown areas may not be wise. Go where the land is cheaper and you can build a high-volume charging hub.
Here’s another key factor that will make or break your profitability – the ongoing costs involved in operating a charging network.
First, there’s the actual electricity required to charge vehicles. While utilities often offer lower rates for EV charging stations, your power costs will still likely be your largest expense. There’s also credit card processing fees, networking and software fees to manage payment and integrate with other networks.
And since you’ll be operating a network with high uptime requirements, you need to account for system maintenance, repairs, cleaning and live customer service coverage. Weather and vandalism can wreak havoc on your equipment if you’re not diligent.
Finally, you may need to pay rent or revenue shares to property owners where you install chargers. Add up all these ongoing costs and your profit margin per charging session starts looking pretty slim. Carefully project expenses at scale before jumping in.
Installing charging stations isn’t cheap, especially for fast chargers that may require high-voltage electrical upgrades. Just buying the hardware can cost anywhere from $5,000 for a simple Level 2 charger up to $100,000 for an ultra-fast DC fast charger.
Then you have costs for construction, permits, networking equipment and more. It adds up fast. Thankfully there are some great incentives available that can offset your upfront capital costs.
Be sure to research federal, state and local grants, tax credits, and rebates for EV charging stations – there are hundreds of millions in incentives out there if you know where to look. Utility companies may also offer special rates or installation cost offsets to encourage more EV charging.
Leverage these incentives, but read the fine print. There are often ongoing requirements to receive the full benefits, like maintaining equipment for several years or offering open access to all drivers. The incentives help, but don’t count on them to fund the full investment.
Okay, after reading all this you’re probably thinking the EV charging station business sounds complicated, competitive and risky. And you wouldn’t necessarily be wrong! There are certainly major pitfalls to be aware of.
But here’s the exciting part – if you go into this business with eyes wide open, a smart strategy and strong execution, the opportunities for growth and profit are immense.
The market trends, government policy, and consumer demand are ALL pointing toward a future with exponential growth in electric vehicles. Someone needs to build the infrastructure to charge all those EVs. Figuring out how to do that profitably is the golden ticket.
If this is a business that fits your interests and passion, I would say go for it, but start conservatively. Do tons of research, nail down your unit economics, test the market on a small scale and then be ready to adapt quickly as the technology and business models evolve.