Facilitating the transition towards electric vehicles

Transitioning away from vehicles that use fossil fuels towards electric vehicles (EVs) is vital if the world is to achieve its net-zero ambitions. But persuading people to buy an EV is only part of the challenge – all the necessary infrastructure to support EVs also has to be in place. Amanda Vidal, an Infrastructure portfolio manager at APG Asset Management, answered our questions about the state of play in the electric vehicle infrastructure market, how it’s likely to evolve and the investment opportunities it’s providing.

How quickly is the EV market growing?

"It’s grown massively over the past decade. EV sales hit 10.5 million in 2022 – up over 55% in a year and from just 120,000 ten years previously. But there’s a lot of variation between individual countries. Policy support has played a big role: the countries that have provided the biggest subsidies, such as Norway, have seen the highest EV penetration.

And we can’t ignore the impact of China. In 2022, more electric cars were sold in China than in the rest of the world combined. With its government seeking to decarbonise, we expect further strong growth in the Chinese market over the coming years.

EV prices remain high compared with those of internal combustion engine (ICE) vehicles, but we still expect further EV penetration as competition increases between manufacturers, new technologies emerge and the sector receives increased support from regulation and policy."

Could insufficient infrastructure prevent EV targets from being hit?

"The infrastructure is improving, but it’s fair to say that it’s lagging the growth of EVs. For years, one of the main concerns about EVs, and a major barrier to their uptake, was insufficient charging infrastructure and low charging efficiency. These concerns haven’t been fully dealt with, although there have been big improvements, in part thanks to a significant proportion of subsidies and regulatory schemes focusing on supporting the installation of infrastructure rather than just subsidising the purchase of vehicles.

Insufficient infrastructure will prevent targets from being reached, which is why many countries are subsidising infrastructure. They’ve also streamlined permitting processes and cut costs for charging infrastructure firms to access the grid. Many European countries are also imposing an obligation to install EV chargers in buildings and car parks."

What kind of infrastructure is needed?

"The most obvious is chargers. And you need different types of chargers because people have different charging needs and patterns. As well as charging at home, EV users can charge using public chargers in towns and cities (urban charging), when they go to a supermarket or restaurant (destination charging), at work (work & depot charging) or at roadside service stations (en-route charging).

These different segments tend to be served with different charging speeds. At home, people can install AC slow chargers, which don’t require very sophisticated installation or large connections to the grid. At the other end of the spectrum, people want to charge very quickly when they’re on the road, so en-route chargers mainly use ultra-fast DC chargers, which require more substantial connections to the grid and are more expensive.

Of course, it’s not just about chargers – the whole grid needs to be reinforced to cope with increasing electricity demand (which isn’t just due to increased uptake of EVs), and also so that renewables make up more of the power mix."

Can electric grids cope with the increased demand resulting from charging EVs?

"If things stay as they are today, then no. But I believe that governments, regulators and network operators are well aware of this. While investments in the grid are vital, there are other things we can do to alleviate pressure on the grid and the cost of improving it.

Smart charging is one. For example, there’s no need for cars that are plugged in overnight to charge during the first hour – it could be delayed until, say, 3am, when there’s less demand on the grid. Charge point operators can also deliver less power than the charger is able to provide (this is called load balancing) to prevent the grid becoming overloaded."

What kind of challenges are the firms involved in this area faced with?

"It’s a new sector, so there are challenges. For example, it’s still unclear how demand will develop. What will charging behaviour look like in the future? Will drivers charge more at home, use urban charging, or will how they charge become more like how people fill their ICE tanks today – recharging from empty rather than regularly topping up?

At a more micro level, there’s the challenge of selecting a good location to install chargers. Charging point operators consider many factors, such as traffic, population demographics, distance to other chargers and the state of the grid, but they don’t have crystal balls. Once the chargers are installed, utilisation might be higher or lower than expected.”

Could the development of other kinds of new energy vehicles, such as those powered by hydrogen, render this infrastructure obsolete?

"An outright 'no' would be too strong an answer. Hydrogen-powered cars certainly provide some advantages relative to today’s EVs. They can be refilled in under four minutes and have much larger driving ranges. But experts seem to believe that hydrogen is only a realistic prospect for heavy-duty vehicles, and that it should have no impact on passenger vehicles in the coming 10 years due to the high price of hydrogen and limited infrastructure.

In 10 years’ time, we might expect EVs and their related infrastructure to be so ingrained in the system that it will be difficult for hydrogen cars and hydrogen charging networks to replace them. We’re always talking with industry specialists and the companies we invest in about what’s going on in the market to ensure we’re not investing in something that’s at risk of becoming obsolete."

What other trends should investors be considering?

"There are many trends to keep an eye on. The development of hydrogen and biofuels is something to watch. Another is inductive road charging, with the potential for vehicles to charge while they’re driving on the road using inductive technology. But for the moment this technology is far from being economically sustainable as it requires large-scale road upgrades and also support from automotive Original Equipment Manufacturers (OEMs)."

What kind of investment opportunities are available within EV infrastructure, and what is APG invested in?

"Investing in grids is an obvious one, although the opportunities that have come to market recently have been highly competitive. The development of utilities-scale batteries is also accelerating quickly and will help EV charging by alleviating the pressure on the grid.

For the moment, at APG we mainly invest in charging infrastructure. For example, we invest in Driveco, a French firm that installs chargers across Europe. We have a position in Kallista, which is investing in a network of ultra-fast charging stations with direct connections to solar and wind power plants. We’re also invested in Interparking, which has installed many EV chargers in its parking facilities.

We haven’t invested in any grids in Europe or batteries as yet, but we’re keeping an eye on these areas to see if a good opportunity arises."

Is now a good time to invest in EV infrastructure?

"It is, because it’s clearly got huge long-term growth potential and there’s still a lot of land to grab. But it’s important to adopt a very selective approach as while many of the companies involved have very lofty ambitions, not all of them will be able to meet those expectations. It’s also vital to monitor companies’ track records of installing infrastructure and ensuring it’s reliable because any problems can very quickly tarnish their reputation among EV users."