Mission Report: Mobility
“Electric Vehicles are Coming”
– Matt Witkin
We’re now at a clear tipping point.
And judging by how experts keep revising their forecasts upward, electric vehicles are coming faster than we think. The government’s EV forecast can’t keep up with the pace of EV adoption and has needed to revise its predictions upwards in each of the last three years. BCG’s 2022 report predicted that EVs will claim a majority market share four years earlier than they predicted in 2021, which was three years earlier than they predicted in 2020. Transitioning our infrastructure from accommodating ICE vehicles to EVs is a significant undertaking to keep pace with this adoption and give us a chance to hit our decarbonization goals.
Here at M1C, we’ve been studying the mobility space and have honed in on three key choke points for the transition to electric mobility - posing as areas where we are eager to invest in and work with startups creating innovative solutions:
Charging Infrastructure Enablement: reliable infrastructure that ensures people can charge their vehicles where and when they want.
Charging Optimization and Management: software that manages customers’ cadence of charging and optimizes for price, overall grid demand, and renewable sources of supply.
EV Accessibility: innovative solutions to ensure EVs are affordable and accessible to everyone, limiting any barriers to ownership for everyone who wants to switch from ICE vehicles.
In the following sections, we want to introduce you to how we think about each issue and the exciting solutions we already see and invest in.
Charging Infrastructure
Electric vehicles cannot go far without proper public charging infrastructure.
This is why leaders are saying “Public charging is the No. 1 barrier to EV adoption.” But adding the public and private chargers needed is a staggering undertaking. Experts predict that we will need to invest $87 billion by 2035 to serve EV sales consistent with our climate goals, a target that we are currently falling woefully short of. Recognizing this gap, the Biden Administration dedicated $7.5 billion to accelerate the development of this new charging network. Much of the conversation around EV charging surrounds public infrastructure, yet it is essential to understand that today, roughly 80% of all charging still happens at home.
While much of this capital will flow to the physical infrastructure, here at M1C, we understand that software will play a crucial role in enabling the successful deployment of this charging equipment.
Here are a few of the opportunities we are excited about:
EV Charger Maintenance, or lack thereof, is undermining the nascent EV charging network. Unlike gas stations, with on-site staff, ample fueling ports, and proven infrastructure, EV chargers have multiple fail points, including their internal software, payment systems, and hardware. While manufacturers quote 95-98% uptimes, actual measures of EV charger performance is closer to 70%. Studies show that one-in-five visits to an EV charging station do not result in charging, with an overwhelming majority of the visits derailed due to a malfunctioning or an out of service charger.
While billions of dollars are going into building EV chargers, this lack of maintenance is already undermining customers perceptions of EV charging reliability. This problem will worsen, not improve, as more EVs come on the road. From 2021 to 2023, unreliability increased by 50%, and states with higher EV penetration are less satisfied with their charging infrastructure.
Fortunately, governments are starting to address this vital issue. Under recently announced guidelines, chargers must maintain a 97% uptime to be eligible for the primary source of federal EV charging funding. And there are exciting startups that are helping EV chargers reach these goals - such as our portfolio company, ChargerHelp!.
Home Electrical Upgrades are a costly speed bump on the road to vehicle electrification. While Electrify Everything has become a modern climate mantra, converting to home electric charging in addition to heat pumps, induction cooktops and electric water heating systems can be complicated and expensive. For many Americans there are even additional costs - around 50 million homes would be required to upgrade their home electrical panel, a process that can cost thousands of dollars, to electrify their home.
Home electrification is difficult as most customers today need to chart their own electrification journeys. They must first decide that electrification is right for them, then research the right equipment, and finally manage the installation. This process often involves coordinating with multiple contractors to receive quotes and then juggling time-consuming, supervised home visits for the installation. Given today’s nationwide electrician shortage, even if a customer is insistent on electrifying, it can be hard to find someone to do it. As demand for electrification increases, the supply of electricians is slow to respond given the 4-5 years it takes an electrician to complete their education and then apprenticeship to become a full electrician.
There are exciting companies, such as our portfolio company Helio Home, who are working to address this bottleneck. Helio leverages software to guide customers through their electrification journey, works with a skilled contractor partner network, and reduces the time and financial investment necessary for home electrification.
In addition, as customers look to finance these upgrades they will need to navigate the dearth of rebates and tax incentives available to them. With the rollout of the IRA, rebates and tax incentives eligibility will be a critical purchase decision. This is where portfolio company, Upfront Energy, has stepped in.
Within charging infrastructure, we are also interested in companies that can assist in the equitably deployment of EV chargers, as well as companies who are addressing gaps in EV infrastructure cybersecurity.
Charging Optimization and Management
EVs can either overwhelm the electric grid or save it.
While we know that EVs will add a significant load to our electric grid, where and when they charge will be instrumental in determining how much that extra load will cost. It will be expensive – California alone may need to invest $50 billion to upgrade its grid to support EVs. However, studies show that if EVs are charged when the grid is not stressed and energy is cheap, the costs from charging them can be 70% lower. The bulk of these savings are from avoided distribution system upgrades (i.e., utilities not needing to supersize the capacity of their transformers or substations to deal with the EVs charging during peak times). If EVs can dynamically react to grid conditions, they have the potential to be the most flexible and distributed battery system ever added to the grid.
The good news is that many players including utilities, EVSE manufacturers, and startups are starting to set the foundation for an efficiently managed charging network. Across the US, utilities have already offered over 200 EV-specific rates to optimize EV charging. More home chargers are coming equipped with “smart” charging capabilities. But what we are most excited about is finding companies who can work with all players - utilities, vehicles and customers – to optimize charging throughout the system.
Managed Charging Solutions provide utilities the visibility and control to optimize distributed EV charging while customers can get compensated for the flexibility they provide. While there are a few ways to manage the relationship between EVs and the grid (e.g., notifications for voluntary action or directly controlling the EV charger), the most successful companies leverage the vehicle’s onboard telematics. This allows utilities to access customers who may not have smart chargers while providing direct insight into the vehicle’s data. We understand that one of the core challenges in this space is selling to utilities, who have notoriously long and slow sales cycles and have been resistant to relying on non-utility meters for energy tracking. However, utilities are increasingly piloting projects alongside startups using this technology. Additionally, utility commissions are working towards providing the regulatory framework to unlock these EV-managed charging programs.
We see these initial solutions as the tip of the iceberg in what will become a robust managed charging ecosystem. As the market develops, there is incredible potential for companies to aggregate EV loads as virtual power plants (VPP’s) to contribute to grid capacity in the right place and at the right time. With further technological and regulatory developments, we hope to see companies work to realize the full value of vehicle to ‘X’ (e.g., vehicle to home, vehicle to grid). The companies building the managed charging solutions of today will be the best positioned to capture these developments in the future.
EV Accessibility
Today, EVs are luxury goods for urban elites.
We need to find ways to make EV ownership accessible for everyone. The $7,500 EV tax credit, intended to make EVs more accessible, functioned as more of a regressive subsidy for wealthy families to buy Teslas in its early days. Tax filers with annual gross income over $100,000 claimed 83% of the credits, despite representing only 17% of overall filers (similarly, filers over $1M claimed 8% of credits despite being 0.3% of overall filers). However, the tides are shifting as more mass-market vehicle customers are now considering purchasing an EV. Even as electric vehicles are increasingly becoming the obvious economic total cost of ownership option, the upfront prices can deter less wealthy customers.
Exacerbating unequal access to EVs is the unequal access to charging infrastructure. Governments are understanding the depth of the issue and building environmental justice requirements into policy to ensure capital flows into disadvantaged communities. While geography is the primary driver of unequal access, home ownership plays a significant role in charging infrastructure access. Renters are 3x less likely to own an electric vehicle than homeowners, even when controlling for income. There is a huge opportunity to build companies that can get electric vehicles into the hands of the masses.
EV financing startups are offering enticing solutions to increase EV affordability. These companies consider the unique characteristics of EV ownership, such as lower maintenance and fueling costs, available subsidies, and potentially higher resale values, to extend attractive leasing and insurance products. Given the scale of the vehicle financing and insurance market, finding companies able to capture a wedge presents tremendous upside - which is why we were excited to invest in Zevvy.
Conclusion
We’re searching for software companies to facilitate the transition to electrified transport. Here, we’ve already identified what we see as the three most significant barriers to doing so today: Charging Infrastructure, EV Accessibility and Charging Optimization and Management. However, these barriers address just one part of a broader effort to decarbonize our mobility sector. We hardly touched on commercial and fleet electric vehicles or the software to monitor and support the battery systems within EVs. Even beyond road vehicles, we are excited to find opportunities with companies building the future of aviation, shipping/logistics, micro-mobility, public and shared transport. But you will have to return to read about our thoughts on those sectors in another deep-dive.
Onward!
