Electric Vehicle Fleets Drive Profitable Charge Points: Q&A

By Bryony Collins, Bloomberg New Energy Finance editorial team. This article first appeared on the Bloomberg Terminal and is available to BNEF clients on the web.

Electric vehicle charging-point operators that service fleets are the “first to become profitable”, said Simon Hou, chief operating officer and co-founder of XCharge, a China-based company that makes hardware and software for charging EVs. Vehicle fleets, such as taxis, logistics vehicles and buses, have more frequent and higher electricity consumption at charge points than privately-owned vehicles due to their higher usage and greater mileage, Hou told BNEF in an interview.

Making a profit from operating electric vehicle charging points is a difficult feat in today’s world, where electric vehicle adoption is still relatively niche. This is due to the high capital cost of installing the infrastructure and the low usage rate of the charge points.

However, BNEF does expect increased investment in this space from automakers and utilities. It forecasts that the number of public EV charging points globally will increase to 700,000 from 500,000 this year.

Clients can learn more in the ‘Electric Vehicles: 10 Things to Watch for in 2018’ report on the Terminal or web

XCharge has installed more than 20,000 charging points in China – largely in Beijing and Shenzhen – which service both fleets and privately-owned cars in public, commercial and residential areas. The company has recently established a European headquarters in Hamburg, from where it will expand its operations on the continent by working with “grid software companies and energy trading partners” to manage electricity load on the grid.

Electric vehicles are a useful asset to energy companies because they consume electricity in a flexible way, in different locations and at different times, said Hou. “This will give energy companies an enormous amount of grid flexibility,” he said. XCharge wants to “maximize charging revenue” for its customers, which could be energy companies or fleet operators, by using software to track how vehicle owners are charging their cars, and adjusting the price of charging for different times of the day.

There were 321,000 public EV charge points installed on China’s roads at the end of 2017, according to BNEF data. The country’s Minister of Science and Technology expects EV sales to reach 1 million units in 2018. Sales are rising faster than charger installations, largely because the business model for operating public chargers is still unclear.

BNEF’s Bryony Collins spoke with XCharge’s Simon Hou in the following interview.

BNEF: Could you give us some background to XCharge?

Hou: We were founded in 2015. Before that I was responsible for Tesla’s public charging program in China [where I saw] the conversion to electric vehicles becoming a definite trend early on. We saw that we could serve charging operators not simply by providing hardware for charging functionality, but by providing cloud-based software to enable a better oversight of running EV charging stations.

Q: How does your business model work – do you manufacture EV charging stations and sell them to energy companies or fleet operators for them to operate?

A: The charge point operators, or CPOs, are our clients. Our goal is to enable them to provide the best service they can. Our clients usually come from the energy sector or the transportation sector. They either have the capacity to provide charging, or own an EV fleet that needs charging.

Our goal at XCharge is to provide the hardware, EV charging equipment, software management platform and continuous service to the client.

Q: The business model for operating charge points is often a hard one, due to the high capital cost of installing the equipment and the fact that charge points are not used very much. Are your clients making a profit from operating these?

A: We are seeing our clients profit in some scenarios in China. Profitability is growing, and the spectrum of operators who are able to profit is also growing. In the long-term, all CPOs will profit due to the continued growth of the EV market – more vehicles will mean greater usage of charge points.

But in the short-term, there will be an imbalance in terms of charging capacity and demand. Solving this issue will depend on the operators’ ability to find good charging spots, and provide charging for the earliest fleet vehicles, which are coming first in the EV conversion cycle.

Charging operators who service fleets – including taxis, public transport – are the first to become profitable. The CPOs that specialize in servicing fleets are also expanding their radius to private vehicles as well. This gives rise to EV ownership and increasing charging volumes.

So, in the long term, CPOs will profit, but in the short term it will really depend on their collaboration with fleets. In Europe, fleet operators are converting to electric very quickly.

Q: Whose responsibility is it to install EV charge points – does it fall to automakers, utilities or governments, or should it be a collaborative effort? For example, the Ionity partnership between Ford, BMW, Daimlerand Volkswagen aims to install 400 charge points in Europe by 2020.

A: There is synchronization between the auto and energy industry globally. Companies are entering the public charging space, as well as the residential space, because when a private home installs a charger, their electricity usage can be almost doubled. So that’s a big incremental opportunity for energy usage.

Synchronization will become more pronounced in the near future for two reasons. One is the extra energy demand generated by electric vehicles, and secondly, EVs are a flexible source of energy consumption, in terms of location and time. You can charge at different times of the day at different locations. And this will give a new opportunity to the grid or energy companies as it’s a very large energy demand. When combined with local energy storage and power generation, this will give energy companies an enormous amount of grid flexibility.

This EV transformation in the long run will have a large impact on the energy landscape.

Q: What partnerships do you have with energy companies?

A: We provide hardware and software to the State Grid Corp. of China. In Germany and in France, we are talking to several energy companies that are market-focused.

Q: How does your software help you provide more services to your clients?

A: We want to maximize charging revenue for our customers. So we have a charging turnover mechanism, which sends a notification to car owners’ mobile phones to remove their vehicle when they are done charging. This maximizes the turnover of a parking lot.

We also offer a software management platform, where a client can log onto their account and adjust the price of charging for different times of the day. This can be connected to electricity price trading systems.

The software also allows us to do remote diagnosis of the machine and over-the-air upgrades. It means we can upgrade all of the machines countrywide with just a push of a button. This reduces cost to us and our clients.

Q: How many charge points have you installed in China?

A: We have installed more than 20,000 charge points– mainly in Beijing and Shenzhen. In Beijing, our charge points serve more private vehicles, due to favorable policies toward EVs, and in Shenzhen, there is a big push for fleets to go electric, such as taxis and logistics vehicles. So our charging points are used more by fleets there, and are therefore more profitable.

Q: Will XCharge adapt its business model for Europe?

A: We have a different client base for Europe. In China there are a lot of fleets already that have converted to running on electric, and carpooling platforms like Didi Chuxing are making conversions as well. Whereas in Europe, the energy company is a big source of power pushing this forward.

At our EU HQ in Hamburg, we are establishing an ‘energy wing’ to provide energy solutions just to service this sector. We are signing a number of partnerships with grid software companies and energy trading partners to enable grid and load management through our charging technology. In March 2018, our hardware will be licensed for use in Europe by TUV Rheineland.

Q: How do your products stand out in Europe – what makes them different?

A: Our charging points are modular and so can be designed for the particular use in question. So we can install a 120 kilowatt charger and upgrade it to 240 kilowatt just by increasing the number of power modules in our machine. We have also gained a lot of experience and customer data from our work in Shenzhen. Our software platform also adds to our product, and means we can continuously update our units.

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