Energy Transition, Part III: Initiating on EV Charging & Battery Technology

THE COWEN INSIGHT

Electric vehicles are at the dawn of a demand inflection. The EV charging sector is attractively positioned as a beneficiary of the electrification of mobility – a theme that’s only just begun. We also retain a positive bias on the battery technology sector. The electrification of mobility drives robust battery demand growth through 2030.

Penetration of electric vehicles is anticipated to grow from ~4% in 2020 to 30% by 2030. This implies a global fleet of ~130MM units, driving remarkable demand growth for both EV charging infrastructure and battery technology. There are supportive tailwinds that are poised to kick off a multi-decade growth opportunity.

EV Charging Outlook

Quantifying U.S. Charging Needs

Attach rates remain crucial in determining the true public EV charging needs. We dug deep across Census, EIA, and building code data to estimate “non-public” commercial charging needs at workplaces and multi-unit dwellings for a more holistic view.

We forecast total connectors across all channels to exhibit a robust ~28% CAGR through ’30 to nearly 8MM connectors. This requires cumulative hardware investment of ~$20B. We see the recharging market (i.e. energy sales to drivers) materially scaling and reaching a ~$27B TAM on an annual basis by ’40. Additional revenue stacking through recurring network fees also appears significant, approaching ~$3B by ‘30.

Various Business Models Emerge

Companies can be characterized as: 

• Hardware providers – revenue comes from unit sale
• Asset owners and operators – capital intensive, drivers are monetized
• Network providers – higher margin service solutions

We also note that some can be “integrated” and offer exposure to all three buckets. At this nascent stage, it remains to be seen which business is best positioned. On the one hand, companies focused on hardware sales with recurring network fees can directly monetize unit deployment while avoiding utilization risk. This should perhaps garner a premium revenue multiple. Conversely, the cash flow and revenue stacking potential from scaled utilization, which impacts the asset owner and operator model, appears robust over the next several years as electric vehicle adoption accelerates. Stay tuned.

What Is Unique & Proprietary?

For our deep-dive on charging infrastructure, we enjoyed the advantage of working with multiple Cowen research teams, and leveraged the electric vehicle forecast of our colleague, Jeff Osborne. We also built proprietary models capturing the growth potential and unit economics of the industry.

Battery Technology Outlook

Strong Electric Vehicle Adoption Drives Robust Battery Demand; Sizable TAM Ahead

We see electric vehicle adoption driving a significant increase in battery demand over the next decade. We estimate battery demand from all EVs registered ~134 GWh in ’20 and expect that figure to also grow at a ~30% CAGR to 1,868 GWh, implying a TAM that approaches ~$230Bn.

Solid-State and Other New Technologies Emerging with Great Potential

A solid-state ceramic separator that can support a lithium metal anode formed on the first charge is a potential game changer. It has shown the potential to improve energy density, faster charging, life and cost. These improvements can drive accelerated electric vehicle adoption. 

As we discuss within, additional startups remain in the process of also developing new technologies that can disrupt the industry.