Whether the U.S. transportation market is destined for electrification or continued reliance on liquid fuels, the pace of change for such a massive shift could be as slow and steady as a tortoise—or as fast as a hare.
“While change is a constant in this market, how and when that change will manifest itself into a new market reality is highly uncertain,” said John Eichberger, executive director of the Fuels Institute, at the FUELS2019 conference held this year in Dallas, Texas.
What is clear, however, is that the market is evolving, producing opportunities for the convenience retail channel to embrace alternative fuels and build infrastructure to accommodate new refueling methods.
Electrification of Transportation
EVs are certainly not an invention of modern times. Some of the first small-scale electric cars were created as early as 1828, per the U.S. Department of Energy, and were poised to become the standard mode of transportation until Henry Ford mass-produced the gasoline-powered Model T with an electric starter in 1912.
Better roads, the discovery of Texas crude and the growth of service stations also contributed to the disappearance of EVs by 1935. The 1970s and ’80s showed signs of reigniting the EV, then new federal and state regulations in the early 1990s led automakers to begin modifying popular vehicle models into EVs. By 2000, Toyota introduced the first mass-produced hybrid, the Prius.
Today’s biggest hurdles to mass EV adoption continue to be infrastructure and consumer acceptance. At last year’s FUELS2018 event, Trey Hohmann, then-manager of fuels and transport with Stratas Advisors, listed various programs and incentives for electrification growth, yet also cited a lack of infrastructure support in countries like China and India, as well as the split in the United States between actual charging stations and outlets and bifurcation between the East and West coasts.
One year later, the same challenges exist, but the opportunities are growing because industries are no longer sticking their heads in the sand. Electrification is coming, and for some countries, it’s already here.
Level Playing Field
The EV market today consists of plug-in hybrid (PHEV) and battery electric (BEV) models. PHEVs have a combined battery and gasoline-powered engine, and unlike BEVs that operate by battery-only, PHEVs are not compatible with direct current (DC) fast-charging equipment.
The U.S. government continues to financially incentivize EV adoption, which is moving the proverbial carrot at a rate that’s faster than consumer demand.
The Internal Revenue Service offers a tax credit of $2,500 to $7,500 per new EV purchased in or after 2010 for use in the U.S., depending on the size of the vehicle and its battery capacity. The tax credit is available until 200,000 qualified EVs have been sold in the United States by each auto manufacturer, at which point the credit begins to phase out for that manufacturer. Currently, no automakers have reached that threshold, but Tesla’s tax credit dropped to $1,875 on June 1 and will expire at the end of this year, and General Motors’ tax credit fell to $3,750 on April 1 (see www.fueleconomy.gov).
While we understand much about how people use conventional vehicles today, we understand very little about how people will drive EVs.
At the state level, various municipalities and utility companies offer financial incentives like cash back and discounted rate plans for EV owners who charge at home and/or install charging equipment at their residence.
For convenience retailers, the future of electrification is one that ensures any government policy maintains a level playing field and allows retailers to sell electricity. In many states, retailers are not allowed to sell electricity to consumers, and states like California are already putting retailers at a disadvantage by budgeting funds for the utilities—and not retailers—to develop EV charging stations.
“We want electricity to be treated like any other product, and for us to have the same opportunities to resell it,” said Doug Kantor, a partner at the Steptoe & Johnson law firm and NACS legal counsel, in the January 2019 NACS Magazine cover story, Charging Back.
Consumer Mindshift
Given the ingrained behaviors associated with buying gasoline, it’s anyone’s guess as to how behaviors might change as EV charging becomes more mainstream. What is clear is that “refueling” an EV sets aside the traditional miles per gallon calculation: EV charging is measured in kilowatt hours per 100 miles (kWh/100 miles), and most charging takes place at home, where the vehicle can be plugged in and fully recharged overnight.
Forthcoming Fuels Institute research, prepared by ICF, examines EV market dynamics, highlighting that vehicle cost and range anxiety are still prevalent concerns among consumers who express hesitancy about EV adoption and ownership. However, the 800-pound gorilla is consumer behavior: “While we understand much about how people travel and use conventional vehicles today, we understand very little about how people will drive EVs—including where they will charge, when they will charge, and for how long,” says the report.
ICF suggests that the transition to mass adoption of EVs will likely require a mix of EV charging solutions, with a focus on convenient and ubiquitous access to EV charging: residential charging (single-family homes, apartment/condo complexes), workplace charging (parking garages), destination charging (hotels, shopping centers) and in-route charging (convenience stores).
The Fuels Institute report suggests that consumer education and outreach will be essential to driving EV growth, particularly to address the lack of familiarity with the technology itself, including EV operation and maintenance, purchasing incentives and overall vehicle features.
Philip Sheehy, senior director of transportation and energy at ICF and author of the Fuels Institute report, shared with the FUELS2019 audience that there is no definitive answer to where, when and how EV consumers will recharge. “Anyone who says they have a charging solution is operating under a belief,” he said, adding that the report is intended to show how the electrification market could evolve.
The report will also help retailers better understand how market demand may evolve, and it includes an online mapping program that allows readers to evaluate the demand potential for EV charging at home, workplaces and at retail within several metropolitan regions with different market development trajectories.
Still Has a Pulse
While EV growth is imminent, the internal combustion engine (ICE) is not on life support. In fact, reports of its impending demise have been greatly exaggerated.
John Farrell, laboratory program manager, vehicle technologies, National Renewable Energy Laboratory, is at the forefront of research into new combustion capabilities and energy efficiencies for ICE. He shared with the FUELS2019 crowd that ICE efficiency continues to increase, largely because of stringent emission regulations and mandates worldwide that have driven R&D investments to advance a cleaner ICE.
Although no ICE engine is perfectly efficient, Farrell said that there is “untapped efficiency improvement potential” for future vehicle use, both from the technology already implemented, such as friction reduction, and from technology that has not been applied in combination with other advanced technologies.
The biggest hurdles to mass EV adoption continue to be infrastructure and consumer acceptance.
As R&D continues to improve the ICE and vehicle fuel efficiency, Farrell noted battery cost reductions are now achievable. According to a Bloomberg survey, lithium-ion battery prices have plunged 85% since 2010.
Dr. John Warner at American Battery Solutions Inc. said that battery technology has evolved in ways that were not anticipated—and quickly. The addition of cobalt, nickel and manganese to the lithium battery increases the amount of energy a battery can hold—an attractive proposition for the EV community. He suggested that it’s possible the 150kWh battery will become more ubiquitous within the next five years, which should calm range anxiety.
Retailer Input
With any new fuel coming to market, the final connection to consumers is the convenience and fuel retailer. Members of the Fuels Institute Board of Advisors offered up their perspectives on how their businesses can embrace electrification.
Joe Zietlow, industry and trade association manager at La Crosse, Wisconsin-based Kwik Trip Inc., said retailers must be open-minded. “Our fuels, vehicles and customers are changing, so how do we change with them? Our customers make the decision where to shop, and we’ll deliver whatever they want,” he said. However, Zietlow cautioned that providing EV charging to customers for free may be a mistake as EV adoption accelerates, suggesting that when they have to start paying for charging, that could create a setback.
Mike Lorenz, executive vice president of petroleum supply at Altoona, Pennsylvania-based Sheetz, agreed that there is no “right” answer to how EVs will impact retailers. “We’re trying to provide enough alternatives [E15, E85 and EV charging] to meet consumer demand,” he said, adding that EV market growth is on the runway, not the launchpad. “We have 10,000 customers who charge a month today from our Tesla superchargers, which exceeds our expectations. If you think nobody is buying an EV, they’re out there.”
Ron Sabia, formerly of Gulf Oil and the current chairman of the Fuels Institute, said there’s a lack of clarity and a path forward for retailers to prepare for EV infrastructure. Small to midsize retailers, for example, “cannot afford to be wrong or they’ll be out of business.” Customers also don’t change behavior easily. “If gas prices remain low, they probably won’t switch to an EV,” he said, adding: “How do you equate the charge for an EV to a gallon of gas when it’s currently offered for free?”
Norman Turiano, formerly of Wawa and now heading up his own firm, Turiano Strategic Consulting LLC, summarized that the market could become a fractured universe with EVs thriving most in urban centers. “Retailers need to have a business model for different markets” and define their fueling strategy. “We’re in the business of convenience, so what makes our customers’ lives simpler and easier?” he asked.
It is important to remember that the driver of an EV tomorrow is fueling with gasoline at a convenience store today. What can convenience retailers do to retain these customers when they purchase a new vehicle?