US EV charging reaches its VHS moment

In January 1988, Sony announced that it would begin making video recorders using the VHS standard, as well as its own Betamax technology. In effect, it was conceding defeat in the video standards war. Since 1975, Sony had been battling to establish Betamax as a global standard for video recordings, but by the late 1980s it was forced to accept that the rival VHS system had been much more successful, taking almost 90% of the market over that period. The last Betamax recorder was produced in 2002.

In the past month, the US electric vehicle charging industry has had its VHS/Betamax moment. The market is shifting decisively towards the connector technology designed by Tesla, and the result is likely to be increased profitability for Tesla’s charging network.

It is also a landmark in the development of the EV industry in North America, a sign of the market’s progress towards maturity. Gasoline engine cars are not a stand-alone technology, but fit into an energy system including oil production and refining, and product distribution and marketing. The key features of the equivalent energy system for EVs in the US are beginning to take shape.

Video recorders and tapes are an example of a market with what economists call positive network externalities: as more people use a product or service, its value rises. EV chargers are another: the more people use a particular technology, the more profitable the infrastructure will be. That in turn incentivises further investment in the network, making it easier for drivers to find a charging port.

Markets with positive network externalities naturally trend towards having a single dominant technology. But in the US public EV charging market there have been three technologies competing: the North American Charging Standard (NACS) used by Tesla, the Combined Charging Standard (CCS), used by most non-Tesla chargers, and Chademo, supported by Japanese manufacturers. It has always seemed likely that the market would shake out, but it has not been clear which technology would dominate. Until now.

Since last month, both Ford and General Motors have announced that they will adopt Tesla’s NACS technology in their vehicles from 2025. Charging companies including EVgo and FLO have said that they will start adding NACS connectors to their fast charging networks, and the rest of the US industry seems likely to follow suit.

A critical factor in the success of VHS was that JVC, the Japanese group that developed the format, persuaded other large companies including Hitachi and Matsushita to use it. NACS seems to be succeeding the same way.

“The dam has burst, and everyone is going to be going for NACS,” says Nick Esch, an analyst in Wood Mackenzie’s Grid Edge team. “About 65% of the EVs sold in North America are Teslas, and with two other leading manufacturers also adopting NACS, we are likely to see more and more charging companies offering it as an option.”

The emergence of NACS as the de facto US charging standard is a victory for Tesla, and a vindication for its strategy of moving fast to build out its Supercharger network. By raising the utilisation of Tesla’s charging network, it will boost its profitability, and it helps opens up potential markets for Tesla as an electricity supplier.

Charging technologies are important not just for the physical connectors that plug the car into the power supply, but also for the infrastructure that allows seamless charging and payment. The decisions by Ford and GM to adopt NACS are an acknowledgement that their customers will find it most convenient to use that technology, and not offering it could put them at a competitive disadvantage.

The most important reason is that Tesla’s public charging network is by far the largest in the US. Wood Mackenzie’s new North America EV charging infrastructure monitor shows that as of 1 June, there were 31,324 public direct current fast charger (DCFC) ports in the US, of which 19,621 — that is, 61% — were Tesla’s. The next-largest network, Electrify America, had a little over 3,000 ports, while EVgo had about 2,500. If you are looking for a charging port at random in the US, you are much the most likely to find one of Tesla’s.

Another key advantage for the NACS technology is that Tesla’s Superchargers tend to be more reliable than other networks. A JD Power survey last year found that one in every five respondents who visited a public charging station ended up not charging their vehicle there, and for 72% of those the reason was that the station was malfunctioning or out of service. Customer satisfaction scores for DC fast charging stations averaged 674 out of 1,000. For Tesla Supercharger stations, though, average satisfaction was much higher at 739.

The NACS technology does have one significant disadvantage compared to the CCS standard: the ports are currently not bidirectional, meaning that vehicles cannot be used as backup power supplies for a home or business. That has always been less of an issue for Tesla, which sells its Powerwall batteries for home energy storage. Ford has advertised the ability to provide backup power as a selling point of its F-150 Lightning electric truck.

Eventually, however, NACS connectors are likely to have bidirectional capability. Drew Baglino, Tesla’s senior vice-president of powertrain and energy engineering, said at the company’s Investor Day in March that he expected to “bring that functionality to all of our vehicles over the next two years, let's say.”

If NACS does become established as the dominant technology for public charging in the US, it will not give Tesla a stranglehold over the market. Tesla announced last November that it was “opening our EV connector design to the world”, allowing other charging network operators and vehicle manufacturers to use it. The design and specification files are available for download, and Tesla is working with standards bodies to codify NACS “as a public standard”.

However, Tesla will benefit from greater use of a technology in which it already has a substantial head start. Rebecca Tinucci, Tesla’s senior director of EV charging, said at the Investor Day that increasing utilisation was key to improving the economics of the charging network. “Doing that enables us to spread our cost over more sessions, thus lower cost per kilowatt hour,” she said.

Tesla’s trip planner software, informing drivers about the availability of charging ports, has helped achieve rising utilisation while wait times have fallen. With EVs made by Ford and GM, and quite possibly by other manufacturers, able to use Tesla Superchargers in the future, that utilisation should continue to rise.

As the network of NACS chargers grows, Tesla could also take the opportunity to start producing the power used by its stations, perhaps with its own solar systems. It argues that vertical integration in charger manufacturing, installation and operation has helped keep costs down, and power generation could be a further step. It is already licensed as an electricity provider in Texas, and has been selling power in parts of the state.

The prospect of much wider use of NACS technology means that Tesla’s chargers will for the first time be eligible for some of the US$7.5 billion in federal subsidies from the Infrastructure Investment and Jobs Act passed last year, says Amaiya Khardenavis, Wood Mackenzie’s analyst for EV charging infrastructure. The Biden administration last week said charging stations using NACS would be eligible for funding, so long as they had “a minimum of CCS” connectors also installed.

The US administration’s strategy, continuing to back two technologies, is different from the approach taken in Europe, where a variant of CCS called Type 2 was established as the industry standard by EU legislation. But even though the government is not imposing standardisation in the US, market forces are now having that effect.

The result will benefit the EV and charging industry as a whole. Uncertainty over which charging standard to choose, and concerns about the availability of charging ports, are among the issues that can put people off buying an EV. As those uncertainties are resolved, and standard charging networks expand, those factors putting barriers in the path of EV sales will be cleared away.

In brief

Shell has committed to increasing its cash distributions to shareholders to 30%-40% of cash flow from operations through the cycle, up from 20%-30% previously. The pledge, made at the company’s Capital Markets Day, will be implemented through dividends and share buybacks. Wael Sawan, the chief executive who took over in January, said: “Performance, discipline, and simplification will be our guiding principles as we allocate capital to enhance shareholder distributions, while enabling the energy transition.”

Sawan set out his view of the outlook for energy, saying: “Oil and gas will continue to play a crucial role in the energy system for a long time to come... with demand reducing only gradually over time. Continued investment in oil and gas is critical to ensure a balanced energy transition.” The company’s production outlook is aligned with that view. It expects liquids production will remain stable through to 2030, while LNG sales grow by 20%-30%.

António Guterres, secretary-general of the UN, has strongly criticised the fossil fuel industries, in remarks previewing the COP28 climate talks to be held in Dubai from November 30. In remarks at the beginning of a press conference in New York, he said: “Let’s face facts. The problem is not simply fossil fuel emissions. It’s fossil fuels — period. The solution is clear:  the world must phase out fossil fuels in a just and equitable way — moving to leave oil, coal and gas in the ground where they belong and massively boosting renewable investment in a just transition. Fossil fuel industry transition plans must be transformation plans that chart a company’s move to clean energy and away from a product incompatible with human survival.  Otherwise, they are just proposals to become more efficient planet-wreckers.”

European gas prices have been surging in the past couple of weeks, in a sign of the continued tension in the market created by the loss of Russian pipeline gas supplies. The July contract for benchmark TTF gas, which hit a low of about €23 per megawatt hour at the beginning of June, rose to €49.50 / MWh on Thursday. That price is equivalent to almost US$16 per million British Thermal Units.

European gas prices were boosted by a Bloomberg report that the Dutch government plans to permanently shut down Groningen, the large onshore gas field, on October 1. Until recently, Groningen was an important swing producer for northwest continental Europe, and it still has the ability for output to be ramped up at short notice in emergencies. The Netherlands has previously said that it could keep the field for open another year, closing it in October 2024.

The US Central Intelligence Agency last summer warned the Ukrainian government not to attack the Nord Stream gas pipeline system, after receiving detailed information about a plan to destroy the project, the Wall Street Journal reported. The CIA later received information that Ukraine had called off the original plan, the paper said. Three of the Nord Stream system’s four lines were ruptured by explosive charges last September, and police and intelligence services are still investigating.

Volodymyr Zelensky, Ukraine’s president, has denied suggestions that his country was responsible for the attack. “I believe that our military and our intelligence did not do it, and when anyone claims the opposite, I would like them to show us the evidence,” he told the German newspaper Bild.

Toyota has said it is planning EVs that will have roughly double the range of most of today’s models. Its goal is an EV with a 620-mile range, to be launched in 2026. Its new vehicles would use solid state batteries rather than the lithium ion technology that is currently standard for EVs.

The US has been taking advantage of the recent downturn in oil prices to take some modest steps to refill its Strategic Petroleum Reserve. Jennifer Granholm, the US energy secretary, has said the SPR needs about 160 million barrels to replenish it. The Department of Energy has bought 3 million barrels and announced a solicitation for about 3.1 million more. The crude was bought at an average price of about US$73 a barrel, well below the average of about US$95 per barrel that SPR crude was sold for in 2022. The energy department said that showed the purchase was “securing a good deal for taxpayers”.

Other views

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Quote of the week

"The oil and gas industry must up its game and align around net zero by 2050 or before, and eliminate methane emissions by 2030. If we can do this in the United Arab Emirates, I am sure everyone can and should pursue the same.” — In a speech to the Berlin Energy Transition Dialogue, Sultan Al Jaber, who is the minister of industry and advanced technology for the United Arab Emirates, Group CEO of ADNOC, and president of the COP28 climate talks, challenged the global oil and gas industry to cut its methane emissions to zero by 2030. His appointment to lead the talks has been criticised by some environmental groups, who argue that he is not committed to a sufficiently rapid transition away from fossil fuels. His defenders have argued that he is well-qualified for the role, in part because his role and background give him authority in negotiations with other oil and gas producers and consumers.

Chart of the week

This is from the latest quarterly US Energy Storage Monitor produced by Wood Mackenzie and the American Clean Power Association. As you can see, it’s a mixed picture across the various market segments, but the attention-grabbing news is on the left-hand side. In the grid-scale segment, installations were down 21% in output terms, and 33% in storage capacity terms, for the first quarter of this year compared to the same period of 2022. It was the second quarter in succession showing a decline, something not seen in the market since 2015.

However, the drop in installations looks like a temporary blip, not a real sign of weakness in the industry. Wood Mackenzie is forecasting that 8.9 gigawatts of grid-scale storage will be added in the US this year, more than double last year’s installations of about 4 GW.

Vanessa Witte, senior analyst with Wood Mackenzie’s energy storage team, said installations were currently being hit by supply chain issues and interconnection queue backlogs, but added: “Our outlook for the storage sector is still bullish, with projected growth strong through 2027. Near-term we will see some challenges, but we expect them to be corrected and activity to increase as more renewable generation will drive the need for storage.”