This article is sponsored by QIC.
Queensland Investment Corporation, the Australian investment manager owned by the Queensland state government, is a relative newcomer to the electric vehicle infrastructure market but is already sizing up the potential both at home and overseas as the decarbonisation of the road sector gains further momentum.
The deployment of light EVs is accelerating, and EV charging infrastructure and electric fleets are already an investable sector today, explains partner Nicola Palmer.
What makes EV infrastructure an attractive investment?
A key reason is the pathway to reduce the high share transport contributes to global emissions, which is about 20 percent. Of that figure, 75 percent comes from road transport. So, while we are also focused on decarbonising our maritime and aviation assets, the biggest near-term wins will come from reducing emissions in road transport. If the world can get road transport emission reductions right, then we are going a long way to decarbonising transport.
The uptake in EV car sales is phenomenal. Already we have seen global EV sales increase from one million per annum in 2017 to an expected 17 million for 2024. Research shows that once EVs reach 10 percent of new car sales, that is a tipping point where take-up accelerates. And so often what we see is that the initial charging infrastructure cannot keep up with the demand, which is where investment opportunities lie.
What are the key factors facilitating the further growth of the global fleet of EV vehicles?
EV vehicles are rapidly approaching cost parity with diesel. While there is a higher upfront cost associated with purchasing an EV, the ongoing operational costs, both maintenance and fuel, are significantly lower.
That is particularly true for intensive-use vehicles like taxis. Cost parity is still not quite there for lighter use, but for people with solar power capacity at home, that cost equation rapidly tips in favour of EVs. A greater variety of electric light vehicles are now also available, many of them from China, but also from Korea and Japan.
Another factor is regulation. Governments around the world have been extremely supportive in terms of initial subsidies for the purchase of light vehicles, deployment of EV charging and emission standards. All of this is driving reduced cost to the consumer and increasing availability.
“Once EVs reach 10 percent of new car sales, that is a tipping point where take-up accelerates”
Which countries are the most developed in terms of EV infrastructure?
Europe has led the development and take-up of light EVs due to favourable policy and regulation that go back well over a decade now. I would particularly call out the Netherlands. As of Q1 2024, there were 156,000 public charging points across the country, which is just massive, and EVs account for 25 percent of new car sales.
Norway was also very quick to provide both subsidies and incentives to promote EV adoption. Across Scandinavia, EVs now account for 90 percent of new car sales.
The UK is aiming to achieve 100 percent EV sales by 2035 and a complete ban on diesel vehicles by the same year. In January 2024, the UK had about 50,000 public EV charging points while EVs accounted for 15 percent of new car sales. Scandinavia was an early mover but countries like the UK and the Netherlands are now rapidly catching up.
What about the home of Tesla, the US?
The development of EV infrastructure has varied per region in the US. States such as California and coastal areas around New York and the metropolitan regions have seen a rapid deployment. But in the centre of the US, take-up has been slow until now.
That may change with the Inflation Reduction Act, under which $370 billion is being allocated to climate and clean energy investments with a focus on decarbonising transport. Tax credits are now available for EVs, both for battery components and domestic car manufacturing, and there are also subsidies to support the charging infrastructure.
Where does Australia stand in terms of EV infrastructure?
Australia has lagged behind other global regions. There have been some subsidies to facilitate EV adoption, but it has been very difficult to even buy an EV vehicle here until the last year when supply started to kick off.
Despite that, Australia has now reached that 10 percent tipping point in terms of new car sales. The wide deployment of domestic solar panels offering people access to cheap electricity at home has been a key driver and increasing access to EV models.
QIC is looking at EV charging networks for passenger cars as well as the electrification of buses, including the infrastructure around the electrification of bus depots. We are currently working on a project with the Queensland government to fund part of the infrastructure for the electrification of the bus sector, including a pool of electric buses and several greenfield electric depots.
Where do you see investment opportunities?
Around 70 percent of our portfolio is located in Australia and 30 percent in Europe and North America. We are looking at all three jurisdictions. The market in Australia is still in its early stages, but take-up is accelerating rapidly so there is an opportunity to invest early into EV infrastructure here and get a head start.
In Europe, there are some very good, mature businesses that have developed substantial networks, and there is going to be an opportunity for consolidation of some of those players. In the US, we see a combination of these two scenarios. The East and West coasts of the US have more mature networks, but in the middle of the US there is an opportunity to be a first mover.
What are the key risks?
Adoption and take-up. The main risk in putting together any EV charging business is utilisation – you need to have a utilisation level of between 10 and 20 percent for your network to be profitable. The reality is you will never get above 20 percent utilisation as people are not using the chargers 24 hours a day.
So, we are looking at issues like consumer acceptance and range anxiety. If there is a limited availability of charging infrastructure, people will not go out and buy EVs. But if they do not buy them, it is hard to invest in the charging infrastructure. It is a chicken and egg scenario.
What we want to see though is battery capacity increasing so that we can have cars with a much greater range than we do today. EVs with a range of 200-500km might be fine in Europe where people do not travel great distances, but that is not the case in Australia and the US.
Furthermore, if there is a disruption in supply chains in any single market – whether it is China or anywhere else – that can have a dramatic impact on selective industries that rely on that market, so we need diversification of supply chains. Other jurisdictions like Europe and the US are also investing in giga battery factories but it needs to accelerate.
“Hydrogen could be meaningful for high-usage heavy vehicles that require more power and do not necessarily have the time to stop and charge”
How are technological advances in renewables changing the industry?
Unless we are decarbonising the electricity that goes into the grid, we are not actually making a difference with EVs and there will be huge additional demand on the grid for energy if everybody does switch.
The good news is that EVs can be part of the solution. If charging can be timed at night when demand is lower, or in the middle of the day when solar energy is available, then EV vehicles have the potential to balance the network.
There is a big debate about whether hydrogen will ever play a part for light vehicles because electric has such a big lead on hydrogen. And will it reach cost parity since it is significantly more expensive than both electric and diesel?
Many people believe hydrogen could be meaningful for high-usage heavy vehicles that require more power and do not necessarily have the time to stop and charge. Batteries for trucks do not currently have sufficient capacity to take a heavy truck a meaningful distance and superfast charging degrades battery capacity more quickly.
Hydrogen refuelling networks for trucks are already being built in some countries in Europe like Germany and Switzerland. Europe has very tight emission standards, resulting in cost parity with diesel because of the penalties that are being imposed on the trucking sector for burning diesel. But we are not seeing any appetite for tighter emission standards or penalties on diesel in either the US or Australian markets.
How are you working to decarbonise existing road transport?
One of QIC’s existing investments, Lochard Energy, is leading the way in the decarbonisation of road transport with its H2REFUEL initiative. This initiative focuses on creating large-scale, renewable-hydrogen production and refuelling stations that will form a network of clean refuelling centres along Australia’s busy East Coast transport routes. The aim is to provide renewable hydrogen to heavy-vehicle transport operators, bus companies, fuel retailers (for both light and heavy vehicles) and businesses seeking to reduce their carbon footprint.
One of the most advanced projects under the H2REFUEL initiative is called ‘Winton H2REFUEL’ located in northern Victoria near the Hume Highway. This project is currently in development and will feature a solar farm and a hydrogen production and refuelling station. Once operational, it is expected to serve approximately 50-150 fuel-cell heavy vehicles per day.