Despite all the optimism, there’s still a multi-trillion dollar barrier facing electric vehicles (EVs). It isn’t just the hefty cost of batteries, but also investing in charging networks and power infrastructure. Without the latter two, there isn’t much of a green future. Several countries have announced fiscal stimulus plans focused on decarbonization. But few are targeting infrastructure in a meaningful way. Most recently, the Biden administration said it’s going to put $100 billion toward upgrading America’s ageing power grid systems and another $174 billion to build out half a million charging stations by 2030. The lion’s share of this spending will probably go toward consumer incentives to buy electric cars.
As commendable as these efforts are, they’re not enough. Charging isn’t just about peppering homes, highways and mall parking lots with facilities to top up. Entire power grids need to be upgraded, too. It’s worth looking to China for how this should be done. Beijing’s strategy is to remove as many barriers to adoption as possible, and lower the cost of ownership by putting large amounts of capital to work, along with incentives for the private sector. Ambitious national and local goals have served China well. The country had 1.68 million charging points at the end of last year, just over half of which are private and the rest public. While that’s below the 4.8 million original target, it’s far beyond what the US has achieved at 72,000 at the end of 2019. China has one charging point for every five EVs, compared with 20 in the US.
China has redirected its EV subsidy efforts at building a vast network of stations, while cutting consumer-focused incentives. A plan unveiled last year boosted the emphasis on charging and battery-swapping stations. The state-run grid operator’s smart network is connected to over 90% of all charging piles.
This is the right way to achieve broader adoption. It is, however, a behemoth task, requiring massive capital expenditure. If policymakers around the world are bent on going green, this burden cannot be borne by potential drivers. Of the $14 trillion of global expenditure that’s required to upgrade power systems over the next three decades, about 14%, or close to $2 trillion, needs to go toward electrification in general. This requires upgrading existing connections, electrifying more energy consumption and creating supply for charging stations. Goldman Sachs estimates full adoption of green vehicles would need about $6 trillion of investment, half of it on grids.
China had its own learning curve. Until about a decade ago, most of its investment in more efficient power grids was focused on transmission rather than distribution. The latter accounted for just around 10% of investment. Since then, the focus has shifted toward upgrading networks. Last year, state media reported that China would invest close to $900 billion in grids over the next five years, including a focus on EV chargers and smart infrastructure.
As China invests more, it has managed to bring down costs by increasing the scale of charging networks. A study in 2019 showed that, without subsidies, it cost over $300,000 to install a charging station in China. That compares to anywhere between $600,000 to $1.1 million just for plugs and other equipment in the US.
In the process, Beijing focused on the security of electricity supply and distribution. Given that drivers tend to charge their cars at home, grids everywhere need to prepare for a future in which people get home from work and plug in overnight. An uncharged car is useless, and the prospect diminishes the appeal of owning one. The average EV raises a household’s overall electricity load. For a driver, this makes an EV a poor substitute for a regular car.
China is now trying to figure out how to manage electricity and power for EVs as it upgrades grids. Last year, Shanghai undertook a pilot programme to determine if the frequency and method of charging could be more flexible, or how power could be efficiently distributed.
Giving consumers handouts and sweeteners—as the US plans—is a way to entice them, but China’s approach seems more effective. Even as subsidies have been redirected, EV sales continue to rise sharply. Meanwhile, infrastructure gains have convinced drivers that they won’t find themselves stuck powerless on a highway. This isn’t to say it’s all going well in China. Some charging stations don’t work properly and upgrades have, at times, been slow to come through. It also hasn’t been easy for the main utilities to make money. However, electrification of traffic is on course.
American car sales are at multi-year highs. To ride that wave, and make electric vehicles a viable option, the Biden administration needs to take a page out of Beijing’s playbook.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia