News of electric vehicles (EVs) has permeated headlines in the auto industry as much as record profitability, supply chain issues, and microchip shortages over the last three years.  While environment-conscious mandates and industry projections have framed the narrative on the overall popularity and adoption of EVs, several recent metrics have emerged that measure the momentum of EV sales.  According to CleanTechnica, monthly EV sales exceeded 7% of all new light-duty vehicle sales in the U.S. for the first time in September 2022.  Experian reported registration data from January 2023 that 7.1% of all new light vehicle registrations were all-electric vehicles.

One of the common complaints among EV consumers is that they didn’t receive proper charging instructions or information at the time of their EV purchase.  This week, we discuss various EV topics, from the three charging levels to the OEM requirements for dealers selling EVs.

Level 1 Charging – Trickle Charging

Level 1 charging refers to 120-volt charging and is analogous to using a household outlet.  Level 1 (and Level 2) is also called AC charging or “Alternating Current” charging.  Generally, the current for Level 1 charging can range between 10 and 12 amps.  Level 1 is often described as trickle charging because each hour of charging may only add 3-5 miles of battery range.   Most EVs have a battery range between 150 and 400 miles, so a full charge could take 30 to 80 hours if the charge were constant and at the highest throttle for a Level 1 charge.  In contrast, plug-in hybrid EVs (PHEVs) generally have a battery range between 15 and 60 miles, making them more favorable to level 1 charging.

Another limitation of Level 1 charging is that it does not provide enough power to preheat or precool the cabin if charging while connected to the electric grid in extreme temperatures.  Level 1 charging is best suited for overnight charging at one’s house or garage.

Most automakers include a small Level 1 charger with the purchase of an EV

Why are the charging capacities only listed as estimates?  Most automakers include a small Level 1 charger with the purchase of an EV that consists of a charger with a cord to attach to a grounded household outlet and the vehicle.  The charger is generally referred to as electric vehicle service equipment (EVSE).  The consistency and efficiency of all EVSEs are not created equally.  Combined with an alternating current, charging ranges and times can only be estimated for Level 1 charging.

As EVs have grown in popularity and experienced sales momentum, OEMs are beginning to include standard chargers capable of Level 1 and Level 2 charging with the purchase of an EV.

Level 2 Charging – Fastest Charging at Home

Level 2 charging refers to 240-volt charging analogous to other household appliances such as a dryer, oven, air conditioner, or hot tub.  While level 2 charging also occurs on an alternating current, the current can range between 12 to 80 amps—well above Level 1 capabilities.  An electrician can add a 240-volt outlet to a homeowner’s garage for overnight charging.  Due to the range of alternating currents, an hour of Level 2 charging could add a range between 5.5 miles to 60 miles to battery life.  As with Level 1 charging, the level of charge can depend on the efficiency of the EVSE and the household’s current setup.

Cost estimates for level 2 charging range near $0.03 per minute or $21.60 for a full 12-hour charge where necessary.  While Level 3 charging may be faster and more efficient, some limitations include costs and frequent direct current (DC) charging.

Level 3 Charging – DC Fast Charging

While there isn’t an official definition for Level 3 charging, Level 3 is generally referred to as anything above Level 2 and is synonymous with DC or “Direct Current” fast charging.  Unlike the ranges of alternating currents in Level 1 and Level 2 charging, a constant direct current is utilized in Level 3 charging.  Further, direct currents are what the EV batteries accept directly.  Combined with a more robust EVSE, fast charging can add ten or more miles to the battery life per minute.  While Level 3 charging will never be as quick as pumping a tank of gas in a traditional ICE vehicle, this level of DC charging is much faster than the fastest rate of Level 2.

There are generally two disadvantages cited for DC fast charging.  First, frequent DC charging can diminish the battery pack’s overall longevity.  While we are not aware of any direct scientific findings or research on the topic, this phenomenon is akin to what we have all probably personally experienced when charging small appliances and devices before the battery was fully exhausted.  Anyone owning an iPhone or smartphone can relate that the battery life seems to diminish earlier and earlier during the day after the phone reaches two-plus years.

The second disadvantage of DC charging is cost.  Cost estimates for Level 3 or DC fast charging range in the vicinity of $0.29 per minute or approximately $11.60 for 400 miles, depending on local energy costs.  Some OEMs offer to mitigate Level 3 charging costs by offering free charging at Electrify America Charging Stations for 2-3 years in connection with the purchase of an EV.

Other companies are looking to provide charging stations conveniently to their customers

While EV charging stations are prevalent at Electrify America and dealership locations, other companies are looking to provide charging stations conveniently to their customers and to parlay their own services and goods during the idle charging time. As a result, EV charging stations are popping up at retailers, restaurants, and travel centers.  For example, companies such as Subway, BP Products North America (through its acquisition of TravelCenters of America), Starbucks, 7-Eleven, Walmart, Target, Pilot Flying J, and Love’s Travel Stops & Country Stores are already making investments in charging stations or considering future investments.

For perspective, approximately half of the gross profit for gas stations comes from selling gas, while the remaining amount comes from marking up the cost of snacks and other convenience items. With extended charging times relative to filling up at a gas station, companies installing EV chargers are betting that consumers are more likely to spend the money they’re saving from charging their vehicles while they wait.

EV Requirements by OEMs to Dealers

The level of participation, investment, and introduction of new models in the EV space has varied drastically by OEM.  Likewise, the requirements that the OEMS have on participating EV dealers also differ significantly.  We highlight some of the requirements that each OEM asks of their dealers regarding the size of overall investment and the number of various charging station levels.

Ford – Perhaps the most outspoken and committed to EVs has been Ford.  At a meeting last fall, Ford adopted a formal EV program and asked their dealers to decide between three options:  Model e Elite, Model e Certified, and EV Opt-out.  Of the 2,968 Ford Dealers, 1,920 dealers, or approximately 65%, voted to participate in some level of EV retailing.  A brief discussion of each level and its investment requirements is detailed below:

Model e Elite – 1,659 dealers participating (or approximately 55% of Ford dealers). Dealers in this category can sell unlimited amounts of Ford EVs and have the full-service capability on those models.  For this level, Ford requires that dealers install two high-powered DC fast chargers and a Level 2 charging station, with at least one of the DC chargers available for public use.  Ford estimates the investment cost for dealers at this program level to be approximately $1.0 – $1.2 million, mainly for the charging infrastructure.

Model e Certified – 261 dealers participating (or approximately 9% of Ford dealers). Dealers in this category can sell a limited or maximum number of EVs per month, as determined by Ford.  Dealers must also be equipped for the full-service capabilities of all Ford EV models.  Ford requires one high-powered DC fast charger for public use for this level.  Ford estimates the investment cost for dealers at this program level to be approximately $500,000, mainly for the charging infrastructure.

EV Opt Out – 1,048 dealers chose not to participate in Ford’s EV program (or approximately 35% of Ford dealers). For those dealers that opted out, they will not be able to sell any Ford EV models for the period beginning January 1, 2024, until January 1, 2027.  At some point during the period, these dealers can notify Ford that they wish to participate in EV retailing in the future, and they will be able to sell EVs starting in 2027.  For this level, no additional investment or costs are expected by Ford.

Cadillac – In 2020, Cadillac offered to buy out any existing dealers that didn’t wish to participate in their EV program.  Over one-third of Cadillac dealers opted to leave the brand and were eventually bought out.  On average, Cadillac requires its dealers to spend approximately $200,000 on upgrades, including on-site vehicle charging stations, new tooling and service upgrades, cosmetic enhancements, and new sales and service staff training.  Specifically, Cadillac requires that its dealers install one or two Level 3 DC fast chargers and 1-3 Level 2 chargers.

Lexus – Lexus requires all its dealers to install four Level 2 chargers and one Level 3 DC fast charger.

Toyota – In zero-emission states, Toyota requires its dealers to install three Level 2 chargers, one for service, one for new vehicle deliveries, and one for customer use.  In non-zero-emission states, Toyota requires its dealers to install one Level 2 charger in service or a customer-facing area.  Level 2 chargers also support Toyota’s PHEVs.

Lincoln – Lincoln requires that its dealers spend $900,000 on infrastructure upgrades and staff training as it prepares to launch four new EV models in 2026.  Lincoln has recently softened its EV charging requirements by stating that dealers must offer public charging access Monday through Saturday, 7 am to 8 pm.

Conclusions

As this continues to evolve, we expect more declarations from other OEMs with varying requirements—just like charging options vary. With only a 7% market share, it’s still the early innings for EVs, which are anticipated to continue to grow over time. The consensus also seems to be that the technology will improve and costs will continue to decline. How fast adoption happens will depend on how economical the environmental impacts will be for OEMs, auto dealers, and consumers.

At Mercer Capital, we perform valuations of auto dealerships for owners and advisors all around the country for a variety of purposes.  Additionally, we follow the auto industry closely to stay current with trends in the marketplace.  These give us insight into the private dealership market, informing our valuation engagements.  For an indication of what your dealership might be worth, contact a professional at Mercer Capital to discuss your valuation needs in confidence.