3 Scenarios for Electric-Vehicle Adoption
By Samantha Oller on Mar. 29, 2018NEW YORK -- Attempting to gauge how far electric vehicles (EV) are from disrupting fuel retailing is a bit like peering into either end of a telescope: Look into one end and it appears absurdly close; look into the other and it’s a distant speck.
To get a better handle on how convenience stores and gasoline stations will fare as EVs gain in market share, analysts with New York-based Morgan Stanley created three scenarios based on bear, base and bull growth projections. They based them on three deciding factors of EV growth:
- Battery cost, which is currently $10,000 more than an equivalent internal combustion engine (ICE).
- Charging time, which is currently about 10 times longer than the time required to fill an ICE vehicle with liquid fuel.
- Driving range, of which current EVs typically offer only about half that of a typical ICE vehicle.
Over time, all of these factors are expected to improve greatly in EVs' favor.
The analysts also factored in the growth of ride-hailing services such as Uber and Lyft. Morgan Stanley’s U.S. Autos & Shared Mobility group expects shared miles to make up nearly one-half of miles traveled in the United States by 2040. This, they conclude, is not good news for c-stores: Shared-mobility drivers may stop more for fueling or charging up but would make an estimated 50% fewer higher-margin, in-store purchases.
Here’s how c-stores fare in all three growth scenarios, and what factors will determine their survival in an EV-dominant world ...
Bear and base scenarios
In the bear case, Morgan Stanley analysts assumed that today’s limited charging infrastructure and technology hurdles would continue for some time and weigh on faster growth. Assuming these headwinds, they anticipate a 10% to 20% decline in fuel sales by 2040. In-store sales, meanwhile, could do anything from drop by 7% to jump by 25%, depending on how well a retailer meets future driver needs with their retail offer.
The base case assumes moderate growth, in which EVs represent 70% of new vehicle sales and 48% of miles traveled by 2040. In this scenario, gasoline sales could drop 25% to 35% by 2040. In-store sales, meanwhile, could see anything from a 15% decline to a 30% increase.
The bull case
The most dramatic fuel declines would happen under a bull scenario, in which all of the deciding factors of EVs’ growth fall in their favor quickly. In the bull case, EVs would make up 94% of vehicle sales and 71% of vehicle miles traveled by 2040. Should this scenario become reality, Morgan Stanley analysts anticipate a 50% to 60% decline in fuel sales. Retail sales could see anything from a 25% drop to a 35% gain.
“The bull case for EVs likely creates the most disruption and fundamental dispersion among U.S. gas stations,” the analysts observed, but they cited the industry’s relatively healthy growth history as one element in its favor—at least in the short term.
“We therefore do not see risk to top-line growth as imminent and see the potential disruption of gas stations as a long-term trend, although still relevant today given 15- to 20-year lease terms,” the report said.
Survival conditions
C-store retailers’ future survival would depend on their ability to withstand a few key conditions, including:
- The convenience of charging at home. “Suburban and neighborhood gas stations that serve primarily those that live nearby in particular would have trouble coaxing customers away from their home chargers,” the analysts said.
- Public-charging competition. The charging infrastructure is extending beyond traditional fueling locations to include shopping malls, restaurants, grocery stores and offices, where drivers are more likely to spend longer periods of time.
- Short commutes. The average driver covers 40 to 60 miles per day, which falls well within the 150- to 200-mile range of even today’s typical EV battery. This would further limit the need to charge beyond the home.
Differentiators
As the fuel landscape shifts toward EVs, Morgan Stanley believes “niche differentiators” within the c-store industry could survive and thrive in this declining ICE/ascending EV world. They would have the following characteristics in common:
- Locations along highways and urban corridors, where they can serve customers such as ride-sharing drivers.
- Being among the first to adopt a hybrid model, offering both gasoline and EV charging stations.
- An expanded retail offer including foodservice and restaurant options to serve EV drivers’ longer stops.
- Fleet maintenance services such as tires, brakes and batteries that serve EVs.
Refiners that have their own c-store operations—such as Marathon Petroleum, Andeavor and Delek—would also fare better than those without. Retail offers higher and less volatile margins, the analysts said, and refiners would have the opportunity to install charging stations at their c-store locations.