The $1.3 Billion Infrastructure Play for 2017

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Alternative Energy

Electric vehicle sales have just reached a significant level…

Last year, worldwide EV sales hit 773,600 units.

That was a 42% jump from 2015’s sales.

On top of that, the sales growth rate of EVs is 20 times faster than that of other vehicles. And that presents a fantastic investment opportunity…

Up to this point, a primary obstacle to the rapid adoption of EVs has been the lack of charging infrastructure. But that’s changing quickly.

Consumers aren’t going to rush out and buy EVs if they don’t have a way to recharge them. The fear of being stuck somewhere is a real issue with low-capacity batteries like the Nissan Leaf’s.

On the flip side, who’s going to spend lots of money to build EV chargers when few cars are going to use them? It’s the classic chicken-and-egg problem.

Employers Get With the Program

One of the easiest ways to solve the charging problem is to make charging stations available at the workplace. And National Grid PLC (NYSE: NGG) did just that.

National Grid is a gas and electric utility company focused on the distribution and transmission of gas and electricity in the U.K. and the U.S. As a trial, the company installed six charging stations at its headquarters in the U.K.

Since the charging stations were installed, the number of plug-in hybrid EVs driven by headquarters employees has jumped from 177 to 375 – an impressive employee response.

And like many urban dwellers here in the U.S., U.K. city folk may not have off-street parking. So charging at work is a perfect alternative.

But company parking lots aren’t the only places EV charging stations are popping up.

The European Union (EU) recently approved a regulation regarding EV chargers. Beginning in 2019, all new and renovated homes in the EU must have an EV charger installed.

Talk about a tipping point. That is a big deal when it comes to the adoption of EVs.

It’s a huge advertisement for EV viability in the homes of potential buyers. And it’s cheaper to install them during construction or renovation.

EV adoption is like an avalanche… Once a few people start using them, more and more people will see the advantages of EVs.

And if other EV owners are anything like my wife and me, they love talking about their vehicles and driving experiences.

Of course, the EU is more forward-thinking when it comes to EVs and sustainability. Norway plans to ban the sale of internal combustion engine-powered (ICE) cars by 2025.

Germany wants to end the sale of ICE vehicles by 2030. Here in the U.S., we move slower.

California is generally at the forefront of sustainability. In fact, the Golden State leads the U.S. with half of the nation’s EV sales.

So it’s no surprise that California is spending big bucks on EV charging infrastructure. And I’m not talking about a few million dollars…

The three largest utilities in California – Southern California Edison (NYSE: SCE-E), Pacific Gas & Electric (NYSE: PCG-A) and San Diego Gas & Electric (NYSE: SDO-H.CL) – have already spent $200 million on EV charging infrastructure. Until this point, they’ve focused on installing charging stations in apartment complexes, at workplaces and in disadvantaged neighborhoods.

But they’re just getting started. Over the next five years, they plan to spend $1 billion more.

Moving forward, their focus will be on electric bus and truck chargers, fast-charging stations for EVs, and new incentives and rates for EV owners.

The Investor’s Key to the EV Sector

It’s clear that Europe and California are adding charging stations at a frenetic pace. But as EV sales continue to grow, other states will be getting in on the action as well.

Several companies lead the way (besides Tesla) when it comes to EV chargers. The one I like the most is ChargePoint Inc.

Unfortunately, it is a privately owned company. ChargePoint sells chargers for homeowners, business owners and private fleet owners.

Individuals can even purchase EV chargers or rent them out if they already have a good location. Mini-marts that sell gasoline are perfect places to install EV chargers.

The company remains tight-lipped about any plans for an IPO. However, I’ll be on the lookout for one.

That leaves AeroVironment Inc. (Nasdaq: AVAV) as the best public alternative for an EV charging station play. In addition to EV chargers, AeroVironment makes remotely piloted drones.

I believe AeroVironment is the best and safest play at this point for EV charging solutions. There are other smaller competitors, but none worth investing in.

The company has developed EV stations for eight of the world’s leading automakers. Based on a 7.5% EV penetration rate of the annual 17 million light vehicle sales, AeroVironment believes the potential EV charging market is $1.3 billion.

The EV tipping point is close at hand. Savvy investors will want to have some good EV plays in their energy portfolios.

Good investing,

Dave