Detroit rivals General Motors and Ford Motor Company both announced that they signed deals to use Tesla’s supercharger network in North America starting next year.
Existing owners of Ford and GM electric vehicles (EV) can soon begin accessing Tesla’s massive supercharger network that uses the company's North American Charging Standard (NACS) connector with an adaptor, and future Ford and GM EVs will have NACS chargers standard.
It’s a brilliant move by Tesla CEO Elon Musk. Locking up two of the biggest North American automakers effectively means Tesla’s NACS technology has emerged as the industry’s new “VHS” standard, drawing parallels to the 1980s battle between VHS and Betamax for home video standard.
Let’s examine what this means for the EV landscape and Tesla.
The deals give Tesla a stranglehold on EV charging infrastructure. Two dominoes have fallen, and more automakers will now follow suit. The Biden administration on June 9 tried to throw a lifeline to the other EV charging standard, the Combined Charging System (CCS), by touting building infrastructure with the “flexibility for adding both CCS and NACS,” said White House spokesperson Robyn Patterson. But make no mistake, it’s only a matter of time until Tesla’s NACS effectively locks up the entire North American charging infrastructure. Any company looking to invest millions in CCS technology would be wise to pause and reconsider.
Does this make Tesla an infrastructure player in addition to its merits as a leading EV maker? Absolutely.
"We have a real opportunity here to really drive this to be the unified standard for North America, which I think will enable more mass adoption," GM CEO Mary Barra noted during a Twitter Spaces session announcing the deal.
Musk said that Tesla's charging network won't give preferential treatment to Tesla EV owners.
If one believes in a future of EVs—and this author is still skeptical, but for the sake of this article let’s go with it—then EV charging stations are the future equivalent of gas stations.
Not only would Tesla own the majority of these “gas stations” of the future, but it would also have the ability to advertise and sell other products and services alongside these charging stations. Unlike gas stations, where current vehicles can fill up within minutes, EVs take much longer to charge and businesses adjacent to EV chargers can engage EV owners more effectively in sales.
To be clear, Tesla won’t have a monopoly over the nation’s charging network, as the firm has already opened NACS charger technology to other manufacturers. But we still expect Tesla to own a large portion of the network given its already massive head start.
And that's the key reason automakers are choosing to partner with Tesla.
Any EV owner knows that Tesla runs the most efficient and reliable EV charging network. The charging network is as much of a purchase consideration for prospective EV owners as the car itself. One study found that across California, around 25 percent of the competing CCS EV chargers were out of order at any given time. Availability and reliability concerns surrounding CCS chargers are a mounting issue for automakers investing in manufacturing EVs. It's also the top detractor against EV adoption among consumers.
Tesla’s “Apple-like” vertically integrated approach to its EV infrastructure and ownership experience grants it a distinct advantage.
For Tesla, this provides a recurring and stable revenue windfall to cushion its car and battery manufacturing business, not to mention upfront funding from the federal government, which is investing billions in this space. The total addressable market for selling electricity to EV owners is massive, and the industry is just getting started.
Alex Potter, the Piper Sandler analyst who covers Tesla, wrote in a note to clients that Tesla will stand to earn “$3 billion in charging revenue from non-Tesla owners alone by 2030 and $5.4 billion by 2032.”
“Game, set, match," Tesla bull and Wedbush analyst Daniel Ives said in a Tweet. “Tesla just cornered the market.”
Tesla was never going to have a monopoly among EVs, but charging infrastructure may be a different story.
The company has around 45,000 NACS connectors around the world at 4,947 supercharger stations. The majority of that is believed to reside in the United States. A slightly higher number of CCS charging stations are currently operational in the United States, according to U.S. government data, but as previously stated, their operations are fragmented and unreliable.
Tesla’s dominance in charging infrastructure will also augment its growing energy storage business. It already offers Powerwall and Megapack products in this space. As its energy and charging infrastructure grows, there's massive potential to link energy storage solutions and clean energy (solar) to its expanding grid.
For Tesla, one of the most polarizing companies in the stock market, its potential energy infrastructure dominance is a compelling thesis for investors.