Business model differences between a Fuel station and a Charging Station - Lessons from the business of EV charging (2) -

Now we consider our mission of setting up fast chargers in Sri Lanka has been achieved, we thought of sharing with others the experiences and lessons we learned on our way. Part of 1 of this series can be found in here.

On the surface, Fuel stations and charging stations seem nearly identical in function. Let's forget the environmental aspect a bit, they provide a similar service. Vehicles come to the station, one charges an electric car, the other fills it with fuel, very similar. Business models also need to be identical right? Wrong! These two businesses are worlds apart and require totally different everything. Let's discuss.

 1) Fuel stations (unless situated on a main road connecting two big cities) largely depend on customers who live/work around it in a certain short (few kilometers) radius. Let's just think about our regular filling station. Most of us either live near it or work near it.

In contrast, an EV charging station always serves users who live far away from it. People who live nearby will conveniently charge from their homes at night, Those who lose their charge level near a station are the usual customers, who typically come from further away.

Some of our partners when querying about starting a new charging station, typically say things like "There are about 20 EVs in my town.." Actually, that's the exact wrong figure to focus on. Those 20 cars are the most unlikely ones to visit us for charging, focus should be on other vehicles which pass us.

This little difference requires both businesses to follow totally different marketing strategies from each other. Fuel station need not do much since it will naturally attract people who live/work near it. However, for a charging station, whose customers live far away from it, needs other mechanisms to let those customers know about it's presence.

2) Fuel station is kind of a lone ranger unless you live in a big deserted country. Each station is more or less independent from each other. This is because once the tank is full a vehicle could go 500km or more.

Charging stations, on the other hand, need each other to work together. A car needs the help of several stations to complete a journey. Each station should promote others and help users overcome their range anxiety. In a local example, Kurunagala station may need to convince it's customers of the feasibility of traveling to Colombo by mentioning about the Nittambuwa station in between and vise versa. Charging stations need to think like a team and a network for better results. Kurunagala would get more customers if there is a station in Anuradhapura. Ginigathhena would get more business once there is station also in N'Eliya etc.

3) Fuel station need a huge investment to start and so the barrier of entry is so big that only big corporates can do it. Then again, one would need a government permit or a license to operate.

A charging station, on the other hand, requires a very little investment to start and only need a 3 phase line to operate. This means virtually anybody can start a charging station in quick time and it will be almost impossible for the government to curb or regulate them. It also means that it is very hard for anybody or a big company to develop a monopoly in the charging business like they can do it in fuel station world.

Just think, Sri Lanka only has 2 main parties who do fuel, after all these years. Ceypetco and IOC. In charging, however, even after 3 short years, we already have 4 main networks, two local manufacturers and some independent stations as well.

4) Customers come and leave quickly in a fuel station.

In a Charging center, they will stay at least half an hour and sometimes an hour or more. This means lot of opportunities if the station have other services to offer to it's charging customers. It also means a charging station better have some basic facilities and acceptable environment for it's waiting customers.

In the past, we though fuel stations are ideal for charging station since there will be operators 24/7, all year around. However, with the arrival of total automation, this is no longer a big advantage. Restaurants, Hotels, Service Stations, Shopping malls etc seem to be better stations now. A Fuel station, after all, is not the nicest of places to spend 30-40 minutes with kids and family.

When we put our first two stations and contemplating on bringing on 5 new fast chargers, we contemplated on this question long and hard. We were anyway not after creating a business empire out of charging, we were just impatient to cover the island and see the impact we are making. This realization of impossibility for anyone to make a monopoly in this business made our choice easy. So we came up with our current business model which is bit similar to a franchise.

We did not have the capital to invest in many chargers around the country. Also, it was quickly shown that when the premises owner have more at stake (more to gain and more to lose), that motivates them to do the business well and ensure the survival of the charging station. So we came up with a model where premises owners will be the main investors. It will not allow us to create a business empire but will make sure we reach the goal of covering the whole country with fast chargers. 

We started by reducing the initial charger investments. 30KW charger which was beyond RS 2m, we made availalbe for about 1.35. 20KW charger which was about 1.2M, we made available for under 1m. Then we would invest and finance a further 10% of that investment. Suddenly things started to move!

Green Frontiers mainly focus on software, automation, apps, promotions, payments, maintenance and the network in general. We sometimes do direct investments on fast chargers as well based on strategic decisions, but mainly we limit ourselves to 10% investment only and let the premises owner invest the rest. It also freed us for investing on chargers on areas where others would not invest, to fill the gaps in the network. This is a win-win situation on many levels.

Even though we invest 10%, we have decided from early on to pass full ownership of the charger to the main investor. This will make the investment decision easy, for he can sell anytime or walk out anytime without facing legal complications. We thought making it easy for people to leave will, in the long run,  make it easy for them to take the joining decision. We only took 10% of charging revenue and the rest goes to the investor, this will leave the network with a steady income so we thought to continue providing services. By our quick success and survival past 3 years, I think this model has proved a success.

This is just to say that analyzing problems (even when they look like not directly relevant to what you are doing) sometimes help, even when the problem seems somewhat abstract than practical. Those help you focus on the right areas and figure out your place in the service you intend to provide.

If time permits, we will discuss few more such topics as well as some useful statistics....