Jumpstarted: Investors target China's EV charging networks

New infrastructure is the latest strategy sweeping through Chinese PE. Officially announced by the government in early March, it is a huge construction project intended to offset the economic impact of the coronavirus outbreak and promote sustainable growth.

A total of 25 provincial authorities have already incorporated new infrastructure into their plans. State-owned brokerage Zhongtai Securities expects investment in these projects to reach RMB3.3 trillion ($460 billion) this year and hit RMB6.25 trillion by 2025.

New infrastructure encompasses seven key areas, among them 5G networks, data centers, industrial internet applications, and electric vehicle (EV) charging stations. The global EV charging industry will be worth $3.4 billion by 2026, having grown at an annualized rate of 40% over the preceding seven years, according to Acumen Research Consulting. China already ranks as the largest player.

There were 1.2 million charging piles – 500,000 for public use and the rest private – nationwide as of the end of February. However, the China Electric Vehicle Charging Infrastructure Promotion Alliance notes that the vehicle-to-pile ratio is about 3.5:1, well short of the regulator’s 2020 target of 1:1.

When Telaidian, the country’s leading provider of charging piles, launched a Series A funding round earlier this year, competition for access was fierce. “Some investors came in too late, while others didn’t get a quota because their decision-making was too slow,” Roger Zhu, an executive director at CDH Investments, tells AVCJ.

CDH’s growth capital team moved fast enough to secure a piece of the RMB1.35 billion ($190 million) deal, participating through a US dollar-denominated fund. It is said to have brought in Singapore’s GIC Private as a co-investor. Further contributions came from two government-linked investors: China Structural Reform Fund, which is under the State-owned Asset Supervision & Administration Commission (SASAC), and Guoxin Capital.

Turning point

Telaidian, StarCharge and State Grid Corporation of China together account for around 80% of the public EV charging market. Telaidian alone operates 140,000 piles or 30% of the total. Previously a subsidiary of Tgood Electric, a Shenzhen-listed electric equipment manufacturer, it has now been spun out as an independent business. Zhu says preparations are underway for a STAR Market listing.

Despite its dominant position, Telaidian suffered a string of losses before finally breaking even in 2018, Tgood’s annual report states. That movement into net profit was spurred by a 45% year-on-year jump in revenue to RMB1.46 billion and a 27% rise in gross profit to RMB312 million. Telaidian covers all the upfront investment in EV charging infrastructure and makes money through usage fees. As such, the company was always going to spend its early years in the red.

“The entire EV charging industry has reported serious losses over the years. There are many reasons for that such as poor site selection and low operating efficiency. We were concerned that it might not be a feasible business model, so we observed it for a long time before we finally entered,” Zhu explains.

The CDH team spent two years visiting dozens of industry participants, from large national players to small regional service providers, before settling on Telaidian. The company achieving breakeven in 2018 was the clinching factor.

CDH is the first private investor to back an EV charging business of such a scale. Zhu notes that the state-backed funds active in the industry operate much like private funds, except they have higher requirements in terms of recouping their principal and lower targeted returns – although a minimum return guarantee must be written into the final agreement. CDH won’t touch an investment if it doesn’t think internal IRR goals can be achieved.

Telaidian proving its business model works is perhaps not the industry’s most significant turning point. There has also been considerable policy support, with the government shifting a portion of the subsidies for EVs to the construction of the charging network.

Several EV manufacturers have responded by entering the charging space. Nio and Xpeng – the former is US-listed, the latter has received substantial PE funding – are both building their own networks. Xpeng’s app lists 300 self-operated charging piles, while Nio claims 1,070. US-headquartered Tesla is further ahead of the local players, with over 2,000 piles in China. It wants to double that in 2020. Nevertheless, their market shares will remain marginal.

“The focus of Xpeng’s charging business is to provide users with higher quality and more convenient services through multiple channels, not to become an independent charging network operator. We don’t see ourselves in direct competition with third-party charging network operators,” the company told AVCJ in a written response.

Xpeng’s app recognizes piles operated by Telaidian, StarCharge and Nio as a service to its customers. It also shares charging network data with peers, collaborates with network operators on multi-pile charging station construction, and allows third-parties to run its own-brand supercharging stations. This reflects a general understanding that scale is necessary to create an impact, regardless of how it is achieved. CDH’s take is that it pays to focus on the largest players because it’s a winner-takes-all market.

Snakes and dragons

Vehicle fleets still account for a sizeable portion of China’s EV industry – making them the most frequent users of charging piles. Cities such as Taiyuan and Shenzhen continue to electrify their taxi, bus, ride-hailing and bus fleets at a rapid pace. For example, the Shenzhen government has stated that it wants all commercial trucks to be EVs by 2020. Another goal for this year is installing 5,000 dedicated taxi charging piles.

Guosheng Securities has calculated that the charging piles for public vehicles, especially buses, have the highest utilization rate. It is 14%, compared to 3% for private vehicles. This implies that the fastest route to profit for charging network operators is to target business customers. They also happen to be the most underserved market segment.

Newlinks Group is a VC-backed start-up best-known for the Chezhubang platform that helps drivers in China locate the best value gas stations. It also owns Kuaidian, which does the same for EVs. Zhen Dai, the company’s CEO and founder, tells AVCJ that there are plenty of charging piles for private vehicles. They primarily rely on private piles and in some cities, supply exceeds demand by eight or nine times.

The real shortage is on the commercial vehicle side because early construction of public charging piles was not based on commercial traffic data. “Newlinks connects with about 400,000 piles, but our app only highlights 90,000 from a user perspective. A pile should be linked with a rest facility, a restaurant or a car-washing service. They should also have fast-charging capability,” explains Xiang Yu, head of Newlinks’ EV charging business.

Newlinks provides a heat map showing the most active driver areas, which means network operators should be able to plan new construction according to the demand. Yu notes that small-scale local players like Shenzhen Zhilian Power, Tianjin Huichong, Changsha Longjian New Energy have strong potential because they are nimble enough to build stations with high utilization rates.

Dai adds: “A powerful dragon cannot crush a snake in its old haunts. Location is very important for pile operators. In a single city, those who can get the best locations are local players. They know how to get hold of small pieces of vacant land and turn them into charging piles.”

For its part, Newlinks has no ambitions to challenge Tesla, Telaidian or anyone else. Dai sees charging piles as equivalent to hotels and Newlinks wants to be the equivalent of Ctrip, taking a cut of traffic flow that goes to all parties.

Technology titan?

Although large-scale network operators cannot match their smaller peers in terms of local knowledge and second-mover advantage, they have developed strong core technology competencies over the years.

Telaidian, in addition to operating its own charging piles, sells charging equipment to corporates and other operators. It focuses on “centralized charging.” Instead of having one charging module within each pile, the company consolidates, for example, 20 modules in a single unit that can supply 100 piles. This is a popular function for customers like electric bus operators.

“Previously, a bus company with a 100-vehicle fleet might only have been able to charge 20 at a time in fast-charging mode. On completion, those vehicles would be driven away to make room for 20 more. By centralizing control, each of the 100 buses has its own pile and the company decides which ones to charge. The system can only handle 20 at a time, but the logistical headache is removed,” says CDH’s Zhu.

Alternatively, the company could opt for a slow-charging model that feeds all 100 vehicles simultaneously. This means they can be left charging overnight, which may translate into cost savings because electricity rates are higher during the day.

Telaidian has even extended its technology edge to include solar energy. Consolidating the charging modules into a single unit effectively turns the unit into a micro-grid that transfers electricity between different parties. Trials have been conducted in Qingdao whereby a factory connects to the micro-grid, in addition to an EV, and uses the electricity for lighting.

However, the system also works in reverse: the factory’s solar panels feed electricity into the micro-grid, which feeds it into the EVs. This eases reliance on the national power grid.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Expansion
• Technology
• China
• CDH Investments Management
• Transportation
• automobiles