Tesla Opens Charging To Ford, Highlighting Weak National Infrastructure

Summary:

• Ford Motor Company has decided to collaborate with Tesla, Inc., embracing its proprietary charging standard, which may lead other automakers to follow suit and boost Tesla’s revenue from selling electric automotive fuel.
• The U.S. charging infrastructure is currently insufficient to support mass adoption of battery-electric vehicles (BEVs), with only 51,000 public stations across the country, 17,000 of which are owned by Tesla.
• BEV registrations in the U.S. increased by 63% in Q1 2023 compared to the previous year, but the growth of the BEV market and its impact on automakers’ financial performance remains uncertain.
• Underdeveloped and non-standardized BEV charging networks pose a substantial barrier to investors seeking return for the foreseeable future.

The decision by Tesla, Inc. (NASDAQ:TSLA) to open its charging network to Ford Motor Company (F) battery-electric (“BEV”) models may be seen one day as a brilliant stroke on the part of Elon Musk, the company’s CEO. Not only did the move qualify Tesla for federal funds, it further strengthened Tesla’s proprietary charging standard, while pressuring rival automakers that struggle with a competitive standard whose chargers are difficult to use and frequently malfunctioning.

“The Tesla Supercharger network has excellent reliability and the NACS plug is smaller and lighter. Overall, this provides a superior experience for customers,” noted a Ford exec Marin Gjaja.

Some independent engineering groups have noted that the design of the Tesla charging cable and plug is much easier to use than those from other charging standards.

Hat tip to rival

If there’s a better advertisement from a rival to consider Tesla’s BEVs first, it’s hard to think of what it might be. Surely Ford understood that when it agreed to embrace the Tesla standard.

Ford has loyal customers; and some anti-Tesla diehards won’t be moved. Others, who are considering the forty BEV models now available in the U.S. from a variety of manufacturers, may decide that Tesla’s supercharger network is a reason to choose the brand. Driving is one dimension of the ownership experience, keeping the vehicle fueled is another.

An uncomfortable takeaway from Ford’s decision, as more automakers bring new BEV models to market, is that the U.S. charging infrastructure isn’t yet sufficient – in size or ease of use – to support mass adoption of BEVs. Tesla predicted correctly more than a decade ago that government and private enterprises would be too slow to create a network, which is why the company decided on the costly option of creating its own. Ford now has seen the light as well. Will General Motors Company (GM) and others soon follow?

In addition to the paucity of chargers is the confusing (and irrational) welter of multiple standards, represented by different plugs. In order for Ford BEVs to use a Tesla charger, initially, the owners will require an adapter. In another year or two, Ford BEVs will come ready with a Tesla charging connection – plus an adapter for a non-Tesla charger. In addition to the Tesla charging plug, there exist four different charging plugs, two for alternating current (AC) and two for direct current (CHAdeMO) and CCS.

Budding network

According to the U.S. Department of Energy’s Alternative Fuels Data Center, there are roughly 51,000 public stations across the U.S., 17,000 of them owned by Tesla. (Tesla operates another 23,000 or so stations worldwide.) Unsurprisingly, California leads the states with approximately 14,040 public charging stations and some 37,987 ports. Wyoming has 53 locations. For comparison, the U.S. has about 145,000 gas stations with an estimated 900,000 or more pumps, where fill-ups usually take 5 minutes, not thirty.

According to the registration data from Experian (via Automotive News), the total number of BEV registrations in the U.S. during the first three months of 2023 amounted to 257,507, which is 63 percent more than a year ago and about 7 percent of the total market (up from 4.6 percent in Q1 2022).

The reason for reciting facts already known to savvy readers is that many or most car buyers still have little or no knowledge of what recharging involves and aren’t too interested in learning the ins and outs of kilowatts, plug-in hybrids versus battery electrics and so forth: the incumbent fueling protocol for internal combustion engines (ICE) and gas-electric hybrids works so well with gasoline pumps.

Car buyers more and more are realizing that BEVs might work well as a second car for around town, especially if a charger can be installed in a home garage; but BEVs are less practical for certain uses, such as a weekend trip of a few hundred or more miles.

The auto industry is aware of this hesitation; individual automakers already are taking steps and engaging in larger investments to hedge the battery electric bet. New chemistries and solid-state batteries are in development. Hydrogen will become more and more important as automakers like Toyota Motor Corp. (TM) peer decades into the future, beyond the lithium-ion battery. Fuel cells could begin to gain traction within a decade, as well as so-called “green” fuel for internal combustion engines using as feedstock captured CO2 and hydrogen derived from renewable energy.

Estimable BEVs

The good news for those who are in a position to take the BEV plunge is that the current crop of vehicles, by and large, have been engineered to be very pleasant to drive. I’m testing a Genesis GV70 from Hyundai Motor (OTCPK:HYMLF); it features handsome appointments, advanced technology, and tight, surefooted handling and acceleration. I’ve driven a number of BEVs, including Ford Mustang Mach-E and GM’s Hummer EV that are likewise impressive rides.

Nevertheless, emission-free vehicles almost surely will be prevalent someday. The number of chargers will increase. The time needed to charge will go down. Battery range will improve. The key question for investors is how soon and how much capital can be risked against the threshold assumption that BEVs will be the U.S.’s mainstream automotive technology a decade or so from now – as GM and Ford have asserted?

Ford deserves credit for making the shrewd, unexpected, and perhaps humbling decision to collaborate with Tesla. The automaker’s calculation is that it will sell its own BEV models more swiftly and at better prices if buyers can count on better access and performance from Tesla’s chargers. To what extent BEV sales will make a positive difference for Ford’s financial performance over the next five years, as it invests tens of billions to electrify its entire fleet, remains to be seen.

TSLA undoubtedly got a boost, from an investor’s perspective, by Ford’s collaboration on chargers. If GM and other automakers join in – which I would rate as a possibility – Tesla could find itself in the enviable position of selling electric automotive fuel as an additional source of revenue and profit.

Ford still depends almost totally on its conventional F150 pickup for revenue and earnings. Can the growing BEV market in the U.S. sustain the company? So far, it’s an unanswered question. This year’s Q1 BEV growth of 7% in the U.S. new-vehicle market wasn’t bad – another year or two of similar growth could make a believer out of this investor. In the meantime, be patient, and hold F.

As for Tesla, opening its charging network to Ford (and possibly to others) strengthens its buy case by creating a potential new revenue stream, the sale of automotive electricity. The chargers will have a marketing value for Tesla vehicles as well, acting in a sense free-standing advertisements. Just as companies like Mercedes buy naming rights, for example, to sports arenas such as those in New Orleans, Atlanta, Berlin, Stuttgart, and Shanghai, Tesla will have named stations dotting the landscape that reinforce the company’s brand. And they will produce revenue!

I will also give Tesla credit for producing free cash flow since 2019, at which point I declared myself more positive on the company and the stock than I had been in a decade. Despite Seeking Alpha’s quant rating of 3.31, Tesla, Inc. stock is leaning toward the buy side, where Wall Street analysts sit.

---

Analyst’s Disclosure: I/we have a beneficial long position in the shares of TSLA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

---