In Short
The Situation: In December 2021, the Biden administration increased the focus on the rapidly evolving alternative vehicle industry by releasing its Electric Vehicle Charging Action Plan.
The Result: The Plan seeks to increase battery electric, plug-in hybrid electric, and hydrogen electric vehicles ("EV") market share, amplify the U.S. charging network, and augment U.S. manufacturing.
Looking Ahead: Strategic alliances will proliferate, premised on large-scale fleet conversion, an influx of capital into EV innovation and consolidation, and substantial development of cross-sector capacity. These transactions offer market-leading opportunities for focused participants.
Electric vehicles have been in the news this quarter, and rightly so. The December 2021 Biden-Harris Electric Vehicle Charging Action Plan accelerates the conversion of internal combustion vehicles to the array of EV drive trains. The Plan targets EVs as 50% of all new cars in 2030, with an incentive package to enable domestic manufacturers ("OEMs") to shift EV manufacturing to the United States.
The administration's effort to support OEMs is testimony to the rapidly evolving scope, breadth, and scale of the EV sector. Current purchasers of EV vehicles challenge outmoded stereotypes about adopters of zero- and low-carbon technologies, e.g., NASCAR will go hybrid in 2024. In 2020, worldwide EV stock exceeded 10 million passenger vehicles, with significant fractions in EV market share in Europe (>10%) and China (>8%). The 2021 sales trending are 7% of global sales, with 18 of the 20 largest OEMs committed to increasing EV offerings and sales. KPMG's annual Global Automobile Executive Survey captures, as "megatrends," that 98% of auto executives polled consider sustainability a "key differentiator," premised on the shift to EVs.
What does this mean for the private sector and the sector's legal counsel teams in particular? We are all learning. Nonetheless, from more than a decade of work with pioneering EV developers, companies, and service providers worldwide, we can identify a number of key considerations for those (ad)venturing in this space:
Strategic Partnerships: Large-scale fleet conversions to EVs, which began in earnest in 2018, are accelerating worldwide. Our ongoing work for our clients, particularly those pioneers among the first to undertake commercial fleet conversions at >$1B, may continue to reflect the frontier of the sector, but not for long. The commercial EV sector is rapidly scaling, even beyond the Biden administration's U.S. fleet conversion goal for an estimated 645,000 vehicles. These IP-intensive, collaborative and strategic initiatives to advance new vehicles and integration systems are pioneering, and in our experience benefit from well-constructed "pilot" strategies and processes along the conversion road map.
Municipal Planning: Class A real estate owners drove early adoption and integration of EV charging stations into multi-use developments—the four to eight spaces just next to the elevator. That conversion process is now accelerating in the middle market, as well as being widely deployed by municipalities, with their often central locations and the underappreciated benefits that sovereignty affords project development. Our experience from extensive work in this area underscores the importance of identifying and advancing a development plan responsive to potential barriers to system ownership, functional project-deployment and the rights of the vehicle-charging public. EV incentive, subsidy, and tax policies are critical, but quickly normalized across the sector—becoming more of a practical necessity, than a long-term competitive advantage. The time to fill the expertise gaps for incentives may well be now.
Electricity Infrastructure: Charging stations are significant electricity consumers, with non-utility ownership and regulatory status, interconnection delays, and demand charges among the essential legal and commercial considerations. Electricity infrastructure integration delays can tip the scale toward "behind the meter" or micro-grid projects. Equally important, but too often overlooked, are the legal rules relating to the monetary charges for electricity usage (which require an understanding of electricity rate design and grid stability considerations), as well as the rights to the significant data and information that connected EVs generate. Charging rules and cybersecurity risks remain multi-faceted items on any counsel team's checklists.
Battery Storage: Advanced both by renewable sourcing goals and time-of-use pricing variables, vehicle charging owners look to battery storage. These projects can be challenging, not least because of the design, siting, and construction considerations associated with rapidly evolving technologies and battery storage in particular. Our experience in advising on both implementation and litigation (including in the context of grants and loan guarantees) related to large-scale battery storage project development, suggests that what may be considered routine contract considerations, ranging from dispute resolution to taxation, warrant particular attention.
Supply Chain: Raw material supply concerns for batteries, particularly phosphorous, nickel, cobalt, and lithium, have been widely discussed. We suggest that the public dialogue around resource constraints will drive metallurgy (or elemental) innovation, including recycling and the shift to hydrogen-powered or fuel cell electric vehicles. Hydrogen appeals to the heavy, long-haul portion of the sector, also offering more ready integration into existing transportation infrastructure and a familiar "look and feel" for customers. Thus, we continue to suggest clear reservations of rights to alternatively develop or generate hydrogen.
ESG: Finally, no summary would be complete without mentioning the role of e-mobility to our larger discussion of ESG. EV purchasers, particularly fleet purchasers, need or want to understand their contributions to reducing CO2 and other emissions. Cradle to grave—or, in the circular economy, cradle to cradle—metrics, labelling and reporting is an important frontier for participants in the EV markets, one that may dwarf today's commercial consumer's focus on battery degradation, range, acceleration, and horsepower.
EVs weathered the initial COVID storm well. However, we have a long drive before we sleep.
Three Key Takeaways
- Optimization of public capital and incentives will occur over the next six to 12 months, consistent with the Biden administration's commitments to advancing the United States' EV industry.
- Now is the time for in-house legal teams to develop their strategic alliance teams, focused on building successful contractual relationships, meeting federal procurement standards, capturing tax and other incentives, while managing electricity, cybersecurity, and ESG considerations.
- Despite this focus, issues involving EV charging stations and batteries are likely to be among the most important—and potentially complicated—as the sector develops. Litigation savvy remains critical.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
