Utilities and Auto Industry: The Romance That’s Meant to Be, Eventually
In 1882, the first power plant was opened. 8 years later, the first electric car in the United States was released. The electric utility and auto industry were born and the two would dabble with the idea of working together.
Henry Ford, who was a good friend of Thomas Edison wanted to build an electric vehicle (EV) version of the Model T. Henry Ford told the New York Times in 1914 “The fact is that Mr. Edison and I have been working for some years on an electric automobile which would be cheap and practicable.”
However, continued improvements to the internal combustion engine would usher in the gasoline-powered car and EVs could not compete in range or cost. The missed opportunity over a century ago is now resurfacing as the growth of EVs shape the future of both industries.
Much like in a budding romance, the utility and auto industries have now noticed each other. They are approaching each other, awkwardly at times. And they’re thinking about how to make that relationship work in the long term, to get more EVs on the road and benefit their respective bottom lines.
This article is the first of a 3-part series about the relationship between the utility and auto industries, including What Electric Utilities Can Learn From The Auto Industry and What The Auto Industry Can Learn From Utilities .
A Strong Mutual Attraction
Today, improvements in EV range, technology, and cost are encouraging the two industries to communicate and collaborate. It is really about commercial symbiosis – as drivers buy more EVs, utilities and automakers benefit.
These synergies are all the more appealing that each party brings a different skill set to the table. Utilities have local presence, customer trust and existing relationships. OEMs bring national and even global insights, as well as deep expertise in customer segmentation, branding and communication.
This complementary approach among industries is common. One industry sells the hardware, the other sells the commodity needed to operate the hardware. For instance, phone manufacturers work with wireless carriers (think Apple and AT&T) to grow market share. PC hardware vendors team up with software vendors (think Microsoft) to create combined offerings. These collaborations propel growth and benefit consumers and businesses.
Likewise, many opportunities for collaboration exist between utilities and OEMs to get more EVs on the road, including but not limited to: cross promotion, joint marketing, collaborative EV inventory management, strengthened dealer training, bundled offers, management of charging, etc.
And indeed, we have seen small but growing attempts at cross engage and collaborate. For example, Nissan is active in engaging utilities around the country to promote the LEAF. AEP partnered with Honda to test vehicle-to-grid integration using used EV batteries. Consumers Energy has worked with GM to educate the public on EVs and DTE Energy with Ford and GM on similar projects. Duke is working with Workhorse to provide financing. Daimler is actively reaching out to utilities to promote their electric truck offering, and ensure the required infrastructure gets deployed.
However, the small scale of these efforts suggest we’re still at the early stage of this relationship, and there are many challenges to overcome.
The Challenges of Getting to the Second Date
Many of the challenges we observe boil down to communication issues: who to talk to, how to engage, and when to take the first step.
Electric utilities are many and fragmented: the top 20 operating companies (OpCos) barely cover 35% of the U.S. population. Besides, decision-making authority rests with a wide array of state and municipal actors. This makes it hard for OEMs to know who to call, or how to establish a scalable engagement strategy.
On the flip side, utilities’ reluctance to engage often comes from their attachment to fairness and equal treatment of market participants. They have been stung by accusations of favoritism before, and therefore do not want to give the impression that they’re promoting one auto brand over others. Furthermore, some utilities ignore the option of engaging altogether, believing that promoting EVs is outside of their core business.
On a more tactical level, we also observe that old habits get in the way of taking initiative, on both sides. Utilities and OEMs are both very large industries who are used to being courted, but not taking the lead in courting. If you ask either side why they haven’t worked together, you may hear as a response: “because nobody called me”.
Towards the Happily Ever After
How do we move this relationship forward? Here are some proposed avenues, which are already being tested by industry leaders.
First, more formal multi-stakeholder efforts would greatly help in catalyzing EV adoption. This includes bringing utilities and automakers together so they can not only communicate among themselves but bring in non-profits, municipalities, influencers, and educators to the table.
Fortunately, promising efforts are underway and growing, such as Veloz in California, the Alliance for Transportation Electrification, or the 50×50 Commission, recently created in 2019. Utility groups such as the Edison Electric Institute are also active in engaging OEMs.
Secondly, closer collaboration on the ground would alleviate a host of issues: lack of inventory at dealerships, lack of dealer training, lack of marketing coordination.
To address this issue and others, some automakers are setting up a regional network of EV managers that build regional relationships with utilities — an effective tactic, which we think more OEMs will leverage in the future.
We observe that this approach benefits the utility, as the OEM can then offer and quickly process incentives, confirm vehicle availability, connect with local dealers to communicate inventory requirements, and work to ensure dealers are trained. Working directly with the utility in a quasi partnership helps to cement relationships and build trust.
Third, on the flip side, utilities can help automakers talk about what they know best: electricity. There is a knowledge gap there, and utilities know how to help the customer better understand the cost of fueling, charger information, charger rebates, utility discounts, incentives and much more. This can be particularly helpful to both industries, and can in the future be part of an automaker’s new EV launch strategy.
In conclusion, while the relationship may not have formed a century ago, the opportunity today exists to rewrite that moment. We have only scratched the surface of the many channels that exist in bringing these two industries together — and we look forward to seeing the market continue to change and grow.