A better business model for electric vehicle charging stations

Fuqua professors say dynamic pricing based on wait time would benefit both companies and drivers

Published: Jun 14, 2024 10:53:03 AM IST

Updated: Jul 31, 2024 11:07:45 AM IST

The researchers show that a dynamic-pricing model based on the wait time at the station would create more revenue for the companies and also benefit consumers. Image: Shutterstock

Charging station congestion has been invoked as one of the drawbacks preventing a wider adoption of electric cars—along with range anxiety and vehicle price tag.

While opening more stations could address the congestion problem, a deeper issue may lie in the inefficient business model of the EV charging points, said Professor Kevin Shang of Duke University’s Fuqua School of Business.

“Why aren’t companies building more fast charging stations? Very simple, because the land can be very expensive, and the received revenue may not cover the investment and operating costs,” Shang said.

Currently, most fast charging stations apply a flat fee per minute of charging, he said. But in a paper published in the Journal of Management Science, Shang and co-authors Peng Sun of Fuqua and Purdue University’s Chen-An Lin, a Fuqua Ph.D. graduate, argue that the flat-rate approach is not optimal. The researchers show that a dynamic-pricing model based on the wait time at the station would create more revenue for the companies and also benefit consumers.

“If you increase the revenue, you can help the companies build more fast charging stations,” Shang said.

A dynamic-pricing model

Currently, the best available technology is able to charge 80% of EV cars’ batteries in as little as 20 minutes.

Shang said companies typically apply a flat fee per minute, regardless of the congestion levels.

In their research, Shang and colleagues built a model that assumes customers would reduce the amount of charging if the price increases. If companies raise the price when the wait time is long because the station is congested, the drivers would be incentivized to reduce their charging time. As a result, the higher price would increase companies’ revenue while also reducing congestion, which would also benefit the next drivers arriving at the station. The opposite would happen when the wait time is short, which would incentivize the drivers to fully charge their cars.

“The idea is similar to Uber,” Shang said. “If the system becomes very congested and the wait time is very long, then we are able to change the price rate.”

The researchers also found that when the wait time reaches a certain threshold, the price rate should actually start to decrease, because fewer and fewer customers would otherwise join the longer queue.

Also read: Exponent: Solving a two-sided problem of fast charging

Mobile app integration

Shang said his dynamic pricing model can only work if the station is able to communicate price rate and wait time to the drivers arriving at the charging point, a feature that could be achieved through a mobile app.

Right now, he said, most fast charging stations do provide mobile apps to their customers, but only to share the price per minute of charging.

“To my knowledge, there is no mobile app that provides wait time information,” Shang said.

In the researchers’ model, the drivers arriving at the station receive a price rate and a wait time based on the current congestion level. In response, the drivers input their desired service time—how long they want the car to be charged—and this information is fed back to the system, which then updates for the next drivers.

“Everything is on the mobile app,” Shang said. “You decide whether you want to charge or not. Once you click ‘yes’, you are in the queue for the service time you chose.”

A model with potential environmental benefits

The researchers tested their model on available data collected at Caltech in 2019. Using the daily transactions at 54 charging stations, they found the dynamic pricing policy generates revenues 6% higher on average than the flat price, while also maximizing the utility of customers, who can better adjust their service time to their level of patience and how busy they are.

Shang said this model could be applicable to any business where customers can choose the service time according to the price rate, such as delivery services, beauty parlors, or massage services at the airport.

“If you want to do 30 minutes, here's the price. But if you see a higher price, you may want to do just 15 minutes,” Shang said, while adding that the system may even offer a more complex ‘menu’ of price-wait time choices, calibrated on customers' different time sensitivity.

“If I am a retired person, I may not mind waiting longer,” Shang said. “But if I am a busy person, like the CEO of a company, then my time sensitivity is higher.”

Shang said dynamic pricing has already proved successful for many businesses, including ride-hailing services, airlines, and online stores. Its adoption by EV stations would benefit everyone, he said.

“It would make fast charging stations more efficient, help boost the transition to electric vehicles, and deliver a significant contribution to the environment,” he said.

[This article has been reproduced with permission from Duke University's Fuqua School of Business. This piece originally appeared on Duke Fuqua Insights]