Morgan Stanley
  • Research
  • Apr 18, 2018

Electric Vehicles Bring Disruption to the Pump

What happens to the iconic American gas station as consumers embrace electric vehicles? A look at the impact EV disruption could have on gas stations, REITs, restaurants and beverage makers.

When one conjures up images of the American car culture of the 20th century no image is perhaps more iconic than the classic roadside filling station, often coupled with convenience stores, diners, and adorned in soft drink signage.  

But as electric vehicle (EV) sales increase in the coming decades, the shift from gasoline to battery power will bring dramatic changes to the industry.  How will reduced fuel sales impact gas stations and associated industries once drivers begin “charging up” at home instead of stopping for gas?

Shrinking battery costs, lower charging times and increasing driving ranges mean EVs could account for an estimated 48% of all miles traveled by 2040.

Although gas station sales have remained healthy over the last 10 years with a compound annual growth rate of 3.8%, gas stations—along with industries like convenience stores, beverage and snack makers and restaurants—will need to reimagine how consumers will “fill ‘er up” in the coming decades.

In a new report from Morgan Stanley Research, a collection of equity analyst teams examine the challenges and opportunities that will likely arise as the iconic U.S. filling station transforms into the EV charging hub of the 21st century.

A Gas-Less Gas Station?

Although electric vehicle penetration in the U.S. currently represents just 0.2% of vehicles on the road, shrinking battery costs, lower charging times and increasing driving ranges mean EVs could account for an estimated 48% of all miles traveled by 2040.

According to Adam Jonas, Head of Global Auto & Shared Mobility for Morgan Stanley Research, while the reduction in electric vehicle pain points such as charging time and driving range will help drive the shift, a key factor will be the reduction in costs. “Battery costs have been a major barrier to increasing EV penetration, with costs per kWh at over $200 until recently. But we now expect battery costs to fall to $100 by the early 2020s.”

Location, Location, Adaptation

Since growing EV adoption will mean reduced demand for gasoline, gas stations will have to adapt. The report points to several actions that stations could take to remain competitive and find niche differentiators. Morgan Stanley estimates these actions, combined, could boost station retail sales by 10-20%.

One of those actions—finding the right location—is key.  Stations on highways where long trips are taken will still remain safe bets. Stations in dense urban corridors with heavy ride-sharing vehicle traffic are also particularly strong opportunities.

Another action is embracing a hybrid model with both gasoline pumps and electric supercharging stations which could give some stations a first-mover advantage, becoming the place that early electric adopters go to charge vehicle batteries away from home.

Expanded food and retail offerings could also serve to differentiate stations, as could new services geared toward the fleet maintenance needs of ride-sharing such as tires, brakes and batteries.

Disruption for REITs and Refiners

The real estate business may also feel disruption. Real Estate Investment Trusts (REITs) who are landlords of gas station operators will have to increasingly think about residual value of properties given that they sign 15-20 year leases with the tenant.

According to Vikram Malhotra, Equity Analyst covering the REIT industry, as sales at the pump fall, the abilities of tenants to pay rent will decline which could ultimately cause property values to fall by 30%+. However, the shift could offer some opportunities for niche differentiators—those gas stations that are able to offset declines by converting to hybrid stations (gas pumps & chargers), expanding retail/food offerings, and offering fleet maintenance services—all of which could increase retail sales by 10%+.

Similarly, oil and gas refiners that own retail storefronts will be better positioned to weather the electric storm. Fuel is a volatile industry, and opportunities like retail and branded businesses can offer better margins, increased customer loyalty and, overall, less volatility. Merchandise offers particularly strong margins for these refiners, while branded retail outlets provide significant advantages over franchised competitors. Refiners can also turn to emerging markets such as Mexico to make up for the effect electric vehicles could have on falling fuel sales.

Food for Thought

The growth of EVs could also affect food and beverage makers. According to the report, about 11% of non-alcoholic beverages are sold in gas stations and convenience stores. For energy drinks, the percentage is even higher.  However, Morgan Stanley estimates that 50% of convenience retail sales come from customers that don't fill up, suggesting that the risk to beverages from declining traffic may be more manageable. Likewise, if consumers have more disposable income as a result of the shift from gas to electric, it could be boon for beverages as retail spending increases.

Restaurants present another unique opportunity to seize on the EV bandwagon. Quick service restaurants in particular are poised to take advantage of the longer dwell time that accompanies an electric charge-up, while full service restaurants could encourage electric vehicle owners to dine there by adding chargers to parking lots.

“Restaurants, especially those in the limited service arena, should be ideally positioned to capitalize on the 10-30 minute waits by co-locating, or adding charging stations to their restaurants," says John Glass, head of U.S. Restaurant Industry research. “This should modestly expand the unit potential for certain concepts, and expand the addressable market for restaurants by creating a new occasion—the era of the recharge break."

For more Morgan Stanley Research on the effect electric vehicles will have on gas stations, ask your Morgan Stanley representative or Financial Advisor for the full report “Electric Cars and Gas Stations: Disruption at the Pump." (March 28, 2018). Plus, more Ideas.