Clark Hill 2023 Automotive & Manufacturing Industry Outlook: Electric Vehicles
The American public is in need of robust development of electric vehicle charging infrastructure. The federal government, state governments, and private enterprises are tackling that challenge and Clark Hill expects 2023 will be a year of immense growth for the EV transportation infrastructure sector.
Federal Tax Credits are a Shot in the Arm
Under the Inflation Reduction Act (“IRA”), investors or owners of electric vehicle infrastructure can obtain up to “$100,000” in tax credits per “item” of alternative refueling property (the definition includes EV charging equipment). Caution and careful planning are required as that number can be as low as “$6,000” per “item”. The range of uncertainty arises from the metrics underlying the tax credit percentage calculation— the key variability stemming mainly from (i) statutory changes based on a per-item approach (as set forth below); (ii) geography and (iii) prevailing wage and apprenticeship requirements. Clark Hill published a more detailed article on the tax credits which can be found here.
State DOTs are Ready to receive NEVI (National Electric Vehicle Infrastructure) Funds
The U.S. Department of Transportation also directly provides funds to states to encourage the development of electric vehicle infrastructure. 2022 was a year of preparation, with each state DOT required to produce a report on how the funds would be deployed. Those reports are now complete, and both state agencies (including toll roads) and municipalities should be pursuing funding while it is available. Deal structures that Clark Hill has been involved in or has observed include the following:
- Own and self-operate, build operate transfer, including heavy requirements in construction contracting and public finance.
- Concession/Public-Private Partnerships – including long-term agreements deferring all O&M and construction to a private company and retaining a revenue share to the public entity.
- Competitive RFPs – leaving the structure open to the advisor or investing company.
- Service Contracts
- Cooperation with Car Companies – several cities have signed agreements with their current fleet vehicles provider to develop charging.
- Leases/Licensing/Charging Agreements – less common for large infrastructure, this is more the individual site model.
- For now, we are not seeing joint ventures being utilized in this space.
In general, states and municipalities should lean on the NEVI guidelines when negotiating deals, as they provide best practice standards and include references to federal contracting guidelines that must be followed. Notably 23 CFR 771.117, 23 US Code 101, 2 CFR 200.307, and 2 CFR Part 200. Clark Hill can advise on compliance with these federal standards.
Private Companies also will be Active
With EV adoption outperforming expectations, private enterprises will also be highly active in continuing to build out business models. Clark Hill has advised on the following deal structures common in the industry:
- Retail nationwide EV infrastructure installation, including equipment purchase, O&M, and extensive warranty negotiations.
- Cloud software-focused business models, handling both core and ancillary services in the EV industry (billing, net metering, utilization metrics, etc.). Notably, we have found cooperation between the software industry and traditional providers of energy is needed as many software providers lack the needed experience with maintenance to run a sustainable physical business.
- Integrated deals that develop EV infrastructure battery storage and solar on the same site.
- Real estate land rush, with real estate land deals in disadvantaged areas and low coverage charging corridors bringing the best purchase prices.
- Greening the EV infrastructure deals including purchase of RECs, green advertising, and commitment to green projects or tariffs.
The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.
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