EA: It all makes sense now!

[Jonathan S.]

Or rather, it all made sense back in January 2020.

More precisely, it was made sense of back in January 2020 via this article:

https://insideevs.com/news/389891/exclusive-interview-electrify-america-problems-solutions/​

… combined with the benefit of almost four years of increasingly disappointing failures since then.

Note the self-congratulatory corporate culture of assessing as the “high road” and “most challenging road” the mistaken investment decision of going all-in on nonexistent 150kW and 350kW chargers to serve the needs not of actual EV drivers but instead of theoretical future drivers of theoretical future EV models that would be designed to charge at faster speeds in large part because of EA’s theoretical network of fully functioning 150kW and 350kW chargers.

Did that prior paragraph make sense? Of course not, but that’s the entire point!

EA was clearly also trying to serve the needs of EA itself – or rather its 100% owner VAG at the time (now 80% VAG and 20% Siemens) – so the charging network would be more valuable once the fourth 30-month cycle is complete in early 2027 upon which EA can be sold to another network to the benefit of VAG (and now Siemens in part).

Except that the misguided equipment decision will end up costing EA (and VAG) dearly since many (most? all?) of those pricey 150kW and 350kW chargers that at the time of the January 2020 article were either already installed or planning to be installed will be scrapped by 2027. So much for, “Having a network of 150 kW to 350 kW chargers guarantees that they won't be obsolete any time soon.”

(Although EA now says in its most recent investment plan that it knew this all along: “Early generation hardware installed for much of Cycles 1 and 2 was purchased with the expectation that the end of useful life would be reached by Cycle 4. With the opening of the first stations 2018, the first tranche of hardware is now approaching the end of its useful life in 2023.”)

The article also sets up a potentially false dichotomy between a network of 50kW chargers vs the network EA chose to build of 150kW and 350kW chargers – might chargers of, say, 100kW been more readily available, or ultimately more reliable? (I have no idea, but I do know that they exist now.) Or build out stations that comprised, say, three 50kW chargers with a fourth charger of either 150kW or 350kW and see which models worked well.

A scan of the reader comments at the time turned up an interesting tidbit: I had noticed previously that creditable costs for overhead were capped at 10% in the consent decree but didn’t think much of it at the time. However, that includes EA salaries. I suspect that EA has a reasonably well-compensated and staffed cadre of upper-level management, all of it a creditable cost. Then EA can spend all it wants/proposes/submits on contractors for maintenance, repairs, call centers, software, etc.

My thesis (admittedly with no evidence) is that EA has no remaining margin for creditable costs to be used for middle management. Sure, all those procurement officers might be boring positions with boring people, but they are the people who select the contractors and ensure they’re actually getting the job done – or dismiss them and hire competitors if otherwise. (Note that EA could of course just pay those salaries anyway if they’re not creditable costs, but then VAG’s commitment would exceed $2b.)

Meanwhile, I will try applying the EA corporate culture to my own life:

“Here are the eggs you wanted!”​

“You were supposed to buy organic eggs at Whole Foods.”​

“Right!”​

“These are pasture-raised eggs from Big Y.”​

“Right!”​

“You bought the wrong eggs!”​

“No, I took the high road, the most challenging road.”​

“Why didn’t you buy the right eggs that I wanted?”​

“That would have the easy route!”​

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[Tooney]

A scan of the reader comments at the time turned up an interesting tidbit: I had noticed previously that creditable costs for overhead were capped at 10% in the consent decree but didn’t think much of it at the time. However, that includes EA salaries. I suspect that EA has a reasonably well-compensated and staffed cadre of upper-level management, all of it a creditable cost. Then EA can spend all it wants/proposes/submits on contractors for maintenance, repairs, call centers, software, etc.

My thesis (admittedly with no evidence) is that EA has no remaining margin for creditable costs to be used for middle management. Sure, all those procurement officers might be boring positions with boring people, but they are the people who select the contractors and ensure they’re actually getting the job done – or dismiss them and hire competitors if otherwise. (Note that EA could of course just pay those salaries anyway if they’re not creditable costs, but then VAG’s commitment would exceed $2b.)

I don't understand what you mean by creditable costs and what points you are making with these two paragraphs.

 

[DougFrisk]

Note the self-congratulatory corporate culture of assessing as the “high road” and “most challenging road” the mistaken investment decision of going all-in on nonexistent 150kW and 350kW chargers to serve the needs not of actual EV drivers but instead of theoretical future drivers of theoretical future EV models that would be designed to charge at faster speeds in large part because of EA’s theoretical network of fully functioning 150kW and 350kW chargers.

I think it's more self serving than self congratulatory. The Mission E talked about charging at 350 KW. There's no doubt that's why they set that as their top end. He was also right in that, as a consumer if I have a choice between a 50 and a 150 I'm going to the 150 every time.

There was a great deal of hubris involved in choosing to mix and match from four vendors. It seems that we've gone from monolithic charger/dispensers to split or shared and now it's modular. In the end, that makes the most sense, a bank of 20 50KW chargers backing 15 dispensers that can charge anywhere from 50 to 350 at any of the dispensers or load share as needed.

But that modular tech has only shown up in the past couple of years.

 

[Jonathan S.]

I don't understand what you mean by creditable costs and what points you are making with these two paragraphs.

It’s complicated!

The term “creditable costs” refers to what counts toward the $2b min that VAG has to spend under the consent decree:

“Creditable Costs” shall mean costs incurred by Settling Defendants for the planning, installation, operation, and maintenance of a ZEV Investment identified in an approved National ZEV Investment Plan or California ZEV Investment Plan that satisfies the criteria set forth in the National Creditable Cost Guidance or California Creditable Cost Guidance, as applicable.”

So, for example, country club memberships, penalties for other violations, not allowed as creditable costs. Some other items are also excluded, such that VAG ultimately has to spend more than $2b to spend the required $2b in creditable costs. Although remember that the assets are VAG’s to keep once the consent decree expires in late 2026 or early 2027 – I’m calculating the former date, but I see references to the latter date.

Personnel costs count as creditable costs, but with a cap:

In addition to having to meet all of the requirements set forth above, all costs incurred by Settling Defendants and any entity or distinct business group created by Settling Defendants to carry out a National or California ZEV Investment Plan for: (i) personnel, (ii) service-level agreements, and (iii) office space and services (direct or indirect overhead) for employees of Settling Defendants or a newly created entity, shall be limited to no more than fourteen (14) percent of the Creditable Costs incurred during the period covered by the first two Annual National ZEV Investment Reports required pursuant to Paragraph 2.9 of Appendix C, or the first two Annual California ZEV Investment Reports required pursuant to Paragraph 3.6 of Appendix C, as applicable, and shall be limited to ten (10) percent thereafter unless otherwise agreed to in writing by EPA or CARB, as applicable, in advance of such cost being incurred.

The goal here was probably to prevent VAG from making EA a retirement home for VAG executives being put out to pasture.

But what if every dollar that EA spends requires more than 90 cents (or 86 cents for the first two cycles) in personnel and their overhead costs to ensure that it is spent wisely and that the acquired assets are properly maintained?

EA could choose to spend more, but that ultimately increases what VAG has to spend beyond the min $2b. Now, the argument could be made that this limitation makes no difference, since a company that gets to keep the charging assets (and potentially any operating profit from them) would want to make wise investments and maintain its infrastructure even if the personnel costs necessary for that are essentially increasingly the initial outlay under the consent decree.

Perhaps so. But my thesis (entirely unproven!) is that EA has been staffed based on what qualifies as creditable costs under the consent decree.

So start with an adequately qualified C suite (even if they had delusions of driving the world-wide EV market to increase charging speeds via a network of 150kW and 350kW chargers that ultimately did the exact opposite if anything). Then plan on entering into contracts for outside equipment manufacturing, software development, charger installation, charger maintenance, charger repair, customer support, and anything else that can conceivably be outsourced instead of adding to the EA payroll.

Now who at EA is going to ensure that the best contractors are selected and that the selected contractors are then living up to their performance metrics? Whoops, bumping up against that EA personal cap for creditable costs, so that department is lightly staffed.

I know, just a theory. But still, explains how a company with $2b to spend can end up with flawed equipment designs, software that seems to be running under Windows 3.11, new stations under construction for months on end, poorly maintained chargers, broken chargers that stay broken for far too long, etc.

 

[Jonathan S.]

So after writing all that ... I realized that a cumulative tally is publicly available for overhead as percent of total creditable costs.
Because I created it from the annual reports.
And so far EA is at 7%.
So about half of the cap for the first two investment cycles.
Oh well, was a good theory while it lasted!

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