Fleets are poised for step change EV adoption; are fleet managers?

November 16, 2017

There is a lot of skepticism about Tesla's upcoming semi announcement. Why would a luxury personal electric vehicle manufacturer target the heavy-duty commercial vehicle segment?

 

After years educating the general public on the merits of electric vehicles, why would Tesla want to go through this process again with a completely new segment of buyers? The answer might be that this battle is likely not as hard as it sounds, as commercial vehicles are poised for step change EV adoption.

 

 

 

With automakers like General Motors and Daimler committing tens of billions of dollars to develop and manufacture electric vehicles, it is clear electric vehicles are here to stay and are more than just a niche market segment. Despite this ongoing investment, most projections show electric vehicle adoption in the United States occurring gradually over the next 25+ years. For example, Bloomberg New Energy Finance projects electric vehicles won’t reach 50% market penetration in the United States until around 2035. Repower Group, however, believes that adoption by high utilization vehicle fleet operators will occur much faster vs. the overall market (Figure 1).

 

Figure 1: Projected US fleet vs. overall market EV sales projection (% of annual sales)

 

 

It’s not news that consumer adoption of electric vehicles will take time. There are some simple reasons why that’s the case:

  1. Many electric vehicles still are more expensive for consumers to own and operate than their internal combustion counterparts - although this is quickly changing with declining battery costs (another topic altogether).

  2. Consumer choice of brand and style is still relatively limited (also quickly changing).

  3. A limited, yet growing, network of charging stations presents range and flexibility anxieties, whether real or perceived.

Regardless of this expected gradual consumer adoption, Repower believes that the transition to electric vehicles within commercial and municipal fleets will occur as a “step change” between now and 2023. This difference in penetration rate will be caused by a more concise set of criteria used by commercial and municipal fleet operators for vehicle procurement decisions:

 

 

1. Vehicle Availability

 

Products must meet operating needs for fleet operators to transition to electric vehicles. Without this, nothing else really matters. This includes both the functional capability to carry necessary equipment, as well as performance capability to meet driving range and other mission requirements to avoid service interruptions (i.e. intra-shift charging).

 

A wide array of mid-to-long range fully electric vehicles are already available that meet these performance requirements, including passenger vehicles (e.g. Chevy Bolt), vans (e.g. Chanje V8070), buses (e.g. Proterra Catalyst), as well as medium and heavy-duty trucks (e.g. Mitsubishi Fuso eCanter).  In addition, manufacturer announcements of new electric models are hitting the newswire almost daily.

 

Unlike vehicles owned by individuals where customers purchase based on a host of qualitative characteristics, it is common in the commercial medium and heavy vehicle space to have a handful of models account for over 50% of the vehicles sold. If the most attractive vehicle available is electric it would not be surprising for it to account for a significant portion of market share.

 

 

2. Economics

 

For commercial vehicle buyers, total cost of ownership (upfront vehicle price + lifetime operating cost) is equally as important as functional capability. For many commercial use cases, unlike personally use cases, electric vehicles already provide a total cost of ownership advantage vs. equivalent internal combustion vehicles. This advantage is due to the relatively high utilization nature of vehicle fleets, which, due to lower per mile operating costs, compensates for the higher upfront costs of electric vehicles (Figure 2).

 

Figure 2: 2017 total cost of ownership economics ($/mi)

 

3. Procurement Schedules

 

Fleets have visibility into their procurement plans and schedules for when to turnover specific assets.  As the economics and vehicle availability continue to improve, there’s an existing and natural place for them to weave their transition to electric into the way that they manage their operations and capital expenditures today.

 

 

4. Startup and operating complexity

 

Fleets, many of which operate on fixed routes or within confined geographies, generally have sites where charging infrastructure can be installed. Repower partners with fleets to plan for, finance, and implement the right infrastructure to meet their operating needs and fleet profile, helping to minimize start complexity.

This infrastructure eliminates the need for either onsite fuel delivery or remote fueling, reducing operating complexity.

In addition, an electric powertrain vehicle requires less (and less expensive) maintenance than an internal combustion engine vehicle. This not only lowers maintenance expenses, but also reduces vehicle time spent in the shop, increasing vehicle up-time and likely increasing useful life.

 

 

Because electric vehicles satisfy each of these categories, it is now worth the time for financially conscious fleet operators to plan and executive the electrification of their fleet. As fleet owners start making bulk electric vehicle purchases they will force a step change in electric commercial vehicle adoption.

 

An example of this pace of change can be seen in the high speed of powertrain technology adoption by the New York City Yellow Cabs, where hybrid vehicles grew from 0% to over 50% of fleet sales in less than four years, and close to 80% in 8 years (Figure 3). This rapid transition was driven primarily by self interested fleet owners, buying the vehicle that was best for their business.  We’re approaching the day when that choice will be electric vehicles for many commercial use cases.

 

Figure 3: NYC Yellow Cab hybrid vehicle penetration (% of new cars entering fleet)

 

If the same adoption rate of NYC’s hybrid taxi fleet was assumed for the overall commercial electric vehicle market, we can see below (Figure 4) how this would produce rapid step change growth vs. broader industry gradual projections.

 

Figure 4: Projected US fleet vs. overall market EV sales projection (% of annual sales)

 

Repower believes that electric vehicles will quickly become the norm for commercial vehicle fleets, and if organizations haven’t started planning for this transition now is the time to do so.  To understand how Repower can help your organization plan for the transition to electric vehicles and realize significant savings contact us at sales@repowergroup.com

 

 

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