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Picture yourself five years from now driving through a U.S. city.
What will be different? Despite widespread optimism that we’ll all be driving Teslas
TSLA,
and other electric vehicles, the reality is that most of the passenger vehicles around you will still be gas-powered.
But there’s a good chance some other familiar vehicles will have gone electric. Stopped ahead of you at a traffic light may be a battery-powered postal truck. Electric Amazon
AMZN,
delivery vans whir past you, a yellow electric school bus ferries kids to class, and an all-electric fire truck returns from an emergency to recharge at the station. It’s not a surprise that Rivian
RIVN,
which has a deal to make vans for Amazon, now is the third-most-valuable carmaker by market value.
Washington’s approval of a landmark $1 trillion infrastructure bill this month was an underwhelming event for the electric-car industry and environmentalists. It contains no new incentives for consumers to go electric and its $7.5 billion for a national network of charging stations represents a fraction of what’s needed to spur widespread adoption.
Despite all the hype surrounding Tesla and electric vehicles for the masses, the tipping point for battery-powered cars remains significantly further away than many investors assume. The hefty price premium for EVs is falling at a slower pace than was hoped, and is set to remain a powerful economic factor weighing on families’ buying decisions.
The truck-pollution problem
The case for commercial vehicles going electric, however, hasn’t been touted with as much hoopla, but it’s in many ways more compelling both from an economic and environmental standpoint.
Every day, tens of thousands of delivery trucks, construction vehicles and agricultural machines are disproportionately worsening our pollution problem because of the nature of their work. Often diesel-powered and requiring frequent stops/starts, they spew large amounts of harmful particulates into the air, adding to their significant carbon footprint. While commercial vehicles sales globally are less than the volume of light vehicles, it’s still a very significant market and an attractive opportunity for cutting emissions.
A commercial vehicle that travels a finite number of miles in a day, makes frequent stops, and which has a base location for recharging represents a strong potential use case for an electric version. Garbage collection trucks, postal vans and delivery vehicles all fit this profile, as could buses, construction vehicles and even fire trucks.
For companies that manage big fleets of vehicles, going electric also has a reputational benefit: They are showing concrete action toward a key social goal.
Prudent investment
Crucially, though, going electric for many commercial vehicles is not just a green rationale. Fleet managers are better than most consumers at making the long-term total cost of ownership case for investing in electric vehicles. While electric vehicles for the time being are more expensive up front, their lower operating costs — for both energy and maintenance — are lower, which can create an attractive break even on the investment.
It’s already clear there’s strong underlying demand for certain commercial use cases. It’s no surprise that Rivian’s IPO soared, partly on the strength of Amazon’s plan to order 100,000 of its light-duty EVs as delivery vans. The truck maker, in which Amazon holds the largest stake, plans to start accepting orders from other fleet customers in 2023.
Before it was hit by fraud charges, electric truck maker Nikola
NKLA,
was attracting strong demand for its planned lineup, including an order for 2,500 battery-powered garbage trucks from waste-management firm Republic Services
RSG,
BYD
BYDDY,
Mack, Volvo
VLVLY,
and Daimler
DMLRY,
have either unveiled or are planning to bring electric garbage trucks to market, underlining that niche’s strong use case for battery power.
One of the EV highlights of the infrastructure bill was its inclusion of $5 billion in funding for low-emission school buses, with half of that specifically for EVs. The demand for electric bus fleets is growing rapidly in other parts of the world, with China and Europe leading the way.
Not all types of commercial vehicles make a good fit for electric. For long-haul trucks, for example, the size and weight of the battery needed to travel cross-country routes makes electric economically unattractive for now. The sweet spot for commercial EVs lies in the Class 4 and 7 trucks — smaller vehicles that often ply regional routes and have a place to recharge.
To be sure, the road to widespread EV adoption in the commercial sector faces its share of speed bumps. Many working trucks are operated by individuals and small companies that may be less able and willing to make the necessary upfront investment in EVs. More broadly, companies that are running large EV fleets will need to build up their charging infrastructure and ensure a resilient supply of power that doesn’t depend on dirty sources such as coal.
Overall, though, all signs point to a compelling opportunity for working vehicles, which is often lost in the discussion of the electrification of the fleet of vehicles on the road.
Francois Mallette is managing director and partner at LEK Consulting.
