Financing and Electric Vehicles
Patrick Gaskin explores the electronic vehicle market and how an increased adoption of passenger cars and light trucks could advance the electrification of commercial fleets.
Lately there has been a lot of activity on the electric and hydrogen-electric commercial vehicle space. It seems like nearly every day there is a new item on a truck manufacturer and a technology company or battery manufacturer entering into an agreement to jointly develop electric vehicles (EVs). I think both sides have realized that by working together they will be able to bring trucks to market more quickly, leveraging the skills each side brings to the table.
The Biden administration gave EVs a boost when it said, “The federal government owns an enormous fleet of vehicles which we are going to replace with clean electric vehicles made right here in America by American workers.” While the 645,000 vehicles in the federal fleet are not necessarily heavy-duty vehicles, getting more EVs of any vehicle class in the market is a good thing.
Today commercial EVs are in their nascent stage of deployment. Some bold fleets have currently added a small number of EVs to their operations in an attempt to get some real-world experience. While this is a good thing, many of these vehicles are subsidized by grants to help offset the initial purchase price of EVs, which tends to be higher than that of a diesel powered equivalent truck.
As we all know, the business case for a commercial vehicle — regardless of how it is powered — is based on a reasonable total cost of ownership (TCO), and more importantly return on investment (ROI). TCO is based on a variety of factors including the initial purchase price of the asset, its fuel efficiency, the cost of maintenance and its residual value.
Residual value is where we run into trouble with EVs in commercial applications. There is no history on what those assets are worth at the end of their first life. For that matter, we don’t even know what the useful life of a commercial EV is.
As more EVs — of all classes — come into the market we will be able to get some data on how they fare on the used vehicle market. So I am hoping that states and vehicle manufacturers continue to provide incentives for the purchase of commercial EVs. However, I also hope that states take a page from the federal government’s playbook when it comes to replacing state-owned assets. Perhaps instead of just offering incentives these states should look at replacing their own fleets with EVs. This will allow us to start to build a history on how those assets perform in the real-world, determine what their useful life is and gain some knowledge on what they will be worth at resale.
Even if the growth of EVs comes from the passenger car and light-duty vehicle side, I think we can look at the value those vehicles bring in the resale market and make some assumptions on what a medium- or heavy-duty EV might be worth when the first owner trades it.
If we are going to get to zero-emissions future, we need to begin deploying more alternative fueled vehicles. At the same time, if trucking is going to successfully transition to EVs there has to be a good TCO and ROI even without incentives because incentives are not going to be around forever.
I am not naïve enough to think that EVs are the answer for every duty cycle or application today, but the technology is evolving and improving at a rather significant clip. Like any new technology it will take time to scale; not everyone wants to do a cannon ball into the deep end of the pool. Some people prefer to dip their toes in the shallow end. However, looking back at some other significant technological changes to trucks, you only have to look to automated manual transmissions (AMTs). It was not that long ago when the take rate on AMTs was 5%; today that number is closer to 95%.
The same thing will likely happen with EVs, and more fleets need to begin testing the technology in their operation. In the meantime, we need to rely on the growing interest in EV on the passenger car and light truck side to start gaining some insights that we can apply to the electrification of trucking.