The catalytic potential of fleet electrification
Amazon’s order of 100,000 electric delivery vehicles from startup Rivian last autumn marked a major turning point for the electric vehicle (EV) market, with analysts hailing the deal – the largest order of zero emissions vehicles in history – as the most significant single development for the sector since Tesla went public in 2010.
One year on, the pace of corporate fleet electrification commitments has dramatically accelerated. In the last month alone, Walmart, Uber, and Tesco have pledged to decarbonise their fleets within the next 10 to 20 years. And Amazon has unveiled the first results of its tie up with Rivian, as the first of its custom-built electric vans take to the roads. In the last eight months, the Climate Group’s EV100 initiative has swelled from 60 to 88 companies, with its members having collectively promised to electrify more than 2.4 million vehicles over the coming decade.
Given that company and commercial vehicles take up the largest slice of the new vehicle market, the corporate trend towards electrification is set to have a significant effect on the overall decarbonisation of the automotive industry. Major fleet electrification pledges send a message to automakers to double down on investment into their zero emissions product lines, and have the potential to drive economies of scale that will ultimately make EVs more affordable for the consumer market. Earlier this summer, Deloitte singled out growing corporate appetite for fleet electrification as one of four major factors set to propel a “significant shift” in volumes of electric and hybrid vehicles by 2030.
The growing wave of fleet electrification pledges from major corporates sends an enormous “demand signal” to automakers to step up their EV offering, Sandra Roling, head of EV100, explains to BusinessGreen. “Companies have the largest share of the market,” she says. “Obviously any individual company normally makes a decision not just on one vehicle but on thousands or tens of thousands of them.” With Deloitte predicting that corporate buyers will account for nearly two thirds of total new car sales in Western Europe by 2021, the decisions made by a relatively small number of individuals at large companies promise to have huge effect on the car market’s direction of travel, Roling argues, while also laying the foundation for a second hand market for consumer EVs three years down the line.
And, Roling emphaises, the transition of commercial vehicles to battery electric power holds greater decarbonisation potential than passenger cars, given they are often used more than personal vehicles. “If you think about delivery fleets, service fleets, shared transport, and things like that, those are vehicles that are on the roads more or less 24/7, compared to a private vehicle that you use to go to work and school in, or shopping, but spends a lot of time in the parking lot,” she explains. “Commerical vehicles get used a lot more, which is where a lot of the climate benefits and air pollution benefits [come in].”
However, road to a fully zero emission corporate fleet does not run smooth. The coronavirus has exacerbated existing supply issues that have long plagued the EV market, with factory shutdowns and ruptured supply chains making already-long wait times for EVs even more severe. And in certain vehicle segments – in particular heavy-duty or long-distance specialist vehicles required for commercial operators – the technology, while improving, still falls short of meeting the range requirements required by many businesses. While the recent spate of large orders from consumer-facing retail firms and ride sharing companies suggest growing corporate confidence that electric vans and trucks will soon be ready for prime time, electric delivery vans and other commercial vehicles have historically trailed behind electric passenger cars and smaller two- to three-wheel vehicles in terms of technological readiness.
Aleksandra O’Donavan, an analyst from BloombergNEF, explains: “Due to the varied operational duty cycles of commercial vehicles, few of available EV models meet all of the criteria for corporate buyers – which are pushing EV manufacturers to diversify their offering. This disconnect between what buyers want and what is currently available is due to both the limited product offering and a lack of current manufacturing capacity.”
One firm that is navigating these challenges is Scottish energy giant SSE, which last year joined the EV100 initiative and pledged to decarbonise its 3,500-strong fleet of vehicles by 2030. While the firm’s ongoing effort to transition its car fleet away from fossil fuels is going smoothly, the current alternatives for its specialist vehicles do not yet meet requirements, explains SSE head of fleet and travel Simon Gray. When it comes to these specialist vehicles, he notes, the product is “quite raw, and quite new”. “The smaller vans are there, but their range is short – they are expensive and their payload is not great,” he notes. And when it comes to heavy-duty vehicles, he says, “the product is just not available yet”.
SSE hopes its membership of the EV100 and its 2030 fleet electrification pledge will actively push suppliers towards developing the equipment it needs, Gray explains. “It’s about highlighting to product developers and manufacturers that we, as a company, as a large operator, are willing to take their product when they are produced and when it’s available to take,” he says.
Gray, who is confident that supply gaps will be plugged in time for the firm to achieve its fleet decarbonisation goal, argues that companies have a major role in leading the push towards zero transition transport. “Everyone looks to business to lead,” he reflects. “They don’t look to councils – they look to big business to take the lead, which is what we’ve done. That’s important as a nation because it drives the economy.”
The market opportunity presented by the disconnect between what buyers want and the currently limited product offering has been seized on by start-ups looking to rapidly scale up and wrestle market share away from established automakers. For example, in the US, Rivian is building an 100,000-strong fleet of electric vans that will allow Amazon to meet its pledge of fully decarbonising its delivery vehicles by 2030. The firm has raised some $6bn from investors, including Amazon and Blackrock so far. And on the other side of the Altantic, Oxford-headquartered zero emissions vehicle start-up Arrival achieved tech ‘unicorn’ status earlier this year when its value was pinned at €3bn. Hyundai has invested €100m in the firm, and UPS has placed an order for 10,000 electric delivery vehicles, with the option of ordering 10,000 more.
With both companies new to manufacturing at scale, inevitable questions remain about how quickly and effectively tey and other start ups will be able to scale production and work through their impressive backlog of orders. But precisely the same questions were asked of Tesla, as it went from noisy upstart to market-shaping global powerhouse. Moreover, electric van and truck start-ups are having a similar catalysing impact on the wider market. Tesla is working on its HGV, while almost all the established van and truck manufacturers, such as Nissan, Renault, Volvo, Mercedes, and others, are investing billions of dollars in new electric offerings. Corporate customers may be frustrated at the wait, but the gap between supply and demand is gradually being addressed.
However, if the EV market is expected to keep on growing, concerns about the availability of charging infrastructure persist. EV100’s Roling advises that any company switching to an EV fleet needs to carefully consider how to meet their charging needs. “Some charging infrastructure has been developed already, especially in cities and hubs where EVs are more prevalent, but it’s about how you get charging infrastructure to cover a whole company, including more rural areas,” she says. “Companies can contribute a lot in terms of providing workplace charging, or providing charging destinations like supermarkets or malls.”
Of course, the growth of EV and its associated infrastructure has so far been driven by supportive government policy interventions, ranging from subsidies and incentives, reduced company car tax rates, national phase out dates for internal combustion engine (ICE) vehicles, tailpipe standards, and clean air zones. In the UK, for instance, the elimination of benefit-in-kind (BiK) tax on electric company cars is driving a surge in EV sales in the private sector, despite a market slump in the wake of the Covid-19 crisis. Across the UK, diesel and petrol car sales have slumped by 60 and 45 per cent respectively in the period between January and August this year compared to the year before, while BEVs are up 157 per cent, according to SMMT figures. One in three company car orders at car leasing firm Zenith in the most recent quarter have been for electric vehicles, up from 12 per cent in the previous quarter – an increase the firm’s customer relationship director Alan Bastey attributes to a desire for “low-cost private mobility against a backdrop in BiK tax”.
Given the continuing importance of the policy landscape, EV100’s Roling says companies serious about reaching their in-house decarbonisation goals can and should play a role in lobbying for a more of these favourable policy interventions. For instance, the UK Electric Fleet Coalition – which brings together 27 UK companies (and EV100 members) including BT, Tesco, Heathrow, Lime, and SSE – is currently lobbying the government to bring forward its 2040 phase out date of fossil fuel cars and vans to 2030, she says. “Not only are businesses well on the move towards zero emission transport, but they’re actively supportive and asking for strong policy targets to support their goal,” she reflects. “While the UK is amongst the leading countries in pursuing electrification, and the momentum we’re already seeing from corporate fleets show the results of creating a positive environment, we still need to achieve more, and faster, for the UK to reach its net zero target.”
The alliance of companies calling for a 2030 end to the sale of new ICE vehicles is continuing to grow, and just this week it emerged that SSE had gone a step further and has written to the Department for Transport urging it to introduce a ban on corporates operating polluting fleets from 2030.
Such advocacy is all the more important as an antidote to corporate lobbying efforts from business groups that have historically worked to dilute or scupper climate-positive policies. For example, earlier this month an investigation by the DeSmog website accused some corporates of backing campaigns through their haulage trade bodies that had lobbied aggressively against attempts to introduce new clean air zones across the UK.
The electric fleet market is rapidly moving into the fast lane, as the environmental and running cost benefits of EVs become obvious and concerns over range and reliability start to recede. It is a safe bet that more and more companies will transition their fleets towards electric models in the coming years, providing a further incentive for manufacturers to step up their development of zero emission cars, vans, and trucks. But it is equally obvious that progress could yet stall without the requisite charging infrastructure and a concerted effort to tackle supply bottlenecks. The message from EV100 and those trailblazers that are already deploying electric fleets is clear: companies, and in particular those firms with specialist fleets, must be willing to ivest, engage, and collaborate with policymakers and automakers to if they are to complete their pursuit of full electrification.