Fleet electrification: benefits & incentives
November 01, 2022
There are several trends driving fleet electrification, ranging from government incentives to growing interest in corporate fleet sustainability.
Considering these trends, BCG expects that battery electric vehicles will account for 20% of all light vehicles sold globally in 2025 and 59% in 2035. You may be asking, with global shutdowns and supply chain shortages driven by the pandemic, what happened in the electric vehicle (EV) space for things to move so quickly? Here are the 5 trends driving fleet electrification, benefits, costs to consider, and how you can get started today.
5 trends driving fleet electrification
1. Governments continue to influence EV adoption
- A mix of mandates and incentives across Europe, China, and North America is accelerating EV adoption according to BCG, specifically Europe’s 2050 emissions mandate for light duty vehicles.
- Subnational governments in California, United States (U.S.), Massachusetts (U.S.), British Columbia (Canada) and 15 countries have plans to phase out internal combustion engine (ICE) vehicles by 2035-2040.
- The 2022 Inflation Reduction Act (IRA) signed into law in the U.S. on August 16 provides a new non-refundable federal income tax credit (“45W credit”) available for qualifying purchases of commercial clean vehicles placed in service from January 1, 2023, through December 31, 2032. The amount of the 45W credit is the lesser of the following:
- 15% of the cost of the new plug-in hybrid vehicles (PHEV) or 30% of fully electric vehicles;
- The “incremental cost” or excess of the purchase price of the EV/PHEV vehicle over the purchase price of a similar vehicle that is fueled by gas or diesel. The “comparable vehicle” must be of similar size and use; or
- $7,500 for vehicles with a gross vehicle weight of less than 14,000 lbs or $40,000 for vehicles weighing at least 14,000 lbs.
What this means for you:
Ensure that you evaluate all possible incentives that can help to reduce the investment required to electrify your fleet. A useful source for incentives in the U.S. is Alternative Fuels Data Center and a useful source for incentives in Canada is Transport Canada. Element Fleet Management uses a tool to examine various federal and state/province incentives, so that clients can take advantage of opportunities across North America.
2. Falling battery costs are expected to bring total cost of ownership (TCO) parity by 2024 to 2026 for many light-duty vehicle use-cases
- Batteries make up 30-35% of the cost of an electric vehicle and prices have fallen significantly over the last 10 years from $1,000/kWh in 2010 to $160/kwh in 2022. With the IRA passed in the U.S., the federal government is aiming to accelerate a domestic production of batteries that could lower the price per kilowatt on battery packs.
- Auto manufacturers have endorsed analysts’ projections of reaching $100/kWh by 2024-2026. This is the level needed to reach TCO parity.
What this means for you:
Use EV inclusive TCO tools to find early opportunities to electrify your fleet where the TCO is comparable between ICE vehicles and EVs – this will help you to manage the costs of early electrification and develop the necessary learnings to adopt EVs at scale. Element’s EV inclusive TCO tools encompass: Life Cycle Cost Analysis (LCCA) model capabilities, which includes charging costs (infrastructure and fueling) and battery capacity; EV Library that helps clients make decisions on what EV assets to consider; and a sustainability model that assists clients by suggesting good replacement vehicles, and projecting both financial costs and emissions.
3. EV availability continues to increase in the near term
- Announced EV models are expected to jump from 300 in 2021 to over 1,000 in 2030.
- Model availability is expected to grow in all classes. While there are less than 5 truck/van EV models today, model availability is expected to significantly expand by 2024.
What this means for you:
Pilot available EVs today at a small scale so that you put yourself in a readiness state to electrify quickly when TCO parity is reached for your relevant vehicle classes.
4. Fleet electric vehicles are charged most often at home or workplace settings
- There are 3 main models for EV charging: home, depot/workplace, and public charging. Over 80% of charging is done in a private setting.
- Five networks make up 80% of Direct Current Fast Charger (DCFC) public networks, but the U.S. and Canada are far behind their peers in public charging by several per capita measurements.
- To increase public charging infrastructure, there have been new federal investments in the U.S. and Canada. The U.S. federal government approved $900 million in September 2022 under the National Electric Vehicle Infrastructure (NEVI) Formula Program to help build EV chargers across 35 U.S. states in the 2022-2023 fiscal year. While Canada released funding under the Natural Resources Canada’s Zero-Emission Vehicle Infrastructure Program (ZEVIP) to build approximately 35,000 new charging stations by 2027.
What this means for you:
Ensure that home/depot/workplace charging is part of your infrastructure deployment strategy, while public charging stations increase over time.
5. Corporate fleet sustainability continues to drive electrification
- Light duty vehicles account for most transportation emissions (57%) and medium/heavy duty vehicles account for 26%.
- Corporate fleets under two advocacy organizations – the EV100 and the Corporate EV alliance – have pledged 100% zero emission light duty vehicles by 2030.
What this means for you:
Review your organization’s sustainability goals and engage stakeholders early on to ensure you are getting the internal support needed.
Benefits of fleet electrification
- The electricity market is a regulated market that has more stability when compared to the fuel market, which is impacted by speculation. Fleet operators can better forecast budgets to operate their electric fleets, as electricity costs do not vary as much as gasoline costs.
- Electric vehicles have zero tailpipe emissions. While the grid powering EVs are not green, EVs are still a greener option than ICE vehicles.
- Electric fleets are more efficient than ICE fleets because they can bring energy from the battery directly to the wheels. Conventional ICE vehicles require a set of components to bring energy from the engine to the wheels (transmissions) losing energy in the combustion process. Out of the 8.9 million barrels of gasoline consumed daily in the U.S., on average, only about 20% propel an ICE vehicle forward. The other 80% is used on heat and auxiliary components that take away energy.
As the world begins its shift to EV proliferation, the good news is that electric vehicles are far more energy efficient.
Costs to consider
Electric vehicles initially cost more to purchase than gas-powered vehicles. There is also a cost associated with installing the charging infrastructure to charge EVs, which will vary depending on a company’s operations.
However, companies that make their EV purchase based on TCO will receive cost savings on their operations because maintenance costs are lower, as there are fewer parts in an EV compared to an ICE vehicle. EVs are also cheaper to recharge than a conventional gas or diesel fleet.
How you can get started today
No matter where you are in your EV journey, there are 5 critical phases for a successful electrification program: developing your program strategy, assessing suitable EV candidates, planning your EV pilot, piloting and monitoring results, and scaling your learnings. Ready to find out more? Download “The Path to Electrification” tip sheet or get in touch with an Element representative today.
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