Why Fleets Will Drive Adoption of Electric Vehicles

Electrification is one of the most significant trends in transport today. Future demand for electric vehicles (EVs) will, of course, be driven by increased adoption of electric vehicles by individuals and businesses. But the economics of EVs will prove particularly favorable for fleet operations. This is particularly true for full-battery electric vehicles as opposed to plug-in hybrid vehicles.

Electric Vehicles Have Operating Cost Advantages

Electric vehicles are cheaper to operate than those powered by fossil-fuels.

To start, electric powertrains have lower energy costs on a per-mile basis than internal combustion engines. They convert energy into motion more efficiently, with today’s full-battery EVs attaining the miles per gallon equivalent (MPGe) of around three times the miles per gallons of traditional internal combustion vehicles. Electricity and gasoline prices vary significantly by region, with some countries imposing heavy taxes on transport fuel. The figure below draws a comparison between both powertrains’ per-mile energy costs using standard efficiencies and energy prices from cities in three major EV markets.

Electric Vehicle Costs by Region

Beyond enjoying lower energy costs, full-battery electric vehicles have fewer moving parts than internal combustion engine vehicles and forgo liquid fuels entirely. Below is a list of part replacements/maintenance/issues that EV owners do not need to worry about:

  • Oil changes, oil filters
  • Spark plugs, wiring, ignition coils
  • Muffler, timing belt, catalytic converter, air intake filters
  • Fuel filters, fuel injector cleaning
  • Engine sludge
  • Emissions checks

Less frequent brake replacement due to regenerative braking

An EV owner does need to be mindful of their lithium-ion battery, as these lose charging capacity over time and may need to be replaced. Fortunately, data from drivers of Tesla and Chevy BEVs point to significant battery resilience.

BEVs are expected to last a long time thanks to their simplicity and lower number of moving parts. For this reason, an owner may find that when a battery does eventually wear out, it may make sense to replace it instead of buying a new vehicle. Furthermore, since grid/building operators are making use of Li-ion batteries to improve power quality and better integrate renewables, the residual value of a lower capacity BEV battery is expected to be far larger than the scrap value of an entire ICEV.

Fleets Set to Benefit Most

EV operating cost advantages are significant, but come at a higher vehicle purchase price. Considering a company’s opportunity cost of capital, a high acquisition price upfront can actually be quite a bit costlier than it seems. It follows, then, that EV users with high vehicle utilization (such as ride-hailing, last mile delivery, and city bus fleets) offer the strongest business case for going electric. When it comes to delivery vehicles, EV will be more viable in urban areas for last mile deliveries than over the road because the recharging infrastructure is more prevalent in urban areas.

Below is a comparison of how present cost of ownership (with future expenditures discounted by compounded opportunity cost) develops over the life of a high-use battery-operated EV and a high-use internal combustion vehicle. Following procurement, the traditional vehicle’s cost is lower, but as higher operating costs accumulate, the EV becomes more economical.  FedEx estimates in North America the operating cost savings are between 70 and 80%.  And as you can see in the figure below, the savings are even bigger in areas where fuel is more heavily taxed.

Electric Vehicles Operating Costs Over Times

Urban Factors for Electric Vehicles

The World Health Organization estimates that 70 percent of the world’s population will live in urban environments by 2050. The kind of fleet services mentioned above predominantly operate in urban areas, which also happen to be particularly well suited for EVs.

Fleets in urban areas generally run enough miles per day to capitalize on lower battery-operated EV operating costs, but not so many as to require uneconomically large batteries for a day’s activity. The economics associated with EVs for long haul trucking remains suspect. They also encounter plenty of stop-and-go traffic, making great use of regenerative braking and superior idling efficiency.

As climate change awareness and sensitivity to air pollution grow, cities have begun curtailing, taxing, and even banning emissions-producing vehicles from city centers, as well as charging them ever-higher urban access fees. This is particularly true for carriers.  This can make a “clean” EV fleet particularly attractive and bolster a brand’s image as green and socially responsible.

Electromobility is beginning to make a lot of sense for fleet operations, and electrification announcements from UPS, DHL, and Amazon suggest that firms are taking notice. The trend is driven by compelling economics and will be one worth watching in the transportation space.

ARC’s Eddie Fidler is preparing a market analysis report on the global electric vehicle supply equipment (EVSE) market. As an Industry Analyst at ARC, Eddie conducts research in the clean technology and smart city spaces.

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