The Mandate for Companies Looking to Electrify Fleets: Start Planning Now

Oct 16, 2019 10:00 AM ET
Electrification of fleets – everything from garbage trucks and school buses to, yes, parcel trucks and logistics interests – has become the next frontier in the electric vehicle (EV) space.

The mandate for companies looking to electrify fleets: Start planning now

By Paul Stith and Randal Kaufman

As concerns about climate change stoke pressures on companies to make their fleets cleaner and greener, ground shipping giant UPS believes it has delivered. The company has more than 1,000 electric and hybrid electric vehicles – 50 of them electric-powered delivery trucks brought on just last year in the U.S. More are on the way.

Electrification of fleets – everything from garbage trucks and school buses to, yes, parcel trucks and logistics interests – has become the next frontier in the electric vehicle (EV) space. But UPS, like so many companies who have pledged or taken tangible steps to migrate from internal combustion engines that pollute, have found the transformation daunting and, at times, perplexing.

As regulators and consumers appeal for enterprises to adopt fleets that cut emissions of the greenhouse gases that cause climate change and make our world more breathable, those pressed to do so grapple with whether the considerable investment makes financial sense or inflicts the least financial pains. There’s the question about whether to make the shift with a pilot push to simply test the waters or to take the plunge and commit with the upfront investment to make the transition at once. Is there enough of a supply of the green vehicles to meet the demand at a reasonable price?

And there’s the elephant in the room: Will the local utility step up with the power commitment and infrastructure to meet the charging demands, eliminating an enormous hindrance to moving the commercial electric vehicle market from niche to mainstream?

Amid such soul-searching, there’s an inescapable truism: Companies with fleets big or small must begin take very serious steps now to plan for going electric, appreciative that the bigger the inventory of vehicles to be replaced, the more pressing the need to finally start sorting it all out.

Companies are stepping up

Since The Climate Group launched an effort nearly two years ago to get at least 100 companies to commit to electrified fleets, the environmental advocacy campaign reported in February 2019 that 31 major companies – with a combined revenue of more than a half trillion dollars – have joined “EV100” to champion the push to retire vehicles powered by fossil fuels. As part of its push to make EVs “the new normal” by 2030, The Climate Group envisions seeing the electrification of two million vehicles by 2020.

Helping lead the way is LeasePlan, the fleet management giant that The Climate Group says is striving to achieve net zero emissions across its 1.8-million-vehicle fleet.

“Despite identifying barriers such as the lack of available vehicles and charging, these companies are switching at speed, sending a clear demand signal to the marketplace,” Helen Clarkson, The Climate Group’s chief executive, wrote in the report that recognized that “different solutions work for different companies.”

“With costs (of electrified vehicles) falling fast and air pollution at crisis levels, now is the time for every major company to step up and ready themselves for an electric future.”

The group foresees EVs to reach price parity with vehicles with internal combustion engines – without subsidies – by 2024, notably due to the plunging costs of EV batteries. But at least for now, it’s the cost of EVs that are the chief obstacle to wider adoption for fleets, according to a recent Black & Veatch survey of roughly 200 stakeholders in the commercial and industrial segment. Nearly six of 10 respondents cited the sticker price as their top impediment, followed by the lack of appropriate vehicle type (56 percent), the vehicle’s range (46 percent), lack of charging infrastructure (44 percent) and a dearth of the vehicles (22 percent). 

Separately, roughly 70 percent of EV100 members polled said a lack of charging infrastructure was a “significant” or “very significant” barrier to EV transition. That’s followed by the capital cost of EVs, the immature EV product offering in target markets, and anxiety by employees and customers about new technology. The up front cost of EVs (33 percent) and the lack of EV options in key markets (24 percent) were the most-cited obstacles considered “very significant.”

That’s despite the consensus that EVs make good business sense: Electricity is cheaper than fuel, and their fewer moving parts require less maintenance. 

“Although we’re seeing the appetite for EVs rise every day, the vehicles, infrastructure or policies to meet this demand aren’t there yet,” The Climate Group’s report quotes LeasePlan CEO Tex Gunning as saying.

Addressing the shortage of EVs, lack of charging options

In some respects, electrification of fleets is a matter of scale.

Deciding when and whether to transition away from internal combustion engines may depend on various complexities, ranging from the specific uses of the vehicles to the access to charging infrastructure and the costs of electricity. Many enterprises choose to take baby steps in electrifying and find few hassles getting the modest infrastructure for it.

It’s only after they begin seeing the benefits of the changeover – both in the economics of it and the favorable public reception – that the traumatic headaches of so-called pilot programs set in. Expanding use of EVs requires more robust charging capabilities that can come with a disillusioning price tag. And with great frustration, enterprises find themselves waiting in a climate where EV supply simply isn’t keeping up with demand.

Utilities upbeat about the prospect of proliferating electrified fleets have similar heartburn by not recognizing the trend’s enormity and being caught flat-footed in rolling out and, more importantly, mobilizing the capital and engineering for the grid improvements. Satisfying the rising need for power to electrify fleets isn’t something that happens by merely clicking heels; the costs must be factored into capital planning and such upgrades require time-consuming signoffs from regulators.

Of more than 200 respondents to a UPS and GreenBiz survey of fleet stakeholders, more than four of every 10 pointed to inadequate on-site charging infrastructure as a top barrier, with more than 90 percent insisting their facility was not “very well-equipped” to accommodate commercial charging needs. Again, that was second only to the initial price of electric commercial vehicles.

Still, that “Curve Ahead: The Future of Fleet Electrification” report found, fewer than half of the companies polled were working with governments or utilities to address charging infrastructure.

“Continued industry collaboration will be critical to accelerate fleet electrification across a wide range of use cases,” Paul Carp, GreenBiz Group’s director of research and senior analyst, said in releasing last year’s report with UPS.

Pilot programs take root, with help from subsidies

In Washington state, two agencies – Pierce Transit and Tacoma Public Utilities – in May 2019 teamed on a pilot program offering the region’s first hybrid-electric vans – eight plug-in Chrysler Pacifica vans that run 32 miles on battery power before needing to be recharged or tap into gasoline.

The new vans are expected to cut carbon dioxide emissions by 56 tons a year – the equivalent of 6,000 gallons of gasoline – in furthering Pierce Transit’s stewardship of the environment. The transit agency was among the nation’s firs to run the majority of its bus fleet on clean, compressed natural gas in the 1980s. The agency recently bought its first all-electric buses, leaving just 8 percent of its fleet still running on diesel.

Washington taxpayers are picking up four-fifths of the tab for each $42,000 vehicle, with Pierce Transit hoping to acquire more of the hybrid vans if the pilot program proves successful. But the agency and others making use of the subsidies should beware: Such seed money won’t always be there.

Noting that the transportation sector accounts for nearly half of the state’s greenhouse gas emissions, Washington’s transportation chief – Roger Millar – said that investing in electric vanpools take vehicles off congested roadways and “help Washington create a cleaner environment and sustainable transportation system for current and future generations.”

UPS: Challenges amid the success

Generations since introducing electric vehicles into its U.S. fleet in the 1930s, UPS has replaced dozens of its central London trucks with electrified models, hoping to eventually do the same there with its entire 170-van fleet. While ambitious and successful, that quest hasn’t been without lessons learned.

During a VERGE conference last year, Scott Phillippi – UPS’ senior director of maintenance and engineering – said that while “the electrification of a fleet vehicle can be transformational for how we do business in the future," the opportunity for lowered maintenance costs that EVs promise remains unmet, for now.

Fleet vehicles deployed by UPS and its counterparts are logical choices for conversion to electrification because they have similar daily routes and only go limited distances, Phillippi added. “The biggest challenge,” he noted, has been the lack of choices among electric commercial trucks that would meet the company’s standards. The fallout, he laments: “We are not quite at a tipping point.”

But pressing its electrification campaign in London has been constrained, partly because the city’s power grids aren’t robust enough to meet the hefty demand for electricity that large numbers of trucks plugging in at once might create, GreenBiz has reported. For now, the company has installed software to monitor and spread out the charging of the trucks to avoid overtaxing the grid.

Regardless, UPS has said that its study with GreenBiz showed that many companies, rather than undertaking a large-scale fleet overhaul, will prioritize electric options when replacing vehicles and even consider electric leasing to mitigate the initial purchase price. Converting from internal combustion engines to electric depends on specific vehicle uses, the size and distribution of fleets across regions, the costs of electricity and access to charging infrastructure.

In the end, meaningful change comes with the acceptance that electrification is in everyone’s future, requiring education of and by those who’ll be compelled to make it happen. Fleet operators wanting to say farewell to their internal combustion engines must have business plans for an eventual world without subsidies that have greased the transition.

And they should know it’s not all merely a matter of money. In the world of smarter ground travel, there’s the ultimate destination – the redeeming value of communities, through cleaner and greener pools of transportation, getting simply more breathable and quieter.

Paul Stith is director of strategy and innovation for Black & Veatch’s Transformative Technologies business. He specializes in sustainable transportation and distributed clean energy solutions. He works with vehicle OEMs, utilities, transit agencies, cities and emerging transportation service providers to plan and build infrastructure for electrification and automation of light, medium and heavy-duty vehicle fleets.

Randal Kaufman is sales director for Black & Veatch’s Transformative Technologies business. With more than 15 years of experience in the electrical power industry, Kaufman has expertise in electric vehicle charging infrastructure and complimentary energy delivery systems, data centers, distributed generation, energy management, power quality and backup systems. He also spent two years in the stationary fuel cell power generation business, with special focus on application engineering and product development.