Commercial fleets key to heavy BEV adoption

  • 13-Jun-2011 08:41 EDT
Smith Newton all-electric truck.jpg

A123 Systems’ Li-ion battery technology will be implemented in the Smith Newton electric-powered truck. Smith Electric Vehicles’ fleet customers include Frito-Lay, Staples, and Coca-Cola, as well as the U.S. Marine Corps.

As part of a company-wide program to reduce its global carbon footprint, DHL, the German express mail firm, plans to roll out in September thirty battery-powered, electric delivery vans to operate in New York City. The fleet operator will presumably take advantage of the fact that the vehicles will run mostly fixed routes that maximize vehicle utilization rates and park overnight at central facilities where they can recharge at off-peak electricity rates.

Such a fleet seems to be the kind of introductory effort that the Electrification Coalition (EC), an industry advocate organization, says is needed to help promote the adoption of battery-electric vehicles (BEVs) in the U.S., a process that has so far been slowed by high costs and inadequate range.

“Electrification among the nation’s 16 million fleet vehicles represents an important step toward protecting our nation from the economic and national security threats posed by oil dependence,” said Robbie Diamond, EC President.

The group comprises representatives of the BEV value chain, including vehicle manufacturers, makers of smart grid technology, batteries and components, utilities and energy suppliers, commercial fleet operators, as well as government and public sector agencies.

The sheer scale of the country’s commercial fleets can potentially provide capacity to drive early-stage, ramp-up scale in the battery industry and OEM supply chains, according to the EC. More importantly, the operational patterns that certain fleet segments follow may enable them to rapidly surmount the most difficult challenges facing electrification in the passenger market.

EC explains its strategy and the factors that might allow the process to actually work in the Fleet Electrification Roadmap (www.electrificationcoalition.org/reports/EC-Fleet-Roadmap-screen.pdf). Someone who helped shape the report is Oliver Hazimeh, leader of the global e-Mobility practice at the management consultant firm PRTM.

“We wanted first to create a valid cost model, to confirm the BEV costs and find if there’s a barrier there,” he said. “But the industry is not there yet. So with no vehicles to pick off the lot and analyze, we chose representative vehicles of a range of sizes and classes, and then replaced the conventional powertrain in each with an electric unit to perform an incremental powertrain analysis. After scaling the technology up and down, the team went back to the manufacturers who confirmed that their results lay within the cost curves that represent their internal estimates and expectations.”

Different cost view

“Whenever you mention battery-electric vehicles, there’s always this question: How do you overcome the barrier of the high total cost of ownership?” Hazimeh explained. “When we talked to owners and managers of commercial delivery and service fleets, as well as others such as GE Capital, we realized that commercial buyers perceive and handle cost issues in a different way than private purchasers.”

Fleet managers use their vehicles differently, which defines the way they make their buying decisions, Hazimeh said. They are apt to be more willing than individual consumers to focus on total cost of vehicle ownership as opposed to upfront costs. “So we worked on the hypothesis that if the inducements are right, fleet owners may adopt the new technologies earlier than average drivers.”

This approach highlights the economic advantages of electric drive vehicles in cases that the higher upfront costs (compared to internal-combustion-engine vehicles) can be demonstrably offset through lower operating and maintenance costs over time: “The fact that owners can hold onto BEVs longer, and that the service and maintenance for electric vehicles are roughly 30% less than those of vehicles with IC engine,” he said.

Commercial fleet owners are likely to benefit from operational practices that are peculiar to fleets, including high vehicle utilization rates, predictable routing, as well as centralized refueling. Were the latter two coupled, it “could enable fleet operators to right-size their batteries to their needs, and so avoid the costs that buyers of passenger cars typically have to spend on extra battery capacity that they will rarely fully use.”

Fleet operators would also be able to take advantage of commercial and industrial electricity rates, which are significantly lower than those paid by residential consumers. “Certain settings, such as larger, industrial neighborhoods in urban areas, can get lower electricity rates,” Hazimeh said.

Purchase plans

Specialized vehicle leasing and management organizations in the fleet industry, he suggested, may also promote the development of innovative business models that bundle capital expenses with fuel and operating savings so as to make the switch to BEVs more transparent and accessible for fleet owners and managers.

Another idea revolves around bulk-buying BEVs regionally, say in all of Europe, to gain sufficient scale for affordable mass production. With incentives, Hazimeh believes, about 100,000 grid-enabled vehicles could drive 20% of the advanced battery market by 2015.

TNT Group, a delivery service firm, which has committed to purchasing 3000 electric vehicles during the next couple of years, has reportedly talked about participating in a bulk-purchase plan.

To help finance the big change to electric, the coalition advocates government credits to encourage the conversion of medium- and heavy-duty vehicles, infrastructure development bonds to support installation, and seed money to promote visibility and change public perception. As it states in the EC’s Electrification Roadmap, public and private partnerships will be needed to deploy the early BEV installations in communities to provide enough scale locally to support a critical mass for further expansion.

No easy sell

Whatever the potential of BEVs for fleet owners, significant issues remain that could slow adoption.

High battery costs, for example, will still probably make it difficult for companies to justify and realize a return on the investment in a reasonable time period. Further, the residual value of batteries with reduced capacity after automotive use is unclear. The cost of installing an in-house charging infrastructure, even in an existing central parking lot or structure, may turn out to be too high for fleet owners.

Upgrades to the nearby utility grid to enable reliable power delivery to such high-draw installations will in the meantime be challenging to finance and construct. Finally, general unfamiliarity with BEV technology among potential operators and their fears about its reliability and its ability to meet mission requirements in fleet use will need to be overcome.

“Among fleet owners there’s quite a bit of education to be done,” Hazimeh commented. “They need to be shown the specific economic numbers regarding total cost and the results of internal analysis.”

Managers of an electrified delivery or service fleet will also probably have to change some standard operations and scheduling to enable optimal recharging. “And if they work things to recharge at the lowest electricity rates, the deal can get even more attractive,” Hazimeh advised.

A somewhat less-expected takeaway from the analysis of commercial fleets, he noted, is the realization that “for many vehicle segments, including passenger, sales and service fleets, and taxis in certain places, pure hybrid vehicles may make sense, especially in the short term.”

Hybrid-electric vehicles (HEVs) are excellent transition technologies, he said: “In certain cases, it doesn’t make sense to put huge, costly batteries in say, larger vehicles, so why not put in half a battery in there in the meantime? That way, HEVs can serve as a natural progression to BEVs.”

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