The electric transition - not all fleets are equal

Companies and individuals are switching to electric vehicles at very different rates. In this article, we shed light on the reasons for this by taking a step back from Covid-19 and considering four “EV adoption factors” that will be just as relevant after the pandemic as before:

1.      trip distance – comfortably within the vehicle range?

2.      trip type – is the driver familiar with the vehicle and route?

3.      incentives – how much does the driver / fleet manager care about purchase price vs total cost of ownership. And about environmental and access regulations?

4.      risk appetite – how big is the financial commitment? What is the risk of lower than expected residual values? Or even obsolescence?

For each fleet type, we look at how these adoption factors play out on the typical use case. 

Corporate fleets and Urban Delivery

Use case: < 100 miles return to base duty cycles such as grocery deliveries and service fleets

The most important adoption factor of these two segments is the trip type. “Pattern driving” will mean that the routes will be repetitive, and the drivers the same, and the distances and schedules known in advance. Knowing that the vehicle can complete its duty cycle and return to base on a single charge makes electrification much more relevant. Having experienced drivers and clever routing software means the EV’s range can be maximised without a single sweat bead of range anxiety. Further, a regular schedule with evening / overnight charging gives maximum scope to realise the operational and financial benefits of smart charging: be it prioritising power to those vehicles to be despatched sooner, using cheaper energy overnight, and even vehicle-to-grid charging.

Clearly there will be huge differences in applicability of electrification within these segments. While councils may take years to electrify waste collection due to the high payload, some delivery fleets are leading the charge. Sarah Wixey points to two delivery companies setting the pace in London: gnewt - an all-electric delivery company - and UPS who have 65 electric vans at their Camden base. The biggest constraint on EV adoption here may well be the lack of OEM investment in electric commercial vehicles, with lead times of over 1 year reported on some models.

Ride hail and Car share

Use case: < 5 mile one-way trip in urban setting

Thanks to their urban settings, ride hailing and car sharing have the shortest average trip distance of all mobility segments (micro-mobility is not covered in this article). While this removes the requirement to charge for most trips, charging infrastructure is relatively close by should it be required. Further, the drivers will be familiar with the vehicle and, as local residents, the chargers too.

Environmental considerations are playing an increasingly important role, both to solve the climate crises at the global level, but particularly to improve air quality at the city level. The latter translates into city authorities baring their teeth by imposing numerous access regulations from low emission zones to preferential parking, and from financial nudges to outright ICE bans. Even before Covid-19 hit, 14 European cities had already imposed such regulations and 29 cities planned to introduce new regulations - or extend existing ones - over the next 2 years. Early signs from Paris and Milan in the middle of Covid-19 indicate that cities will look to preserve their clean air with vigour.

Car share is leading the electrification transition due to being an owned fleet. Fleet managers, as the decision makers, are already making the transition at scale – Zipcar London’s EVs account for over 30% of their one-way fleet with a 100% target by 2025. Meanwhile, the majority of ride hail vehicles are individually owned, so ride hail platforms must first persuade their driver partners to go electric.

Rental

Use case: > 200 miles, 1 week holiday rental

On the face of it, car rental could be leading the charge on electrifying its fleet: with no membership requirements, it might seem the perfect option to test drive an EV for a few days without the purchase or lease commitment. So why do rental companies have less than 1% of their fleets electrified? 

Let’s take the typical use case of a leisure customer, renting a car for a week far from home. With a trip distance well in excess of 200 miles exceeding the real range of today’s mass market EVs, there is a dependence on public charging infrastructure. This presents an obvious headache for the driver, who will be unfamiliar with local charging networks, but also for the car rental companies. No rental company has yet provided customers with a single point of access (RFID card, app) with which their customers can access multiple charging networks. And even once this service is in place, there will be significant customer service costs to consider: explanation at vehicle pick up, issue resolution. With long distances, changing routes, and changing drivers, electrification will be a slow transition.

What about the incentives to switch? In most of Europe, the total cost of ownership (TCO) is already lower for EVs than for ICE (internal combustion engine) vehicles. (Link to ICCT paper). While individuals and smaller fleets may be more concerned with purchase price, rental companies have the scale to justify sophisticated fleet management capability. This gives them deeper insight into the TCO equation: the relatively lower fuel costs, lower maintenance costs and uncertain resale values of EVs. So despite their skinny margins and recent financial troubles (see Europcar’s €307m bail out yesterday, and Hertz’s financial woes), the TCO hurdle has been passed, and the fleet supply argument won. We now need vehicle range to increase and charging access to improve before we see the technology matching the rental use case.

Leasing

Use case: < 50 mile round trip, commuting

Drivers of leased EVs effectively “live with the EV”. With a typical use case of commuting, and a typical minimum term of 12 months justifying the investment in a home charger, reliance on public charging may be minimal. When drivers do use a public network, they’ll be familiar with local charge points, and they’ll be comfortable accessing those further afield with familiar apps to locate and access a charge.

While potential buyers of EVs may get “sticker shock” from the higher purchase price, those who lease have had the TCO calculation made simpler with a simple EV vs ICE comparison of the monthly lease costs plus fuel costs. The lease company keeps the resale value risk…so no depreciation guesstimation required.

For one leasing major, EVs already account for 20% of their European fleet, and with the number of EV-only leasing brands popping up like mushrooms, plus new tax breaks such as BIK in the UK, leasing companies will continue be one of the first fleet types to electrify.

Summary

Fleets have a crucial role to play in the EV transition, arguably a more significant role than personally owned vehicles given their scale and ability to create markets. But some fleets are better suited to electrification than others: car share, leasing and urban delivery are, on average, far better suited than ride-hail and rental. Those use cases with short, repeatable trips driven by EV-familiar drivers are electrifying faster than others. And those fleets under corporate - rather than individual - ownership tend to have better access to capital, greater risk appetite and the luxury to flick the switch to EV when they chose.