Consumer Discretionary

Fleet Electrification

<p>The electrification of supply chain operations can bring considerable environmental benefits. But, it is a challenging task, not the least of which is that it's a new technology, and there are many unknowns in terms of long-term performance, reliability, and cost.&nbsp;</p><h2><span style="font-size: 14pt;">Challenges to Electrification </span></h2><p><span style="font-size: 12pt;">In fact, about fleet electrification, five key obstacles need to be addressed :</span></p><p><strong>Limited Range</strong></p><p>Volvo's new FH Electric has a maximum range of roughly 300km, carrying a gross combined weight rating (GCWR) of 44 tons. While that is impressive for an EV, the diesel FH, with the same GCWR, can go 1,000km between fuel stops, more than 3x as far. As a result, fleet electrification today is best suited for last-mile deliveries, not long-haul trucking.&nbsp;</p><p><strong>Route Optimization</strong></p><p>Diesel pumps are far more common than EV chargers, an issue that is exacerbated by the limited range of EVs. Fast chargers can cost up to $100,000 to install, so many are reluctant to lay out that kind of investment.&nbsp;</p><p><strong>Short Supply of EVs</strong></p><p>Bottlenecks in the EV supply chain, coupled with OEM delays in large-scale manufacturing, have held back the industry as it is difficult for many companies to scale up the electrification of their fleets.&nbsp;</p><p><strong>High Upfront Costs</strong></p><p>The Tesla semi-truck costs approx. $180,000, compared to an average of $117,430 for fossil fuel alternatives (i.e.,50% more). For buses, the differential is even higher, often 2-3x the cost of diesel alternatives. Then there is the cost of the chargers and related infrastructure.&nbsp;</p><p>All that said, EVs cost a lot less to run, both in terms of fuel cost and maintenance and repairs. There are fewer moving parts, so the price gap narrows over time. However, getting a fleet to "TCO Neutrality" is challenging because one has to balance the long-term savings against the upfront cost premium. So, structured financing is critical to successful electrification strategies.&nbsp;</p><p><strong>Unfamiliarity/New Technology</strong></p><p>Many companies hesitate to embrace fleet electrification because they lack familiarity with its technology and resultant unknowns regarding long-term performance, reliability, and cost. This phenomenon is hardly unique and occurs with virtually any new technology.&nbsp;</p><p>Some obstacles, such as high upfront costs, limited ranges, and unfamiliar technology, will diminish over time.&nbsp;</p><h2><span style="font-size: 14pt;">Innovative Solutions</span></h2><p><strong>Focus on Software</strong></p><p>Monitoring and correcting driver behavior, real-time route optimization, and optimized telematics are all keys to improving fleet efficiency. Workforce development and training are often overlooked, resulting in operational inefficiencies.&nbsp;</p><p><strong>Infrastructure</strong></p><p>Distributed Energy Resources ("DERs") help optimize the unit cost of electricity, which can be significant in places where Time-of-Use ("TOU") utility rates are used. Moving electron use from on-peak to off-peak can literally cut the electric bill in half.&nbsp;</p><p>Further, as fleet electrification matures, utilities will treat such customers as industrial loads, including demand and other ancillary charges. Therefore, active energy management (not simply charge management) will become a critical component of any successful electrification strategy.&nbsp;</p><p><strong>Revenue Enhancement</strong></p><p>The electric fleet ecosystem is complex. Furthermore, it is not static in any way: routes change, traffic changes, drivers change, vehicles change, and rates vary. The list is seemingly endless. Once the infrastructure is properly addressed, additional revenue streams can be realized.&nbsp;</p><p>However, these are quite specialized, requiring cross-functional skills that are not inherently part of a client's business. Utility programs in respect of ancillary services, renewable energy credits, and incentives are not only location-specific, but economic optimization is also a complex algorithm that must be considered holistically.</p><p><strong>Conclusions</strong></p><p>The complex fleet electrification ecosystem demands that clients engage cross-functional players who can offer end-to-end solutions to manage technology selection, site planning, and supplier relationships. This is a big shift for many, especially larger companies who are used to doing things themselves.&nbsp;</p><p>These folks will seek to deconstruct a fleet electrification strategy and commoditize each element so they get the best price and maintain maximum control. It's not hard for one to imagine the outcome of such a misguided adventure.&nbsp;</p><p>Transitioning to an electric fleet requires upfront, non-trivial capital investment to cover the additional incremental cost of electric vehicles compared to fossil-fuel vehicles and the costs of charging stations and any electric grid upgrades for energy supply.&nbsp;</p><p>But how does one plan for a multi-stage, multi-year buildout? How does one plan for acceptable reliability and resiliency, even in the face of service interruptions?&nbsp;</p><p>The propensity for overbuilding, with consequent subpar economics, is not insubstantial. As the market for e-mobility solutions expands, many innovative ownership-and-operation business models are emerging. These business models aim to minimize the upfront cost by converting it into recurring annualized expenses, which can then be offset against annual savings from fueling, maintenance, and repair costs.</p><p>The differential can be positive or negative based on the specific elements and algorithms. But either way, the idea is that it's an annual cost fleet operators can afford to pay over time.&nbsp;</p><p>EaaS is somewhat of an "endgame" as it's all-inclusive. However, the industry hasn't matured yet, and despite its vast potential, EaaS and several other financing-based ownerships-and operation service models offered by nascent players are yet to be proven effective on a large scale.&nbsp;</p><p>In summary, with both electric and conventional diesel/gasoline vehicles running within a fleet, the hybrid interim state of a fleet's operation can be challenging.Furthermore, while EVs are usually easier to maintain and operate, effectively running the electric fleet might require specialized training for staff and drivers. And then there's the infrastructure. Chargers and other equipment must be sited to be readily accessible to fleet vehicles.&nbsp;</p><p>That means effectively two separate parking depots for a time, two fuel delivery systems, and two maintenance and repair facilities. For companies operating on a tight margin, these factors can be daunting.</p><p>&nbsp;</p><p><span style="font-size: 10pt;"><em>This article was contributed by our expert <a href="" target="_blank" rel="noopener">Stephen Clevett</a></em></span></p><p>&nbsp;</p><h3><span style="font-size: 18pt;">Frequently Asked Questions Answered by Stephen Clevett</span></h3><h2><span style="font-size: 12pt;">1. Why electric cars are better than gas?</span></h2><p>Electric cars are better than gasoline powered cars from an efficiency standpoint. Simply put, out of the 8.9 million barrels of gasoline consumed daily in the U.S. on average, only 1.8 million gallons, or approximately 20%, actually propel an internal combustion vehicle forward; the other 80% is wasted on heat and parasitic auxiliary components.</p><p>In an EV, close to 90% goes to the wheels after regenerative braking. &nbsp;In addition, light duty EVs are 64% cleaner than ICE vehicles from an environmental standpoint, although this number depends greatly on the source of electricity for the EV.</p><h2><span style="font-size: 12pt;">2. How will electric cars affect the industry?</span></h2><p>One of the most frequent concerns you will see from electric vehicle haters is that the electricity grid can&rsquo;t possibly cope with all cars becoming EVs. &nbsp;However, the electric grids in most countries will be fine, so long as demand is properly managed. Thus, energy management &ndash; a software driven solution &ndash; is of paramount import.</p><h2><span style="font-size: 12pt;">3. What is EV fleet management?</span></h2><p>EV fleet management refers to the monitoring of EV fleets. You can use EV fleet management technologies to view, monitor and manage fleet activity, as well as provide help to drivers when needed.</p><h2><span style="font-size: 12pt;">4. How can we encourage people to use electric vehicles?</span></h2><p>There are six key approaches: Offset the cost of batteries by re-using old batteries; make use of spare renewables; provide EV as a service; electrify last mile delivery; provide wireless charging; provide real-time price signals so owners can manage electricity costs. &nbsp;</p><p>&nbsp;</p>
KR Expert - Stephen Clevett

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