It's safe to say that everyone has been told, in one form or another, that the electric vehicle will be the next big thing to happen to the auto industry. Indeed, one day, not so far away, we will all drive electric cars, thus ridding our streets of noise and air pollution and freeing our economies from the shackles of oil dependence.
Alas, electric vehicle technology today remains inadequate for the majority of the mass market. Fortunately, some unique market segments provide the adequate conditions for early electric vehicle dissemination.
Let us look at how vehicle fleet operators stand to profit from the use of existing electric vehicle technology. We will examine:
(1) how typical driving habits and requirements exacerbate the obstacle associated to battery costs
(2) how fleet vehicle driving habits provide more favorable technology requirements
(3) the cost breakdown for fleet electrification
(4) cases where fleet businesses have switched to electric technology
(5) how to promote greater rates of fleet electrification
Battery: Balancing costsElectric vehicles are often claimed to be expensive compared to conventional vehicles, but that neglects half of the story. Here are the facts:
- Electric vehicles incur a hefty sticker price premium as a result of their hugely expensive batteries – around US$150 per kilometre range.
- Electric vehicles reduce your annual fuel expenditure by at least 75% (based on cheap American gasoline) – at least $1,000 per year for American consumers.
That results in a pretty huge battery stuffed with expensive chemical substances which, for the vast majority of the vehicle's lifetime, will remain inactive. In other words, we are paying $7.5 grand for our 50 km daily average travel and $22.5 grand for the freedom to get on the road. As the French say: c’est la vie (that's life).
There is no way that the annual fuel savings will pay back the $22.5 grand freedom charge. So, until battery costs drop (which they will, just like with any other technological innovation), electric vehicles will need to be marketed to:
a) Elite consumers that are happy to pay the astonishing premium just to say they're saving the planet or just to enjoy the thrill of an electric motor. Premium start-up manufacturers, like Tesla Motors, are targeting just such consumers. (see video below)
Image via CrunchBase
b) 'No frills' consumers who are willing to forgo some of the modern comfort and performance requirements of typical consumers in developed countries. Notably, opening up doors to inexpensive retrofitting of 'retired' vehicles. This is already popping up in parts of Europe, but is likely to have a more widespread impact in emerging markets.
c) Fleet operators which offer very stable driving patterns such that batteries need not provide hundreds of kilometres of range flexibility ...
Fleet Vehicles: A key niche market segmentWhat is a fleet vehicle, you might ask. Think delivery services (FedEx, Postal Service, Pizza Hut delivery, etc), repair services (cable/phone guy, plumbers, etc), taxi services, etc.
All of these have one thing in common: they operate within clearly defined geographical boundaries (say a neighborhood), which necessarily restricts maximum driving requirements.
What is more, fleet operators try to provide as reliable a service as possible with the minimum number of vehicles to avoid having idled vehicles. Indeed, it is easy to imagine that a cable guy, for instance, completes more or less the same number of repairs/installations on any given day, which ensures very little variation in daily driving pattern.
Fortunately, that means a battery can be built to match such a car's average daily travel and nothing more! Of course, as a trial, a smart business would start by converting vehicles operating on its shortest routes to minimize risks. In a couple years time, battery prices can be expected to reduce significantly (think of PC, mobile phone and other microelectronics prices in the 1990's) and larger batteries will become increasingly viable. So can electrification actually prove profitable?
Cost Breakdown: Can fleet electrification prove profitable?
Consider the US Postal Service delivery fleet:
- Average daily travel is 30 km
- 96% of daily travel remains below 65 km
Assuming 30 km average daily travel, the USPS could expect fuel expenditure savings of at least $600 per year. If oil prices increase compared to the 2009 lows used in these calculations, then this savings rate would inflate rapidly. Equally, if we situate ourselves in countries where oil is not as favourably taxed as the USA -- say the United Kingdom -- then the savings rate more than doubles.
In sum, even based on this vastly pessimistic evaluation, electrification of fleet vehicles would cost operators nothing in the existing economic climate! More realistically, we may expect oil prices to steadily rise in coming years and financial incentives for electrification is likely to increase, thus making electrification of fleets increasingly profitable.
Where is it being done?
Fleets around the world are beginning to recognize the benefits of electric vehicle solutions.
- Delivery companies like UPS and FedEx are rolling out thousands of electric vehicles - mostly in hybridized format.
- Florida Power and Duke Energy have committed US$600 million to convert 10 thousand vehicle by 2020. (1)
- Sainsbury's (UK grocery retailer) has converted its entire food delivery fleet (1) (2)
Next Steps:
- Petition your local businesses to switch to electric or hybrid alternatives.
- Petition your local government to provide financial incentives to businesses that switch -- tax rebates/subsidies to offset battery premium or low (zero) interest financing in order to dilute battery costs over the vehicle lifetime.
- Support and promote businesses (such as Sainsbury's in the UK) which have already made this switch.
- Curious to find out more? Have a question? Send me an e-mail or post your question below.
Do you have an idea of how to promote fleet electrification? Know of other businesses with active electric fleets? Post your thoughts!
'Electrification of Delivery Vehicles' by the US Postal Service and the Office of Inspector General (2009)""
Originally posted in Care2 by: Joao Vitor Serra
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Whether you like this and agree with me, or not, thank you for your comments. I normally do not purge an individual comment, unless it is obscene or obvious spam. If you have a question, do feel free to e-mail me at this address greenworldclub@gmail.com – Stan W.