Global Social Innovation Business

By Dean Bushey, Vice President of Hitachi Global Social Innovation Business

 

The transition from internal combustion engines (ICEs) to electric vehicles (EVs) is accelerating worldwide. Significant progress in commercial electrification is being seen, most notably in last mile delivery. Last mile services have always been a part of the end-to-end supply chain, but as we navigated lockdowns during COVID-19, getting a broader range of goods onto consumers' doorsteps has made it a retailer battleground. In addition, shifting consumer expectations have expanded corporate fleets or outsourcing contracts for the last mile integral to doing business. In parallel, the electrification landscape has evolved rapidly, with barriers to adoption being resolved and the cost benefits of conversion being actualized.

Sustainability Commitments

Many companies prioritize environmental, social, and governance (ESG) strategies with a clear trend toward corporate fleet electrification. Some of the leading brands in online retail and transportation have established roadmaps to green the last mile. For instance, Amazon has tasked its sustainability scientists with analyzing and measuring its carbon footprint and has determined that online shopping is greener than in-store. They report that a single delivery van trip can eliminate an average of 100 shopper roundtrips by car. This dove tails with Amazon’s Climate Pledge to have half of its shipments net-zero carbon by 2030.

Delivery powerhouse FedEx has developed its fleet electrification plan. As part of its broader $2B investment in three core sustainability areas – vehicle electrification, sustainable energy, and carbon sequestration – FedEx has committed to having its entire fleet of parcel pick-up and delivery vehicles electrified by 2040. Many others are following the same path toward electrification.

Regulations

Various state legislatures are assessing green transportation regulations; California is the most aggressive. By 2035, the state will require 55 percent of delivery trucks and vans, 75 percent of box trucks, and 40 percent of tractor-trailers to be electric. By 2050, all commercial truck sales in California must be electric. Most states are enforcing federal standards rather than establishing their own, as that would create a patchwork of varying regulations that would complicate compliance. California is serious about the transition to commercial EVs to make a permanent dent in greenhouse gases.

Federal and State Incentives

Federal tax incentives are another way the public sector promotes the transition to EVs, making the change to electricity more cost-effective and appealing for businesses. The current $7,500 federal tax credit on EVs applies to OEMs that have produced fewer than 200,000 cars, essentially excluding EV purchases from Tesla, Nissan, and GM. Lawmakers are considering removing the 200,000-vehicle cap and sweetening the deal by increasing the tax credit to $10,000 for EVs made in the United States and adding another $2,500 for EVs assembled by workers represented in a union. 

Incentives go beyond the EV to include offsets to the cost of charging infrastructure installation. For example, the Alternative Fuel Vehicle Refueling Property Tax Credit eases the financial burden for businesses through a federal tax credit of 30 percent of the cost, up to $30,000, for commercial installations. Some states such as California, Colorado, and New York also provide business incentives to install electric charging infrastructure.

Total Cost of Ownership

Perhaps the most significant factor driving the commercial EV transition is the total cost of ownership (TCO). This is a CAPEX plus OPEX calculation that includes the price of the vehicle plus the cost of its maintenance plus the cost of fuel over the vehicle’s entire lifetime. Because of government incentives, low electricity costs, and minimal maintenance relative to an ICE vehicle, EVs deliver a lower TCO than commercial ICE vehicles. Add to that the recent escalation in gas prices and EVs become an even more effective business decision. 

With EVs becoming increasingly affordable and with the side benefits of achieving ESG goals through the electrification of transportation, we can expect to see a steady rise in commercial vehicles transitioning to electric.

The Fading Challenges to Conversion

Range and Productivity

Range anxiety has been a concern for fleet managers and drivers who are worried that the electric truck or van would exhaust its EV battery before completing the route. Having to return to base to recharge or look for a charging station adds time to the route. Waiting and recharge time impacts productivity, operating costs, and service delivery. However, with recent battery technology improvements, most EV batteries hold ample charge since most delivery trucks drive less than 200 miles a day, which is within the standard battery range. In addition, parcel delivery vehicles average only 45 miles a day, far less than the range of the EVs with the smallest batteries. Those considering the transition to electric delivery fleets should no longer be anxious about range.

Batteries and Capital Costs

The cost of EVs has long been a hurdle to adoption. One factor that drives EV cost is the expense of the EV battery, which currently accounts for more than 20 percent of the vehicle’s cost. However, battery technology and production costs have been trending downward at an astonishing rate, declining 89 percent in the last decade. Thus, there is no longer a trade-off between charging range and battery cost for last-mile vehicles. Many commercial EVs now have a 150-mile range with standard batteries and are well suited for last-mile delivery, as estimates indicate routes of approximately 124 miles daily. 

Charging Infrastructure

Another hurdle to adoption is charging infrastructure, and there are different dynamics for consumer versus commercial fleet vehicles. A personal EV charged at home does not impact the power grid significantly, but a fleet of dozens or hundreds of vehicles that all need to be fully charged every morning can be a logistical puzzle. As a result, a common trend is outsourcing this task to a third party that may set up an on-site microgrid. For example, Montgomery County, Maryland used a third party, AlphaStruxure, to build, own, and operate an on-site microgrid to power its charging depot for electric buses. Others provide special metered chargers for employees to charge at home and receive reimbursement for the electricity costs to charge their work vehicle. These take-home chargers offer a solution for businesses without the capital to install the charging infrastructure required to charge an entire fleet every night.

Initiatives Accelerating Electrification

One of the most significant industry initiatives to electrify commercial vehicles is the Corporate Electric Vehicle Alliance, a group of 26 companies led by Ceres, a non-profit organization working to build a sustainable future. Member companies include major last mile and transportation companies like Amazon, DHL, Hertz, Merchants Fleet, American Airlines, etc. The group’s mission is to accelerate the corporate transition to EVs through bold financial commitments and by aggregating corporate demand to facilitate the cost competitiveness of EVs. Some of the principles include access to cost-effective charging infrastructure, upfront cost parity with ICE vehicles, and employee commute and regional transportation decarbonization.

Amazon has been aggressively pursuing last mile electrification. For example, the company has a contract with automaker Rivian for 100,000 electric delivery vehicles by 2030, with 10,000 slated to be in operation by 2022. Rather than choosing an existing vehicle model from Rivian, Amazon is collaborating with them to design a vehicle specifically for their needs to ensure successful integration into the company’s supply-chain operations. This contract between Amazon and Rivian is one of the most extensive efforts to electrify by a major company.

UPS, one of the world’s largest shipping couriers, has also made a large commitment to electrification, ordering 10,000 electric vans, with 70 percent to be deployed in the United States. Like Amazon’s approach, UPS worked closely with Workhorse to design its new delivery vans. UPS has even bragged that it will cost them less to produce an electric truck than a diesel truck for the first time. The company made a large investment in this effort to decrease the total cost of ownership that will continue to reward them over time. UPS expects ongoing operational savings with lighter trucks, improved routing efficiency by adding digital controls to the electric propulsion system, and greater brand affinity for employees and customers. 

FedEx’s commitment to sustainability is to have carbon-neutral operations by 2040. To accomplish this, they are initially investing $2 billion in three areas: vehicle electrification, sustainable energy, and carbon sequestration. FedEx’s vehicle electrification timeline requires that their entire parcel pick-up and delivery (PUD) service be zero-emission electric vehicles by 2040. To get there, 50 percent of PUD vehicle purchases will be electric by 2025 and 100 percent by 2030. In addition, all diesel PUD vehicles will be phased out by 2040. FedEx has some of the most ambitious commitments to sustainability, and the company recognizes that it starts with electrifying last mile delivery vehicles.

The United States Postal Service (USPS) is also in the process of electrifying its fleet of vehicles. After years of searching for the right automaker and contract, the organization finally settled on its next generation of delivery vehicles. Unlike private shipping companies, the USPS does not have the same funding to pursue its electrification goals, but it has worked out a solution with automaker OshKosh. The new vehicles, called Next-Generation Delivery Vehicles, will be built using Ford's powertrains and electric vehicle components. The vehicles will be converted to electric powertrains as funding allows. Production of these vehicles begins in 2023, and 10 percent will be electric from the start, marking the beginning of the USPS’s transition to an electric fleet. Electrification of the entire fleet will cost over $8 billion, and the conversion will take place over many years.

QCD, a foodservice logistics provider in California, partnered with Volvo to employ its VNR series electric tractor-trailers to perform last mile delivery to restaurants in the food industry. Over the next few years, QCD will add 14 more of these electric trucks to its fleet, funded by a $3.9 million grant awarded to Volvo by Mobile Source Air Pollution Reduction Review Committee (MSRC). Thus, QCD is leading the way for the electrification of vehicles in the food industry.

ChargePoint is driving expansion, broader availability, and affordability of charging stations from the infrastructure side of the equation. ChargePoint is offering comprehensive fleet charging solutions assisted by the largest network of public charging stations. ChargePoint developed the take-home commercial EV charger that can serve large and small fleet-reliant businesses. Their mobile app contains a live map of all chargers in its network that indicates charger availability and provides a way for users to enter a queue if one is not currently available. Their software enables smooth and simplified scaling of the EV charging network for fleets. ChargePoint’s efforts to aid the transition to electric can be seen globally as the company continues to develop charging solutions for all segments of electric vehicle owners.

Benefits of Electrifying the Last Mile

The decision to convert from ICE to electric goes beyond the sustainability argument; it can now be based on bottom-line benefits. TCO is not just being modeled; it is being proven out. ICE vehicles cost more than ten cents a mile, whereas electric vehicles only cost six cents. Not only are the prices of electric vehicles dropping to rates comparable to ICE vehicles, but the maintenance and fuel costs are significantly lower as well. The cost of electricity to charge an electric vehicle is negligible compared to filling up a gas or diesel vehicle, especially with the recent rise in fuel prices. In addition, maintenance costs for an EV are virtually nonexistent. The cost savings in gas and maintenance alone over the lifetime of a commercial EV are significant. Now that EV prices are dropping, it is increasingly harder to justify expanding or replacing commercial fleets with ICE vehicles. 

To accurately calculate the environmental impact of EVs, the pollution created by generating electricity to power EVs needs to enter the equation. This essentially comes down to the cleanliness of the power grid being used to charge the EV. On the dirtiest of power grids, there is less pollution created by generating electricity than produced by an equivalent ICE vehicle performing the same task. On the cleanest of power grids, the electricity to power the EV results in less than a quarter of the pollution produced by an equivalent ICE vehicle. In any situation, an EV is responsible for less pollution than an ICE vehicle. With environmental protection moving into the forefront of public concern, EVs are a straightforward way for businesses to demonstrate progress toward their sustainability goals.

Aside from the cost benefits and fleet greening, EVs provide additional community benefits in the areas in which they operate. For example, noise pollution from engines becomes nonexistent, and everyone can breathe easier. Safety technology is also standard on new EVs, including lane change assist, brake assist, and cameras, which will make delivery vehicles safer for their drivers and the communities they serve.

 

Now is the Time to Electrify the Last Mile

With the barriers to adoption fading away and EV TCO nearing or beating ICE, the time to electrify the last mile is now. Federal and state tax credits and incentives from private companies help remove friction in the financial decision of fleet electrification. In addition, greening the transportation network helps achieve corporate sustainability goals, makes our city and neighborhood streets quieter, and has side benefits of building brand affinity of employees and customers.

Stay tuned for a future article on an emerging business model – electrification as a service – that will streamline and simplify electrifying corporate fleets of any type and size.

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