Reassessing Fleet Electrification After a Disruptive Year

One of this generation’s biggest trends is the electrification of transportation. But with the trillions of dollars being spent and the inescapable media onslaught, separating the electric vehicle hype from reality has never been so difficult — especially for fleets.

Unlike consumers and enthusiasts, fleet operators must manage thousands of vehicles while balancing looming regulations, corporate ESG initiatives, and their organizations’ bottom lines.

The recent negative headlines tell the tale:

• Hertz to Replace One-Third of EV Fleet with ICE Vehicles
• Used EV Prices Tank as Demand Craters
• EV Transition Could Drag U.S. Auto Market

The byproduct for fleets could be “electrification exhaustion.”

“As electric vehicle adoption has slowed in certain regions of the country and OEMs adjust their product roadmaps according to demand and supply chain constraints, some fleet managers may be hesitant to adopt electric vehicles right now,” said Roan Oropesa, strategic business development director, Enterprise Fleet Management.

“Today, it’s not uncommon to see fleet clients reevaluating their respective plans to determine to what extent electrification makes sense for their business, both now and in the near term,” he said.

Beyond the hype and headlines, where does the market stand in reality? Here’s a snapshot of developments moving the needle to greater EV penetration in fleets — or holding it back.

Regulations Arrive for Electric Vehicles

Regulations and incentives are still the primary motivators to jumpstart fleet electrification right now, and some significant ones have kicked in to start 2024. The most urgent involves the Advanced Clean Fleets (ACF) Regulation in California, set forth by the California Air Resources Board (CARB).

As of Jan. 1, the rule calls for 50% of new commercial vehicle purchases by government fleets to be zero-emissions vehicles (essentially, electric- or hydrogen-powered). “High priority” private fleets —organizations that earn over $50 million and own or operate 50 vehicles nationwide, with at least some operations in California — have a phased-in approach.

ACF has met with resistance: In October, the California Trucking Association filed a federal lawsuit to block the ACF altogether, citing a “wildly unrealistic” timeline to phase in the necessary truck technology.

On Dec. 28, CARB paused reporting requirements for the rules’ high-priority, federal, and drayage fleet segments until it obtains a waiver from the U.S. EPA. However, state, county, and local government fleets are still under enforcement. By 2027, the ZEV purchasing rule will increase to 100% for government fleets.

CARB also has two mandates targeting manufacturers with ZEV sales timelines that started in 2024. Advanced Clean Cars II targets light-duty vehicles, while Advanced Clean Trucks affects Class 2b to Class 8 trucks.

On the federal level, an Executive Order from the Biden Administration requires federal agencies to acquire 100% light-duty ZEVs by 2027 and all ZEVs by 2035.

Following California’s lead, proposed federal EPA emissions standards would require compliance with an overall emissions standard, with phase-ins starting from the 2027 model year. The calculated result would constitute 60% light-duty ZEV sales by 2030 and 67.5% by 2032.

The proposed federal mandates have met with resistance as well. Some 5,000 dealers sent two letters to President Biden to address concerns over the ZEV timeline. Concurrently, 223 members of Congress signed a letter asking for a one-year stay of the proposal.

The administration appears to be listening. A revised final EPA regulation due in March is expected to slow the pace of emissions requirements, which would result in electric vehicles accounting for less than 60% of total vehicles produced by 2030.

While the 50% purchase mandate for government fleets has the most attention, private fleets must begin to prepare now too, as the phase-in schedule starts with light-duty package delivery vehicles, box trucks, work trucks, two-axle buses, and yard tractors.

“Although the compliance timelines can lead to confusion amongst customers, we are counseling our clients to at least get started with a few electric units and show these agencies that you’re making an effort,” said Alexander Voets, who represents Daimler’s Class 4-5 electric RIZON truck.

“No one has a crystal ball about EPA or the current federal realities but, historically, the waiver has withstood previous challenges,” said Rebecca Schenker with GNA, a TRC Company. “The safest move is for fleets to report and then monitor what happens over the next several months.”

Navigating the Incentives Maze

Layers of incentives, rebates, and tax credits are the carrots to the regulations stick. However, understanding incentives’ eligibilities and rules is not always straightforward.

For instance, a provision of the Inflation Reduction Act (IRA) came online in 2024 in which electric vehicles sold retail are eligible for the IRA’s $7,500 tax credit at the point of sale, rather than having to wait for tax season. This provision is not available to commercial buyers.

Under IRA as well, new requirements around North American assembly, price caps, and domestic sourcing are phasing in, making popular EV models from Tesla, Ford, Hyundai, Kia, and VW ineligible for the $7,500 credit.

However, these same vehicles purchased with the intention of non-retail/commercial use under IRA section 45W are not held to the same sourcing standards. Fleets therefore would be eligible for the credit — though this could change, Schenker cautioned.

Utility Timelines Complicate Compliance

David Renschler, public works fleet division manager for the City of Fairfield, California is actively working to comply with CARB’s regulations, though the task is complicated by the painfully slow buildout of charging infrastructure.

He summed up the challenge during a panel at the 2023 Fleet Forward Conference: “On the one hand, we have CARB breathing down our necks to start purchasing zero-emissions vehicles, and on the other hand, our utility is saying the site upgrades won’t happen for another 18 months,” he said.

For areas in which the overall utility circuit can’t yet support the site’s power needs, the project could stretch up to five years, Renschler said.

Renschler pointed out that actual sales of ZEVs in Class 2b to Class 8 in California to date represent only a fraction of the production capacity needed to satisfy CARB’s 50% sales requirement this year, making the 100% requirement by 2027 a moonshot.

Said Beth Cooley, CAFM, director of the Commonwealth of Virginia’s Office of Fleet Management and NAFA board of directors’ secretary and treasurer: “I suspect these (2024 compliance) dates will be pushed back.” However, regarding the longer-term ZEV phase-ins, “I don’t see the 2035 dates being pushed back yet.”

Fleet Model Availability & Residual Uncertainty

Post-pandemic supply chain strains have largely subsided. Retail sales of EVs have abated, allowing day’s supply to surpass ICE vehicle inventory. Add 70 new EV models to the mix within the next two years. Manufacturers are looking for new EV buyers, and fleets are an outlet.

Cox Automotive is calling the new EV model releases “a stampede.” This brings questions on future sales performance in a wholesale market that has little historical EV data.

As more EVs come to market, values will stabilize and bring more certainty to ownership costs. But fleets pushing forward with electrification today understand the total-cost-of-ownership challenge.

“We are currently using the same terms and remarketing schedules we use for all our vehicles but hope to gather enough data in the coming years to adjust,” said a spokesperson for McKinstry, a national construction and energy services firm based in Seattle. McKinstry has started an EV pilot with its fleet management company, Holman.

At the same time, automakers are already adjusting EV production to demand.

“We don’t expect to see the market flooding with EVs because OEMs don’t want a pileup of inventory,” said Hari Nayar, VP of electrification and sustainability at Merchants Fleet. “With new passenger EVs coming in, there is a rebalancing of supply to demand. This should help optimize costs across the supply chain.”

Battery Cost, Range & Effectiveness

Much of EVs’ residual value uncertainty lies in questions over battery state of health later in an EV’s life. Recent studies have found that EV batteries have held up well until and after 100,000 miles, but larger data sets are needed. The federal minimum warranty of an EV battery is eight years or 100,000 miles.

Cox Automotive, Recurrent, and others have developed EV battery health tools with results that can be used like a Carfax for EV batteries. 

Recurrent data is also used in Black Book’s Battery Adjusted Values, an EV valuations database that adjusts vehicle values based on battery condition.

On the cost side, battery prices are falling once again after a spike in 2022. In 2023, lithium battery pack prices fell 14%, according to BloombergNEF’s annual battery price survey. BNEF predicts a further 15% decline in battery costs by 2025 and a 40% decline by 2030.

Recent technological innovation has been incremental but meaningful. Lithium ferro-phosphate (LFP), a new generation of battery chemistry, eliminates cobalt and nickel and their geopolitical and environmental risks. 

With their higher energy density, solid-state batteries have been viewed as a potential game changer for years, yet large-scale commercial production has yet to be realized.

“There are many technical challenges that still need to be addressed along with manufacturing and cost considerations, putting solid-state technology still very much on the horizon,” said Jeremy Dewey, manager of fleet and energy for Holman.

Improving the Charging Experience & Charging Infrastructure

While fleets default to home and depot charging, public charging is part of the equation. However, in addition to a lack of overall charge points, the experience is often burdened with inoperable equipment or long wait times. Consolidating charging standards will help.

The two most widely employed are the Combined Charging System (CCS) and the North American Charging Standard (NACS) used by Tesla. Some 24 automakers now have agreements with Tesla to enable charging at Tesla’s public chargers, which is generally viewed as a superior and more reliable charging experience.

“The NACS standard I believe is the future,” said Amy Dobrikova, VP of fleet solutions for Rexel Energy Solutions, citing the equipment’s ease of use.

However, the process won’t affect fleets immediately. For those automakers, the transition will take several years, Dobrikova said. “Fleet will be another several years after that because consumers are always prioritized over fleets, unfortunately.”

In February, Zeem Solutions opened the largest commercial EV charging depot in the U.S. The depot opens the door to a Transportation-as-a-Service Model, in which fleets have access to EVs, chargers, parking, and a driver’s lounge for a fee.

EV Automaker Attrition

A consolidation of players on the commercial EV side counters the onslaught of new models on the EV passenger side. High-profile dissolutions of independent OEMs such as Lordstown Motors, Arrival, Lightning eMotors, and Electric Last Mile Solutions (ELMS) have prompted hesitancy by fleets to engage with independent OEMs.

Oropesa cautioned that fleets considering acquiring vehicles from independent OEMs should consider how they’ll be serviced, with special attention to the proximity of servicing.

Nayar of Merchants sees more consolidation on the horizon, though the benefit will be to allow the best products to succeed, he said.

This year, the action is with commercial vans: BrightDrop, Ram, Mercedes, and upstart Rivian are introducing new electric cargo and step van models at production scale.

Corporate ESG Goals

Amidst current disruptions, large private fleets are moving forward to wider-scale adoption as part of corporate ESG goals, which are often more aggressive than governmental decarbonization targets.

“Government transitions always add a degree of uncertainty to what will come next,” said Avninder Buttar, vice president of strategy for Element Fleet Management. “But as of now, we are not anticipating a slowdown in the adoption of mandates to drive ZEV adoption and introduction.”

Buttar acknowledged that delayed model launches have had some impact on adoption, but that hasn’t slowed down the overall process. “We have not seen clients change, eliminate, or elongate their sustainability targets,” he said.

Regarding the lack of public infrastructure, “(It’s) a factor but not a deciding one as we’re still seeing clients aligned to the position that home, workplace, and depot charging are more cost and operationally effective than public charging in most cases,” Buttar said.

Indeed, corporations are pushing forward with fleet electrification:

• Biopharmaceutical company Gilead Sciences is in the process of switching about 10% of its field-based employees into EVs. As a member of EV100, the company is committed to electrifying its global fleet by 2030.
• Ecolab is targeting complete electrification of its North American fleet by 2030. The plan begins in California with the conversion of its sales and service vehicles to EVs by 2025, comprising over 1,000 units.
• McKinstry, a national construction and energy services firm, has a goal of a 50% emissions reduction by 2025 and a net zero operation by 2030.
• Genentech, another EV100 company, also has a goal to transition its fleet to electric plug-ins by 2030. As of 2023, the U.S. team has successfully transitioned 34% of sales fleet vehicles to EVs or PHEVs. 
• Burger King has transitioned 31% of its North American field team fleet to EVs across 16 states, with a goal of 100% EVs by 2030.

Adoption Rates for Fleet Vehicles Vary

Fleet electrification continues apace but is stratifying into oases and deserts based on states following CARB regulations, the prevalence of charging infrastructure, urban or rural environments, and regulations governing specific fleet types.

Though electrification as an industry is still in its infancy, EVs are beginning to have a major impact on fuel economy and emissions, said Sara Sweeney, product manager at Wheels.

Sweeney relayed government statistics on vehicle emissions: All new vehicles combined on average generate 337 grams per mile of carbon dioxide. Eliminate EVs from that average and the number increases to 359 grams per mile.

Fuel economy data shows a similar trend. The average fuel economy of all vehicles is 26 mpg, but without EVs that average degrades to 24.8 mpg.

Fleets are also realizing incremental yet meaningful carbon emissions reductions through fleet rightsizing and incorporating hybrids and plug-in hybrids. “Beyond relying solely on EVs, there are other strategies that can help fleets continue to make progress towards achieving their overall sustainability goals,” said Oropesa of Enterprise Fleet Management.

Originally posted on Automotive Fleet