The past few years, we’ve lived through a number of technology hype cycles. Each one promises miraculous benefits, if one can suspend disbelief and invest in the vision yet to be born. Such as electrification of heavy-duty truck fleets. Trade magazines are filled with sponsored content suggesting that it’s just the right time to buy battery-electric commercial trucks. The continuous nudge to liberate our thinking, go green and dive in. Early adopter segments are now saturated. OEMs are losing tons of money learning commercial fleet managers need strong operation-specific use cases that generate net-benefit ROI. That appears a long way off.
In most heavy-duty use cases, battery-electric vehicles cannot carry the same payloads as ICE vehicles. Commercial-electric trucks running on two 8,000 lbs. lithium-ion batteries are far heavier than their diesel equivalent. Truckers are subject to strict weight limits and therefore fleets will need more EVs to manage the same number of loads. With payload differences, accounting for EV charging times and similar delivery schedules, estimates two vehicles and two and half drivers to equal the output of one ICE vehicle. It’s suggesting poor economics, even if CEVs cost the same as a clean diesel tractor.
OEM Losses Mounting
Automakers are pulling back on plans to expand EV production. A response to slowing sales that aren’t expected to reach previous forecasts. A 2023 survey by Commercial Truck Trader found that 79% of “commercial truck shoppers” wouldn’t consider adding an electric vehicle to their fleet. Automaker Ford reported its EV unit lost $ 1.3 billion US in the first quarter alone with 10,000 units delivered. In other words, their electric division lost ~ $ 130,000 USD for every EV it sold, the first three months of this year. The company is delaying the $ 12 billion in proposed investments and has already announced production cuts to half the EV pickups it promised.
Profit margins are thin when they sell for MSRP but when OEMs start cutting pricing to stimulate demand, business can rapidly unravel. Especially as EVs require less maintenance and generate lower service revenue. Following Ford’s pullback, General Motors said it’s cutting production and officially delaying the electric Silverado for another year, citing shrinking demand and engineering challenges. GM’s putting aside EV investments in favour of a record $ 10 billion in stock buybacks in 2024. Tesla has been slashing prices, sacrificing profitability, and cutting production of its electric pickup. Lucid produced 30% fewer trucks this quarter, compared to the previous year.
Established in 2008, Lion Electric has laid off 550 employees or nearly 50% of its Quebec-based staff. They plan to wind down production of electric trucks and focus on creating a new product line by selling battery-packs to third-party manufacturers. Second quarter net losses grew 63% to $ 19.3 million USD with a 48% drop in revenue to $ 30.3 million USD year-over-year. For the three months ended June 30th, Lion Electric delivered 101 vehicles, a drop of nearly 50% year-over-year. The industry consensus indicates a pullback with an overall lowering of future estimates.
Cost Hard to Justify
Electrification must be economically viable. For fleet operators, keeping costs low is critical to delivering value propositions to their customers. CEVs are considerably more expensive than viable ICE alternatives. Canadian businesses have demonstrated a stubborn unwillingness to pay a premium for battery-electric vehicles. Publicly traded company fleets consisting of recognizable brand names have pursued electrification, regardless of ROI because they’re committed to “ambitious sustainability targets.” It’s not a strategy to drive revenue or save costs but about zero-carbon contribution. For many fleets, they will transition when the total cost of ownership and vehicle performance is on par with petroleum fuels.
Over 80% of trucking companies in North America are small businesses operating ten or fewer trucks. New models of clean-diesel, long-haul tractor cost approximately $ 200,000. A comparable battery-electric truck costs upwards of $ 480,000. The ~ $300k upcharge is cost-prohibitive for independent trucking company fleets. While fuel and maintenance costs could be lower, the higher price and need for more vehicles is a challenging financial reality. Proposed use cases for commercial ZEVs are two-and-a-half times the cost of diesel. Still more expensive to insure with their category premiums growing faster than gasoline or diesel equipment.
Consensus in Caution
Positive ROI for commercial fleet electrification is heavily dependent on operational-aligned processes and delivery requirements. Class 8 drayage trucks driving defined routes with short distances could be ideal electrification prospects. Light and medium-duty, last-mile, delivery vehicles in urban local and high utilization may justify the upfront cost premium. For other fleets with highly variable operating environments, it can be a risky investment with downstream financial obligations. In data-modelling projections, commercially electric batteries can lose ~ 7% of capacity at 100,000 driven miles. A BEV bought with a 300-mile range, will retain 279 miles (after 100k miles driven) with continued to depreciate. BEVs also struggle in freezing weather where charging takes longer and requires greater frequency. In extreme operating conditions, the driving range may fall precipitously.
Commercial EVs come with significant unknowns in financially uncertain times. As economics have become negative, CEVs are collecting on dealer lots with unsold inventory is piling up. Industry enthusiasts were warning of above average depreciation as they continued to build up a larger presence in the market. It doesn’t appear a likely outcome now. A Fleet Advantage benchmarking survey released last fall summarizes the diminishing enthusiasm. Last year, two thirds of respondents were “most interested in electric trucks,” this year it was down to one-third. Fleets are trying to make sense of volatile industry dynamics and are cautious about fleet electrification plans.