Sparking sales

Electric and hybrid sales being held back by sticker price

As gasoline and diesel prices surpassed $4/gal. across the U.S. this spring, the natural assumption would be that sales of alternative-powered vehicles, especially those utilizing electricity for some or all of their power, would have risen as quickly as the fuel prices. Instead, more hurdles than ever before seem to be arising for all-electric, hybrid diesel- and gasoline-electric powered trucks, largely due to the still-high upfront costs for such vehicles.

Without the investment of deep-pocketed fleets like those operated by FedEx Corp., United Parcel Service, Coca-Cola, Frito-Lay, and many others, electrically powered trucks of either genre might find themselves struggling even more mightily for survival.

“Guys like FedEx and UPS can afford to be in that [electric] transportation arena,” says Darry Stuart, president of consulting firm DWS Fleet Management. “For fleets working on marginal budgets, all-electrics and hybrids are very difficult to pay for.” For example, Via Motor’s new extended range electric vehicle, or eREV, technology package is now being tested by telecommunications giant Verizon on gasoline-powered GMC Savana cargo vans. Via Motors CEO Kraig Higginson said during a recent press conference that this particular hybrid package provides up to 40 mi. of electric-only range power via the electricity stored in its lithium ion batteries. At the same time, it boosts fuel economy from an average 8 to 12 mpg in typical gasoline-only operation to nearly 100 mpg in combined gasoline/electric mode. Yet the sticker price is daunting to say the least, with Via’s gasoline-electric hybrid van costing $79,000 compared to $25,900 for a gasoline-only version of the GMC Savana it’s based upon.

“That’s why a lot of fleets are still watching and waiting,” Stuart says. “The feeling is, let the big guys do the investing and testing; they can afford the money to do it. It’s not to say that allelectric and hybrid trucks don’t have their place. They certainly do. It’s that alternative [vehicle] technology costs a lot of money, and money is still tight for a lot of fleets.”

The impact of high diesel prices on a company’s bottom line continues to drive fleet interest in all-electric and hybrid truck technology. “It all comes down to fuel prices,” explains Sandeep Kar, global program manager-commercial vehicle research for global consulting firm Frost & Sullivan. “That’s the reason we believe North America will be the largest market for all-electric and hybrid trucks by 2020, because a 20% fluctuation in diesel fuel prices significantly messes up their daily operational ROI calculations.”

Frost & Sullivan believes that by 2020, 307,000 all-electric and hybrid trucks will be in operation around the world, with 132,000 in North America.

Light-duty all-electric vehicles (EV) offer the best opportunity for near-term growth within the U.S. commercial fleet sector, according to Frost & Sullivan research, since they offer the best fit in terms of lifecycle cost and operational capability. “In North America, trucks drive longer distances and there are far more rural areas, so this is why the light-duty EVs serving inner-urban delivery needs will really experience the most demand,” Kar says.

Inflection point In the firm’s most recent in-depth study on all-electric trucks, entitled “Strategic Analysis of the North American and European Electric Truck, Van and Bus Markets—by 2016,” Frost & Sullivan predicts some 64,817 Class 2-3 light-duty EVs will be sold in North America, predominantly 3.5 tons or less GVW models configured as parcel delivery vans, small shuttle buses, etc. By contrast, only 26,635 medium-duty EVs, trucks ranging from 3.5 to 16 tons GVW, and 565 heavy-duty EVs with GVWs exceeding 16 tons are expected to be built and sold that same year.

Kar explains that 2016 may be the “inflection point” for commercial EV sales if purchase price, range, and lifecycle cost demands are met, especially where batteries are concerned as the battery packs for EVs alone typically cost $10,000.

“The incremental cost is the biggest barrier for largescale EV adoption,” he says. “Also, every four to five years you need to change the batteries, adding significantly to the lifecycle cost of the equipment.”

He adds that the range of light-duty EVs averages 55 mi., with EVs requiring six to eight hours of battery recharge time. To be truly practical, they must yield an average range of 186 mi. and take 15 to 20 minutes to fully recharge, Kar notes. That being said, light-duty EVs, especially vans, are nearing a crucial four-year return-on-investment (ROI) mark due to savings generated through the elimination of both fuel and maintenance costs.

“That cost of ownership is the crucial factor,” Kar adds. “Our polling of fleet managers indicates 63% are focused on the total ownership cost, not the initial purchase price. So if the ROI can be fully realized, fleets would adopt these vehicles.”

For example, the average ownership cost for a gasolineor diesel-powered walk-in van varies between 25¢ and 48¢ a mile. If EVs can deliver an 8¢ to 10¢ per mile lifecycle cost, that would hit the desired ROI target, Kar points out. That dovetails with the information manufacturers are getting from fleets currently using EVs.

“The biggest perceived barrier is still upfront capital costs [and] there are also some lingering concerns around infrastructure and service,” explains Bryan Hansel, CEO of Smith Electric Vehicles, which builds the Smith Newton allelectric truck chassis. “That’s why we’re working every day…to dramatically shorten the time period it takes customers to receive a return on their initial investments.”

Frederick Smith, chairman, president & CEO of FedEx Corp. and co-chairman of the Energy Security Leadership Council, noted in a speech two years ago that transportation electrification is not an easy process, with challenges not limited to just lowering the cost and boosting the range of EVs.

“We cannot encourage the purchase of electric cars and then not have the generation capacity to power them, the transmission capacity to deliver that power to the consumers who need it, or the smart grid technology that will be required to handle those vehicles as we plug them in and out of the grid,” he said. “These are all crucial issues, and we need to work on all of them in sync. Without one, the others are useless. And without all three, this entire venture [transportation electrification] could put us at greater risk.”

Existing base

Luckily, Smith believes, the U.S. is not starting from scratch. “One of the great advantages of our long-term goal of electrification is that we already have the basis for a distribution system in place. That is not the case for other possible alternatives to petroleum, such as natural gas or alcohol-based fuels, for which entirely new purpose-built, nationwide infrastructures would have to be designed and constructed from scratch.” He noted that as electrical wires cross this country, reaching into every home and building, the U.S. transportation industry must take that base and build upon it.

“We must improve the siting process for interstate transmission lines, increase the rate of return on investments in modernizing the grid, implement time-of-day pricing, require utilities to install smart meters over a fixed period, and put policies in place to ensure that companies can build the generating capacity that an electrified transportation system will require,” Smith stressed.

“Electrical power is generated from largely domestic sources whose prices are more stable and mostly disconnected from volatile world markets,” he pointed out. “It can be solar, it can be hydroelectric, it can be wind, it can and should be increasingly nuclear, it can be coal, it can be natural gas. So with cars powered by electricity, no one fuel source—or producer—would be able to hold our transportation system and our economy hostage the way a single nation can disrupt the flow of petroleum today.”

Yet it is hybrid vehicle technology, particularly dieselelectric combinations for work trucks and transit buses, that most likely will be the leading alternative power choice in the world’s medium-heavy commercial truck and bus market by 2020, according to Frost & Sullivan’s research.

Transit buses, in particular, will make up the lion’s share of hybrid fleets in terms of installation rates, while mediumheavy trucks featuring parallel hybrid architecture will account for the majority of the production volumes, Kar notes. The reason for such near-term dominance by hybrid systems is that they place the least amount of demand on infrastructure while reducing petroleum consumption by heavy trucks and buses.

“There’s just no money available for the scale of infrastructure necessary for widespread use of all-electric vehicles or ones powered by compressed natural gas and liquefied natural gas,” Kar stresses. “That makes hybrid technology the easiest alternative powertrain for fleets to adopt.”

The firm also believes 59% of the transit buses in North America will be powered by hybrid-electric systems by 2020, with hybrids making up 15% of the heavy commercial vehicle (HCV) population.

By contrast, only 12% of transit buses and 4% of HCVs will be all-electric. Only 7 to 8% of transit buses and HCVs will be powered by either compressed natural gas or liquefied natural gas, Frost & Sullivan predicts.

Mega trends

Kar adds that three “mega-trends” will drive adoption of hybrid powertrains among bus and commercial truck fleets: increased urbanization, more traffic congestion and higher energy costs.

“Don’t forget the impact of the 2014- 2018 greenhouse gas regulations for the heavy truck market, either,” he points out.

“To meet the fuel economy standards imposed by those rules, many truck makers are downsizing the diesel engine offered in their products. How will they make up for that ‘lost’ horsepower? In many cases [they will rely] on hybrid powertrains.”

Kar also stresses that hybrids “are not the solution for all fleets” and thus will only truly develop in certain niche markets such as short haul and pickup-and-delivery style truck operations, alongside transit buses.

“Hybrids are good for specific applications where there is a tremendous amount of ‘stop-and-go’ activity, which is common in operations along congested city streets,” he explains. “There won’t be demand for hybrids in the long-haul segment where trucks operate at steady highway speeds. This will be the biggest impediment for large-scale penetration and production of hybrids in developed markets such as the U.S.”

Again, Kar says Frost & Sullivan’s survey data coupled with industry research reveals that most fleet managers want to achieve payback for hybrid trucks within 4 to 4 1/2 years of purchasing them.

“With a rapid increase in diesel prices, the payback period can shorten significantly, and that, more than any incentive or tax credit, will lead proactive fleet managers toward hybrids and pure electrics,” he says. “When we start to move to $4.50 to $5/gal. diesel, that’s when the gains fuel efficiency hybrids offer really begin to narrow the price points compared to gasoline- or diesel-only powered vehicles.”

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