Four plug-in truck companies talk to fleet managers about electrification opportunities
Plug-in vehicles are different. Aside from the obvious changes in technology, they present a different financial model for corporate number crunchers. This means some challenges for those pitching EVs and PHEVs to fleet operators.
Fortunately for the EV industry and the fleets of the future, the carrot is so big, and the business case for plug-ins is so clear, that the right heads are beginning to come together, and the electric fleet market is taking shape.
In June, four electric truck companies (VIA Motors, Boulder Electric Vehicle, Smith Electric Vehicles and Motiv Power Systems) came together at the Alternative Clean Transportation Expo to talk to fleet managers about the lessons they’ve learned. They told the crowd that clearing a couple of adoption hurdles will lead to great rewards.
Cha-ching, one electric mile at a time
“Which is a better deal, a free printer or free ink?” David West of VIA Motors asked the audience. “You can spend two to three times a vehicle’s cost on gasoline today. So it’s not about the printer, it’s about the ink. You should be more worried about what fuel you’re going to buy for the next eight years rather than what vehicle you get a discount on.”
VIA Motors is in the process of ramping up production of its PHEV pickup trucks. VTRUX, as the company calls them, operate much like a Chevrolet Volt – they’re fully electric until the batteries run out of juice, then a gas generator kicks in.
In 2012, West drove his Chevy Volt 15,000 miles and used 28 gallons of gas. “That turned into about 530 miles per gallon,” he told the room. “It doesn’t say that on the window sticker. It says what you get when you use it like a gas-electric hybrid all the time. It doesn’t say the MPG normal people get when they charge it every day.”
His point was to illustrate the potential of PHEV technology that might not be so clear to the casual observer. VIA has found in their pilot projects that the typical VTRUX driver runs on electricity about 80 percent of the time, and only consumes gasoline the other 20 percent. Since electrically-driven miles are considerably cheaper than gas-powered miles, this is the most obvious benefit of plugging in a fleet.
The more fuel a vehicle uses, the better the case for switching to EVs. For large fleets of medium- and heavy-duty trucks, the switch is very appealing, because they consume a ton of fuel in their lifetime, with very low MPG ratings compared to passenger vehicles.
Jim Castelaz, CEO of the electric powertrain firm Motiv Power Systems, asked the audience to think of a fuel bill as an investment, an asset, rather than something that you have to burn away every year. “As you look forward at your two- to five-year horizons, think about how all this money you’re spending on fuel could be an investment,” he said.
The problem is, at this point, EVs and PHEVs are more expensive up front. In the long run, they’ll save fleets big money, but the challenge is to effectively convey that fact. Castelaz explored a few different scenarios of delivery routes running on gas versus electric. He looked at an 8-10 mile per day route, a 120-150 mile per day route, and one that varied between 50 and 150 miles per day. The initial investment and fuel cost figures he presented painted a clear picture of the potential for lifetime savings and the associated payback period.
The bottom line for all-electric routes: long and consistent daily routes are the best suited. The 120-150 mile per day route showed a payback of 3.5 years, with a seven-year savings of about $75,000. “If you make an investment in batteries, you have to use them to get the payback,” said Castelaz. “So route consistency is important.”
The electric vehicles in these examples were all built with “right-sized” batteries, which means the size of each battery pack was chosen specifically for the given route.
Motiv’s expertise is in software and control – it doesn’t build the vehicle, or even the whole powertrain. The company makes a control system that can be used in all sorts of medium- and heavy-duty vehicles that are economical to electrify. From shuttle buses to garbage trucks, Motiv’s control system allows builders to put in as many batteries as needed in each individual case.
Adding up the savings
“It’s a tool, not a Tesla,” said Carter Brown, CEO of Boulder Electric Vehicle. “Our vehicles are designed to save a fleet money. There needs to be an economic case for it.” Over the life of the trucks, Boulder predicts some customers will see savings well north of $100,000.
Brett Gipe of Smith Electric Vehicles reports similar savings potential. The company’s early customers are finding the reduction in fuel and maintenance costs to be about 75-80 percent compared to traditional trucks. “It’s pretty significant savings,” said Gipe.
Frito-Lay, Smith’s biggest customer, has said it plans to buy EVs for about 50 percent of fleet purchases over the next ten years. With a delivery fleet of its scale, the snack company is projecting to save some serious cash by switching to electric – tens of millions of dollars.
After pilot programs, operators of VIA Motors’ pickup trucks also see leaner fleets in their futures. Pacific Gas & Electric, for example, has about 3,000 trucks in its fleet. If the utility company replaced them all with VIA’s PHEVs, it would save millions of dollars each year in fuel costs.
Beyond fuel savings
Early adopters of electric fleet vehicles are seeing an ROI that extends beyond savings on fuel. EVs require less maintenance, which also means less downtime for each vehicle. Staples, which operates some of Smith’s trucks, reports that brake pads and rotors are lasting four times longer, because of the regenerative braking process. In addition to a 74 percent reduction in fuel costs, the office supply company has found a 72 percent reduction in preventive maintenance costs.
Companies like Frito-Lay are also seeing revenue per route go up with electric vehicles. The trucks aren’t as noisy as their diesel counterparts, so they can deliver in off-peak hours in areas where they were previously restricted by ordinances that limit noise at night and early in the morning.
Driver feedback has been phenomenal. EV truck operators love the lack of noise, vibration and fumes. Staples has added electric-powered roll-up doors on some of its Smith-built trucks, and reports eight more stops per route. The new doors are quicker, and don’t require the driver to reach up to grab the door, eliminating some potential injuries.
The energy storage capabilities of these vehicles are also being exploited to add value for customers. VIA’s trucks have a built-in power export capability that allows drivers to use 110 V or 220 V for things like tools and local backup power. VIA is also working on a vehicle-to-grid (V2G) solution to help utility companies restore power during outages. With portable power in the field, these intermittent problems could be solved faster than ever before.
The builders of all-electric trucks think large centralized fleets of vehicles with big battery packs will present a valuable tool to utility companies. Boulder Electric Vehicle has demonstrated a turnkey V2G solution with its trucks and a Coritech Services DC fast charging system capable of 60 kW bidirectional energy feed. “That is a size that a utility will look at and really want to manage,” said Brown. “We think it will go towards frequency regulation, so the power companies don’t have to build new power plants to have steady reserves. When you can take a FedEx or UPS station and give it up to 3 MW on tap 12 hours a day, all of a sudden you don’t have to have that spinning reserve.”
Brown suggests that for extremely fast incremental frequency response, around six seconds at a time, the demand charge might be as high as 5 or 10 dollars per kWh. “Once high power is there – 60 kW, 100 kW, 200 kW – with a depot of 50 trucks that becomes incredibly economically valuable.”
Smith also thinks fleets that spend long and predictable amounts of time off the road could play a critical role on the grid. “If you look at something like the school bus market, there is a perfect opportunity for vehicles that are sitting for three months during the summer,” said Gipe. “They could charge at night during off-peak hours and sell back to the grid during the day. It could change the whole ROI on those systems.”
For military operations, vehicles that can export power could be a game changer for things like weapon systems and power for critical facilities during an outage. A lot of military bases are trying to become autonomous, completely off the grid, for security purposes. Coupling the energy-storing capabilities of EVs with the installation of solar and wind generation is a great way to achieve that.
Rewriting renewable ROI
Large renewable installations typically have excess capacity at random parts of the day, so they sell it back to the grid. Using that energy to displace gas or diesel instead could significantly shorten the payback period of the investment.
For example, it’s not uncommon to generate wind power at a cost of about $0.20 per kWh and sell the excess power at night to the grid at an off-peak rate as low as $0.04 per kWh. If that energy were stored in vehicles, it could be used during the day to displace $4-per-gallon gasoline. Depending on the efficiency of the vehicle, buying gas can be the equivalent of paying up to $0.50 per kWh, so the renewable-energy-investment math begins to look a lot more attractive. Organizations that have large solar and wind installations could pay them off in five years rather than 25 years.
A group effort
With clear financial advantages to plugging in, the question becomes: How do we effectively pitch it to the world’s fleet operators?
First, there are capital budget constraints. If you can buy two or three conventional vehicles instead of one electric, that can be a tough pill to swallow. Organizations need to think three to five years ahead in their budget plans, and not just year to year. To accomplish that, plug-in vehicle builders need to spend a lot of time with potential customers – at the highest levels – so everybody understands what it takes to have these vehicles in the fleet.
Smith has found that “everyone is interested, but the reality is that it’s difficult to convert them from the way things have been done for a long time,” Gipe explained. “We realized that we have to get much deeper than just the fleet management folks in an organization.”
Smith uses a process it calls the Electrification & Transportation Achievement (ETA) system. When a company expresses interest in engaging, Smith will come in with a whole team and sit down with each department to walk them through what electrification is going to look like. “We have to be really engaged with detailed information for everyone, from finance and treasury to facilities, drivers and technicians.”
Over the past few years, Smith has learned some valuable lessons and developed solutions that it’s now applying to new customers. “In the beginning, working with the infrastructure was a challenge we didn’t expect,” said Gipe. “Now we have partnerships in place, so that customers don’t have to do anything besides look at a proposal. We work with the contractors and utilities to help them negotiate things like facility assessments.”
“Another thing that we’ve learned is to make sure that route review is done on 100 percent of the vehicles that we launch. We use a data logger that is like a GPS on steroids. We’ll put it on a regular route truck, with a technician that will ride around all day and take notes. The logger data is sent to our engineers to develop a worst-case scenario, and recommend the right size battery for each and every route.”
To get around the capital constraints of some companies’ budgets, plug-in truck builders are beginning to offer attractive leasing options. In many cases, the budget previously used for diesel fuel can be allocated to the leasing company, and the truck is basically free.
VIA Motors, for example, is offering an eight-year lease model on its vehicles. “The savings are definitely there,” said West. “It’s about finding the right financial model, and part of that is getting the leasing companies to understand the durable life and residual value of these vehicles.”
West believes that there has been a fundamental misunderstanding of a battery’s durable life. “Early on, reporters would ask, ‘what’s your warranty on the battery?’ We would tell them eight years, and then they would ask how much a replacement costs, assuming that you had to replace it after the warranty is over. The typical warranty on an engine is four years. Do you replace it after that? No. We don’t anticipate the batteries coming out of these vehicles.”
Because the industry is so young, there is still a bit of uncertainty about how to define a plug-in’s residual value at the end of the lease term. The problem is that there isn’t a history of resale value yet. However, many indicators point towards EVs and PHEVs retaining a high value.
“If you look at some of the big fleet managers out in California, they’re finding twice the value at auction for standard hybrids over typical gas models,” said West. He believes the market for used PHEVs will be even stronger. “If you were buying a four-year-old vehicle at auction, which would you rather have, a 12 MPG van with the warranty up, or a 100 MPG van that has four years left on the warranty?”
As for battery life, all four companies report a gradual capacity fade of around 20 percent after ten years, a variable that can easily be accounted for through things like proper pack sizing. There are many fleets that will just change the route for the older all-electric vehicles, sweating the asset down for many years. There is also inherent value in the batteries for a second life, perhaps for grid storage or data center backup.
Motiv supplies systems for final-stage manufacturers that also offer leasing options. Also, the company is working with a battery manufacturer that offers battery leasing programs. By combining a vehicle and battery lease, a supplier could put together a unique financial package for companies that are averse to making the initial capital investments. Battery leasing could also allow an electric truck operator to replace the pack every five years with the next generation of smaller, lighter, cheaper batteries – another attractive advantage.
Full speed ahead
Plug-in fleet vehicles are a bit of a sophisticated purchase. You’ve got to think about the ink and the printer. The advantages are huge, yet a little nuanced. Luckily, fleet operators are good at making complex evaluations, so it’s full speed ahead for these four EV companies.
VIA Motors has about 50 vehicles built and deployed in various pilot programs. 200 more are going out this summer as part of a DOE ARRA-backed initiative with the Electric Power Research Institute. The company is building about 2,000 vehicles this year to give to partner fleets, and has plans to deploy about 20,000 more over the next two years.
Boulder Electric Vehicle has been gradually ramping up production since its launch in 2008. “We’ve gone from one a year, to one a month, to one a week, and by the end of the year we’ll be at one a day,” said Brown. “By the end of next year we’ll be between five and ten a day.”
Motiv Power Systems uses the ship-through model of production, similar to what is done for many natural gas trucks. It takes a truck platform from an OEM and works with final-stage modifiers to install the electric powertrain. “Our school bus partner does seven vehicles per day, and our shuttle bus partner does six a day,” said Castelaz. “For us it’s a matter of producing electronics, and that’s a very easy thing to manufacture and scale.”
Smith Electric Vehicles has a little over 700 vehicles on the road with its new generation of lithium-ion technology. Frito-Lay, Smith’s largest partner, has over three million miles on its trucks, and Smith’s entire fleet has surpassed the five-million-mile mark.
This article originally appeared in Charged Issue 9 – AUG 2013