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Are Electric Powertrains The Future Of Commercial Vehicles?

The clout of electric powertrains is growing within the commercial freight mobility space, as economies of scale and market demand are helping the electric vehicle (EV) segment drop equipment costs to levels comparable to that of conventional powertrains.

Benzinga · 02/10/2020 16:20

The clout of electric powertrains is growing within the commercial freight mobility space, as economies of scale and market demand are helping the electric vehicle (EV) segment drop equipment costs to levels comparable to that of conventional powertrains. In North America, the relevance of electric powertrains is even more significant, as unlike developing countries in the East, the market is diesel agnostic and offers several alternative fuel variants for fleets to choose from. 

"Five years ago, the penetration of diesel in heavy-duty trucks in North America was around 91%, which means that 9% of the remaining trucks sold that year were either natural gas, hybrid or electric," Sandeep Kar, the CSO of Fleet Complete, told FreightWaves. "The penetration of electric powertrains has been high already. Though the U.S. has not been an active proponent of climate change initiatives, market forces here are creating the drive for EV adoption."

One of the primary macroeconomic reasons for the growth of electric powertrains in North America at the start of the last decade had to do with record high diesel prices. Adoption was also buoyed by government incentives and tax benefits as governments saw sense in promoting alternative options amid skyrocketing fuel prices. 

Surprisingly, the adoption of electric variants did not cease even when diesel prices steadily kept decreasing over the decade, as the market saw substantial cost benefits to operating EVs over conventional commercial vehicles. 

"Apart from a drop in oil prices, the lending and interest rates in North America are at an all-time low. Now imagine a situation where diesel prices and the lending rates start to increase in the future. You'll see penetration to increase further," said Kar. "From a macroeconomic perspective, free-market capitalism forces are actually driving electric adoption."

This apart, focusing on the demand versus supply dynamics will shed light on the importance of e-commerce in the push toward commercial EV adoption. Data from the Bureau of Labor Statistics shows that e-commerce sales have overtaken — albeit marginally — storefront retail sales over the last year. The e-commerce last-mile delivery segment is only going to grow stronger over this decade. 

"Most of this e-commerce growth is driven by consumers in urban areas. Vehicles will need to navigate under extreme urban conditions characterized by stop-and-go traffic and regulations over miles, emissions and size," said Kar. "Electric vehicles offer much-reduced noise and fuel requirements while producing zero emissions. This is not only environmentally better but also gets several benefits and incentives from the government."

From a cost perspective, it is vital to look at two components — the cost of acquiring a new vehicle and the cost of operating it. An electric vehicle has fewer moving components than a conventional vehicle, as it does not have an engine or transmission — reducing maintenance bills dramatically. Fuel costs, by far the largest operating cost after driver pay, are brought down to a minimum as EVs do not depend on conventional fuel. 

"You can reduce 25-30% of the cost of operating a vehicle by just removing diesel fuel costs, as EV fuel costs are much lower. And once you remove the extremely burdensome service and maintenance aspect of vehicles, it becomes a great value proposition for fleets, as fewer service breaks would mean reduced fleet downtime and increased utilization," said Kar. 

For now, the most significant expense in the manufacturing of an EV is the price of batteries. However, there has been a rapid erosion of battery costs in recent years, owing to the economies of scale being achieved via greater adoption and market penetration. 

That said, power electronics — the electronic intelligence of the vehicles — will be a considerable cost factor moving forward, as this standardized technology will see costs climbing in parallel to increases in vehicle power. Nonetheless, the resulting price of an EV when all these costs of manufacturing are put together will still see a steady decline over the years. 

"One legitimate concern over commercial adoption of EVs are the jobs that would be lost on the manufacturing floor when the production of engines and transmissions are phased out," said Kar. "Governments in democracies are driven by political ambitions and thus they will find it hard to incentivize EVs that will result in massive job losses."

Stimulating EV production also means countries will lose out on making billions through fossil fuel taxes, impacting state expenditure on infrastructure. Kar contended that telematics could offer some hope in the future to governments, as they could monitor the number of miles being driven by an EV and look to tax them accordingly — but at a lower rate compared to a conventional vehicle. 

"It is important for governments to push for EVs. In this era of globalization where most automakers have a global presence, we need to have a common platform so that we don't spend on developing diesel and electric vehicles at the same time," said Kar. "It is about time countries align their goals and start incentivizing EVs for a better future."

Image Sourced from Pixabay