The biggest challenge for many fleets is funding CO2 reduction in an era of budget constraints.
“The issue is having to green without the ‘green.’ The biggest problem fleet managers face is that the greening the fleet concept costs a lot more. However, no extra funds are allocated by management,” said Phil Schreiber, contract specialist temp for Schindler. “At the same time, new companies/OEMs such as Tesla, Lordstown, Nikola, and Rivian are in the news constantly with new electric vehicles. But these new vehicles are not or will not be available for the common fleets for the next two to three years. This process of greening the fleet will require monetary commitment and time to allow fleets not only to switch vehicles, but to build the infrastructure around the new electric zero-emission fleet.”
Stakeholder Pressure for EVs
In an informal survey of a wide cross-section of fleet managers, many companies report that there is increased receptivity among senior management to add EVs to their fleets as a way to attain corporate sustainability goals.
“With California leading the way (no surprise) in their zero-emission goal, once again the electric car/hybrid becomes a hot topic for many folks. From sustainability goal standpoint, we all want to get there – the question is how do we balance the relatively low incentives versus demand versus corporate goal versus driver satisfaction? Are we going to be able to start moving the dial in the next few years?” said Jen VrMeer, senior manager, Operations Support / Sales Operations for BD (Becton Dickinson).
Many fleet managers, especially those who work for publicly held companies, say they are experiencing pressure from stakeholders to reduce CO2 emissions and increase fuel economy standards for the company assets they manage.
“Political and public pressure will continue to drive fleet analysis for purchase and use of non-fossil fuel vehicles. Depending on business requirements and advances in electric vehicle infrastructure fleets will accelerate electrification conversion timelines,” said Charlie Schott, managing director for Schott and Associates.
One unanticipated dividend to these sustainability pressures is that fleet managers are having greater interaction with their senior management, allowing them greater opportunity for recognition.
“One value of a fleet sustainability program is that it provides you with the opportunity to engage in the deliberations with senior leadership. Not in just the fleet space, but the company’s overall impact in greenhouse gas (GHG) emissions. Many companies are on this path,” said one fleet manager who asked not to be identified.
In addition to operating zero-emission or low-emission vehicles, corporations are also targeting the use of renewable fuels to generate the electricity to power their manufacturing and administrative facilities.
“We have set a target to reduce by 2027 our greenhouse gas emissions at our manufacturing and owned facilities. We will expand our purchase of energy from renewable sources, including wind and solar, across our global footprint where possible,” said Keith Scolan, manager, global fleet for ITW.
Repeatedly, fleet managers at many companies, in particular multinational corporations, told Automotive Fleet that they are being tasked to transition their fleets to renewable energy and, as a result, sustainability is now uppermost in their minds as fleet managers.
“As electric or hydrogen-powered drivetrains are becoming more technically and economically viable for large vehicles, we see an opportunity to transition a growing number of fleets to these cleaner fuels. By extension, we see a transformation of the economics of fleets (TCO across the fleet) that enables operators to invest more in vehicle safety solutions and driver training,” said David Braunstein, president for Together for Safer Roads.
Need for Fleet-Friendly Product
One temporary issue hindering the transition to more sustainable fleets has revolved around limited availability of fleet-friendly products that can be ordered now.
“What the commercial fleet industry wants is fleet-friendly EVs,” said Angela Gregorowicz, fleet cooperative account manager/consultant for LeasePlan USA, providing services to Novartis fleet operations. “This includes the desire is to have all partner companies in the fleet ecosystem have EV expertise, such as transport vendors, maintenance shops, etc.”
According to the surveyed fleet managers and fleet suppliers, in order for EVs to find widespread adoption by commercial fleets, products need to be designed as fit-for-purpose. An interim procurement strategy to mitigate budget constraints is to focus on the acquisition of less expensive hybrid models.
“We will continue to see an overall increase in demand for hybrid models as fleets look to improve their performance on green initiatives. FCA has several vehicles to meet this demand with more being introduced in the near future,” said Frank Dankovich, director of fleet sales for Stellantis Group.
On average, the rule of thumb is that about 12% of today’s vehicles in a diverse fleet can be electrified based on today’s battery technology according to electric vehicle suitability assessments. This average promises to increase as a greater diversity of EV models are introduced. As a result, companies that want more sustainable transportation are turning to hybrid vehicles.
“While there are many EVs in circulation today, finding the right price point and the right fit-for-purpose EV is extremely limited right now,” said Sharon Etherington, senior procurement manager for Roche Diagnostics Operations Inc. “The OEMs are working hard to come to market; however, many fleet organizations are ready to move immediately. Therefore, having various hybrids and plug-in hybrids, may be the only solution, until the OEMs have fit-for-purposes EVs introduced in the next several years.”
Another ongoing consideration to the implementation of EVs is battery range.
“As we continue to push for electric vehicles when will this technology support longer ranges (above 300 miles) and when will we see an effort to create easy fuel solutions with quick charging technology?” said Ralf Wessel, manager global security, global fleet and corporate facilities for AGCO Corp.
EVs Require More Management
Acquiring assets is the easy part of a sustainability program. The hard part is managing a sustainable fleet and staying focused on pursuing corporate sustainability goals.
“The current environment presents a lot of distractions, but it’s important to remain focused on strategy and commitment to business plans for long-term benefits. Maintaining this focus can be challenging but is critical if you want to maintain progress,” said Dan Belknap, head of product management for Wheels Inc. “A common example can be sustainability goals and commitments to shareholders. For companies committed to running a carbon neutral fleet by 2025 or 2030, they must remain focused if they expect to achieve those goals.”
Another important consideration is balancing a CO2 reduction program without increasing the fleet’s total cost of ownership (TCO). There will continue to be the challenge of finding solutions to reduce CO2 emissions while at the same time providing the best TCO and the right vehicle for the job. In the light-duty world, those solutions are not simple and there are many factors to consider.
“These days, there is a lot of talk about the adoption of electric vehicles, but today there is still only a short list of broad business case scenarios that will work,” said Abe Stephenson, senior business operations manager for DISH Network. “This appears to continue as a bottom up approach where specific locations and markets need to be targeted for adoption, which will still take years until a sizeable fleet has enough access to charging infrastructure and counts of vehicles in the fleet to allow electric vehicles to be fluid and proportional part of the fleet. Until then, managing these vehicles will be an exception and require a disproportionate amount of time to manage the requirements of the program.”
Some fleet managers say the greatest challenge for fleets in the near- to mid-future in the transition to electrification is the potential impact on employee productivity.
“As more corporations set aggressive carbon reduction goals, fleet is always a primary area of focus due to its large carbon output. Though there are several options to help fleets work toward carbon neutrality, electrification is currently the best option for fleets to meet assigned goals,” said Mark Leuenberger, vice president for Cox Enterprises. “Aside from vehicle-oriented challenges, such as availability, capacity, range, and infrastructure, there are significant challenges related to productivity, particularly in the service industries. The loss of productivity due to charging time and location of infrastructure, if not addressed, can be far more costly to companies than the initial cost of vehicles and installing infrastructure.”
The question is, how fast and how soon are EVs going to be widely incorporated into commercial fleets? And what factors are fleet managers considering when evaluating EVs and other alternative-fuel vehicles? As time goes forward, and the EV product lines from OEMs continues to grow, along with alternative-fuel vehicles from conversion companies, what are the considerations needed to make a full thorough analysis?
“Integrating vehicle replacement strategies that incorporate sustainable vehicle solutions while balancing the work method objectives of the vehicle operators,” said Tony Orta, fleet operations manager – support services for Southern California Gas Company.
ROI on EVs
The main obstacle to acquiring full-electric EVs, according to the surveyed fleet managers, is the upfront acquisition cost, decreasing federal and state incentives to offset the high cost and unknown TCO and residual values.
“We need to ensure that the ROI is clearly managed and communicated. Partnering with finance is key to ensure they understand the why and the how finances for the electric vehicle will be managed and tracked,” said Etherington of Roche Diagnostics. “Also, we need to ensure that the drivers are properly utilizing their vehicles in the most cost-effective way through education and training.”
Surveyed fleet managers state that the ROI for hybrids and EVs is critical in order to obtain senior management approval for these expenditures.
“Calculating the benefit of hybrids and EVs for sales/corporate fleets. is very important. Municipalities seem to be reaping the benefit. Would corporate fleets see a benefit as well since the technology has really advanced and, there are more model options? How to get buy-in with your drivers?” said Nancy Barlage, CAFM, fleet manager of Element Fleet Management.
Long-Term Acquisition Strategy
The media coverage and public expectations for alternative-fuel vehicles remains enormous, and gains in the light-duty retail automotive marketplace appear to be consistent with the product options either available or close to available.
“Unfortunately, the commercial vehicle product development cycle is lagging behind the light-duty sector, but progress is being made,” said Steven LaPorte, vice president, transportation & engineering at Iron Mountain Information Management Services, Inc. in Boston, Mass. “The challenges for the fleet manager are generally two-fold — calculating a TCO when you do not have a history of maintenance expense as a reference, and more importantly, have no residual value assumption to apply because of very limited and relatively illiquid secondary market.”
Another impediment for nationally dispersed fleets is the lack of uniformity between federal and state regulations and the variation in regulations from state to state.
“Clean air regulations and programs like the ZEV mandate that has migrated from California to nine other states are making it very difficult to build a long-term strategy for fleet acquisition. Not knowing for certain which states are going to require which propulsion systems or when they are going to require them is a real challenge, particularly for long-life vehicles,” said David Meisel, executive VP – operation for Quanta Services.
Due to the initial acquisition cost of many alt-fuel vehicles to either acquire a new unit or retrofit an existing unit, it is necessary to receive financial incentives from the government to justify the lifecycle cost of these vehicles. However, as has been shown over the past several decades, these incentives will fluctuate or may expire without being renewed.
“Currently, government subsidies are an absolute necessity to make financial sense when acquiring an alt-fuel vehicle, but these are administered at the state level, with each state enforcing their own individual requirements, processes, and agencies. For a national fleet, this quilt-work makes it exceptionally difficult to develop a coherent strategy when attempting to employ alt-fuel vehicles in multiple markets,” said LaPorte of Iron Mountain. “As an example, one of the more common requirements mandates the complete retirement of an older existing vehicle, meaning you have to drill the block, thus forfeiting residual fair market value for that vehicle unless you have a very poor vehicle to sacrifice. This further adds to the administrative complexity and the TCO.”
Corporate social responsibility is a key factor in motivating corporate sustainability programs. Fleet plays an important role in projecting good corporate citizenship. Clearly aligning a fleet policy with the corporate sustainability strategy is a requirement. Governmental regulations, employee and client perceptions of a company’s attitude toward the environment are sometimes driving fleets to move quicker than the budgets or fleet policies that are in place.
“Fleets must consider more eco-friendly vehicles when procuring new vehicles and incorporate reduced emissions and fuel consumption into the overall fleet strategy, but this requires alignment with policy and budget owners who may be less interested in sustainability,” said Sheri Hardesty, Global Fleet Center of Excellence (COE) leader/associate director for Jones Lang LaSalle (JLL).
Other additional factors still need to be addressed when implementing a fleet sustainability initiative, such as a unit’s total cost of ownership, employee reimbursement of electricity charges, and reduced cargo-carrying capacity.
Limited Charging Infrastructure
Another challenge in achieving corporate sustainability goals is the limited network of recharging stations and the emerging fleet ecosystem to adequately service and maintain a nationally dispersed fleet of EVs.
“Fleets are looking more closely at alternative fuels and full electric vehicle opportunities over the next few years,” said Doug Balella, strategic account manager for The Knapheide Manufacturing Company. “Infrastructure development, vehicle availability, total cost of ownership, and upfit potential will weigh heavily on decisions to transform fleets from diesel/gasoline-based vehicles to more environmentally friendly versions. Though early in the transformation stage, fleet managers will need to consider what opportunities are currently available as well as what may be in the next one, three, five, and even 10 years when planning vehicle replacements.”
The fueling infrastructure for electric, natural gas and hydrogen-based propulsion systems are not expanding at the pace of projected vehicle sales, even though some states are mandating these new fuel types. “It’s just a matter of time before this becomes a big problem,” said Meisel of Quanta Services.
This concern was echoed by another fleet manager. “Electric vehicles are becoming more common, but the infrastructure and range anxiety make it difficult for fleets,” said one fleet manager who wished to be anonymous.
This has been the proverbial “chicken versus egg” dilemma. Infrastructure companies are reluctant to install a widespread refueling or recharging network until there is a large enough population of alternative-fuel vehicles on the road; while consumers and fleets are reluctant to buy alt-fuel vehicles until there is a sufficient refueling/recharging infrastructure in place. In the case of fleet, the chicken versus egg is an industry metaphor where it is not clear which of these two variables — the product or the refueling infrastructure — should be considered the cause and which should be considered the effect. The end-result is that the metaphor’s nullifying logic cancels out growth in either area.
“As ranges get better there are some applications for EVs in commercial fleets. I still haven’t figured out how the charging would work in our salespeople’s homes, such as how they would be compensated for their electricity use,” said one fleet manager who asked not to be identified. The other issue, especially with EVs, is the length of time it takes to refuel or recharge a vehicle.
“My drivers covering wide territories, a charge must be as long as a gasoline fill up. It cannot take an hour or even a half-hour to charge a vehicle. I need EVs to get more miles per charge and have the ability to find a charging station anywhere as we travel to a lot of remote areas,” said one fleet manager.