Sustainability has been in the forefront for commercial and government fleets since the enactment of the Clean Air Act Amendments of 1990 and the National Energy Policy Act of 1992; however, 30 years later, the commercial fleet marketshare percentage of alternative-fueled vehicles in operation has yet to break double digits. Why?
Automotive Fleet surveyed a wide cross-section of fleet managers and suppliers on the topic of fleet sustainability and here are some of the reasons they cite. Commercial fleet managers say corporate sustainability initiatives continue to be a strong trend at their companies, but this desire is tempered by the limited product availability of low- and zero-emission vehicles that are capable of fulfilling a wide cross-section of fleet applications.
Another factor reported by corporate fleets is that overall total cost of ownership (TCO) is higher for alternative-fuel vehicles. However, others present the counterargument that focusing on initial acquisition cost is a short-sighted strategy that doesn’t consider the long-term opportunities.
“Companies need to be prepared to look at the long-term benefits of electric vehicles instead of the upfront cost of the lease. Electric vehicles (EVs) may cost more initially, but can turn out to be very beneficial to them — and the environment — in the long term. Only time will tell exactly how the EV landscape changes the industry, but companies need to be prepared for it regardless,” said Carolyn Edwards, SVP, client success for LeasePlan USA.
EVs Get a Second Wind
In recent years, interest in alternative-fueled vehicles, in particular EVs, has gained a second wind, with renewed examination from a wide variety of fleets. There are various reasons for this, but what is catching the attention of many has been the onslaught of future product announcements from OEMs on forthcoming hybrids and battery-electric vehicles (BEV), with some OEMs stating that every model in their product lineup will have either a hybrid or BEV counterpart.
“There is so much publicity about electric vehicles and greenhouse gas emissions that it feels like the industry may see a greater migration to these types of alternate-fuel technologies in the near future,” said Dave Meisel, executive vice president – operations for Quanta Services. “That will be a huge change for the way the industry does business ranging from the skills of our technicians to the limitations of charging or fueling infrastructure to incremental regulatory or compliance requirements to name just a few. No one knows exactly where it is going to go or when, but rest assured the impact on the industry will be huge.”
With this as background, one industry observation validated by the AF survey remains true — safety and sustainability, despite impediments, continue to be a major focus for many fleet managers, as was exemplified by Larry Kellermeyer, global category manager at Crown Equipment Corp., who cited sustainability and the environmental impact of his fleet as one of his top challenges.
Plus, there is currently a generational demographic change occurring in the commercial fleet industry, which is increasing overall receptivity by these next-gen users to operate alternative-fuel vehicles.
"CO2 emissions reduction is a global trend and next-gen employees have bought in — it isn’t going away,” said Tom Callahan, president of Donlen.
In addition, many U.S. fleets are being asked by their European-headquartered parent company to conform to corporate-wide sustainability targets. Also, a growing number of multinational companies have committed to become carbon neutral or go all electric in the next five to 10 years. One example is the EV100 initiative, which is a global business initiative designed to fast-track the uptake of electric vehicles and infrastructure.
Globally, there is an ongoing proliferation of corporate initiatives to reduce greenhouse gas emissions, with European fleets in the vanguard. European environmental regulations are migrating from CO2 reductions to reductions in aggregated emissions, which include not only CO2, but also NOx and particulates. Despite the high cost, many companies, in all global regions, remain fully committed to achieving self-imposed sustainability targets, especially multinational corporations.
In the U.S., there are six key factors that are driving (or impeding) fleet sustainability programs:
- Corporate social responsibility.
- Stakeholder pressure.
- Limited charging infrastructure that keeps range anxiety a user concern.
- Limited green alternatives with medium- and heavy-duty trucks.
- Expansion of sustainability initiatives beyond the vehicle that incorporates fleet maintenance facilities.
There is also a less tangible, but very real impediment to the transition to alt-fuels, which is user pushback.
“From my personal perspective I believe a key ingredient to implementing a successful fleet sustainability program is change management,” said a fleet manager who wished to be anonymous. This fleet manager defined change management as the process, tools, and techniques to manage the driver and management side of change to achieve the required business outcome. He contends that change management of drivers is essential for a corporation to successfully transition to the adoption of alternative-fuel powertrains.
To minimize user pushback, some fleet managers opt for a strategy of incremental change. For instance, many vehicle electrification strategies tend to combine hybrids and dedicated battery-electric vehicles in the same acquisition bucket, with the focus on hybrids. The fastest growing portion of the fleet vehicle electrification segment are hybrid acquisitions.
“We are looking for greener vehicles. All of our business-use sedans that go into service are now hybrids,” said Jim Bigelow, senior director, enterprise fleet for Cox Enterprises. “We have been acquiring 90-plus hybrids per year for the past four years. We are focusing on the safest vehicles in the fleet trim level. The No. 1 challenge continues to be obtaining green vehicles from the OEMs. At the moment, the trend is that the most OEMs are ‘skipping’ hybrid and moving along to electrification.”
In addition, fleets that operate in-house maintenance facilities, such as Cox Enterprises, are incorporating these operations into their overall corporate sustainability programs.
“We are greening all of our shops,” said Bigelow. “This includes all aspects of our fleet from cradle to grave. For example, we are working with OEMs and upfitters to manufacture/build a greener vehicle/upfit, which includes all components of the assembly.”
Most fleet managers whose corporation have made a commitment to increase the number of EVs in fleet operation are struggling to meet corporate targets.
“It is a challenge to find an affordable means of introducing more electric and hybrid vehicles types into the current fleet profile,” said the fleet manager who wished to remain anonymous.
All fleet managers say that alternative-fuel vehicle selection is very difficult, even though more alternative-fuel vehicles are offered every year. The reason for the difficulty is that the entry price points are still higher than the gasoline comparable model. “The company wants fleet to demonstrate a favorable ROI of alternative-fuel vehicles, when comparing them to their gasoline comparable. This is very difficult to do with the premium entry-level price charged for alternative-fuel vehicle, which creates a price gap between the two,” said another fleet manager who wished to be unnamed.
Difficulties in Going Green
One difficulty with a global sustainability program is to align governmental mandates with OEM product availability.
“There is a big lack of coordination between what a government makes mandatory and what manufacturers can actually produce,” said Ralf Wessel, manager global security, global fleet and corporate facilities at AGCO Corp. “Many countries seem to go their own way.”
Many fleets operate a mix of light, medium- and heavy-duty vehicles. The fleet as a whole is judged on its sustainability, but many products do not offer a green alternative.
“One challenge has been getting the OEMs to provide ‘green’ vehicles in medium/heavy duty range,” said Bigelow of Cox Enterprises. “It is a challenge in getting them to understand that this lack of product availability is hindering us from meeting our green goals.”
The limited number of vehicle segments that are battery-powered was cited by other fleet managers as the reason why their EV adoption rate is constrained. “The majority of our fleet is medium- and heavy-duty trucks. Until there is a solution in this space that is cost-neutral to our organization, I don’t believe EVs will fit our needs,” said Amy McAdams, director of fleet for MORSCO.
Recent announcements by different automakers about future product plans indicate that there will be a wider availability of alternative-fuel powertrain options in the coming years.
“Manufacturers are moving their businesses to more ecological and more electric solutions so fleet managers (and their companies) will soon no longer be able to use the manufacturers’ lack of product as a rationale for fossil fuel vehicles anymore; and costs will climb. Product will be there, and fleet will need to understand how to choose the right solution,” said Michael Bieger, global fleet manager at Catholic Relief Services headquartered in Baltimore, Md. “Sustainability initiatives are especially challenging for the NGO world as infrastructure support for electric vehicles, in the areas that we operate, are not as widespread as in Europe or the U.S. So great care needs to be taken to balance sustainability with the need to successfully deliver services.”
Implementation of alt-fuel vehicles in nationally dispersed fleets will continue to be challenging due to regional variances in incentives, rebates, and product availability on a national basis.
“If you get past the budget concerns, policy issues surface, particularly if you are considering implementation of EVs,” said Sheri Hardesty, global fleet leader at Jones Lang LaSalle (JLL). “We are entering uncharted territory. How do you charge employees for their personal consumption of electricity in their EV or reimburse them for charging at home or elsewhere? If your company is really progressive and implements workplace charging stations, how do you allocate or align their usage?”
In the future, a new fleet management challenge will be the management of 100% electric vehicles. The availability of plug-in electric vehicles by OEMs for traditional fleet applications ultimately makes its feasible to contemplate the creation of a 100% battery-powered fleet.
“When vehicles are assigned for take-home use, thus preventing the opportunity for recharging at a centralized location, this may require the investment of a Level 2 charger and adequate power supply at the employee’s home (a 240V / 30amp service similar to what is needed for a home laundry dryer) to which the Level 2 charger is plugged in,” said J.J. Keig, corporate fleet manager, The Americas for CBRE. “All vehicles may be charged by an OEM Level 1 charger, only requiring a standard 110V power supply. However, the total time required for a full charge may be excessive. What is the best method to ‘meter’ the energy consumed by the charger? Add to this the significant challenge for most homeowners to fully understand their actual kilowatt hour (kWh) electric rate (including taxes, surcharges, and fees); what is an easy method for the employer to compensate the employee for the actual energy used to recharge an electric vehicle? Without an actual ‘use meter’ the method of calculation for energy used is anything but straightforward.”
This administrative burden only increases as the number of EV take-home fleet vehicles is expanded.
“Now, extrapolate this process with 10, 20, or several hundred employees. Metering and reimbursing employees driving company-provided EVs for energy used to recharge their company vehicle has the potential to become an administrative burden,” said Keig of CBRE. “Not all 240V / 30A receptacles use the same configuration, there are at least four different designs that I am aware of. Therefore, not all plugs will interchange with all 240 V / 30A receptacles. This can result in unplanned problems when sourcing a Level 2 charger.”
Another issue is that many employees who would be eligible to receive an EV company vehicle reside in an apartment building.
“If an employee lives in an apartment complex (with no reserved parking spaces) or a parking garage, the cost to run a 240 V / 30A service may be much more than originally planned,” added Keig of CBRE.
A sustainability program requires in-depth planning to meet the company’s long-term goals.
“As more efficient fleet vehicles are introduced, companies will need to analyze key variables, such as cost, productivity, and reputation, to make the best decisions regarding sustainability,” said Joe Stergios, business development manager for Enterprise Fleet Management. “And, to help make those assessments, companies should consult with their fleet management partner to determine what information they offer based on specific fleet models.”
What will Prevail or Fail?
The fundamental stumbling block for fleets is uncertainty as to which alternative fuels will prevail and which will fade away. “The challenge is determining the best road to sustainability. This is a broad category, and encompasses a number of challenges for fleet managers. It goes beyond just making the right choices from a fleet perspective, but more than many other issues, challenges fleet managers to respond to executive inquiries to stay on top of latest technology, and to separate the ‘want to have’ from the reasonable alternatives,” said one fleet manager who asked not to be identified.
Many fleet managers cite uncertainty as to what is the best path to take and reluctance to making the wrong decision.
“For example, what power choices (gasoline, diesel, propane, CNG, or electricity) do I spec for my fleet given the fact that when it is time to take the vehicle out of operation some or all those power choices may be out of favor and it will be like trying to sell a horse and buggy,” said one fleet dealer who asked for anonymity.
This concern was echoed by another fleet manager of a Fortune 50 company, who also wished to remain anonymous. “We are not implementing long-term sustainability solutions because we need to allow for change in electrification and autonomous vehicle technology. There are financial risks to be ahead of the curve.”
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. “As our leadership team continues our focus on sustainability, we have seen a surge in both hybrid and EV interest within our executive fleet,” said Adam Orth, CAFM, Global Business Solutions – fleet services manager for General Mills Inc.
Many companies, especially those that are publicly held, are experiencing pressure from stakeholders to reduce CO2 emission and increase fuel economy standards for the company vehicles they operate.
One unanticipated dividend to fleet managers is providing them with greater interaction with 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 GHG. Many companies are on this path,” said one fleet manager who asked not be identified.
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 Meisel of Quanta Services.
Due to the initial acquisition cost of many alt-fuel vehicles to either acquire 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 (FMV) 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 Hardesty of JLL. “If your company provides workplace charging to attract and retain progressive employees or to enhance a company’s image or gain points toward LEED certification, the facilities team may be responsible for the installation of the stations, but ultimately the fleet manager will need to deal with challenges of utilization.”
(Editor’s Note: LEED is an acronym for Leadership in Energy and Environmental Design, a set of standards for the construction and operation of green buildings administered by the United States Green Building Council.)
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
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 Cynthia Walker, buyer and fleet manager for Caterpillar.