Commercial fleets are a logical place to introduce battery-powered electric vehicles. After all, fleet vehicles operate with relatively predictable driving patterns, return to a central location overnight, and are managed by sophisticated logistics professionals who can weigh the cars’ lower fueling and maintenance costs against their premium purchase price. Last year, managers of large fleets began exploring in earnest what EVs offer, kicking off demonstrations that will come to scale this year.
Companies such as FedEx, PepsiCo (through its Frito-Lay business), and AT&T are each deploying tens to hundreds of electric delivery vans from manufacturers such as Navistar, Smith Electric, and Azure Dynamics. And in November General Electric announced an aggressive plan to make EVs account for half of its 30,000-vehicle fleet by 2015 and to lease another 10,000 EVs to other commercial fleets managed by GE Capital.
Motivations vary. Going electric confers an image of corporate responsibility on these early entrants, and for GE it also primes the market for wares such as GE-designed charging stations. But Oliver Hazimeh, director of the automotive practice for the Boston-based management consultancy PRTM and an author of a November 2010 report on fleet electrification, sees more than a marketing play. Hazimeh says the early adopters anticipate an inevitable shift to electric transportation and are learning through doing: “They’re all looking at the fundamental drivers and saying oil prices are not going to be cheaper and less volatile, emissions regulations are going in one direction, so for the longer term we have to start turning our fleet toward this technology.”
That idea is based on projections that the cost of lithium batteries will plummet over the coming decade. PRTM’s analysis shows EVs offering the lowest overall cost of ownership for fleet vehicles between 2015 and 2018 as lithium battery costs drop below $400 per kilowatt-hour, from an estimated $600 per kilowatt-hour in 2010.
However, it’s not certain that battery prices will drop that steeply, and major automotive players such as Toyota are betting that they will remain high through 2020 (see “Will Electric Vehicles Finally Succeed?”). This uncertainty, coupled with the batteries’ unproven life expectancy, represents the biggest challenge for fleet operators struggling to make a business case for electric vehicles. “We don’t know exactly how long the batteries will last,” says Hazimeh. “At the end of the day, if I resell the car at auction and have this huge risk provision, it muddies the water quite a bit.”