The Economics of Commercial Fleet Electrification: Balancing Cost and Sustainability

Alongside electric vehicle charging infrastructure challenges, cost is a top challenge to the widespread commercial adoption of zero-emission vehicles. For some use cases, the economics of battery-electric vehicles stack up well to the economics of internal combustion engine vehicles. Last-mile delivery and drayage are good examples. But there are still use cases, such as heavy-duty long haul, where the economics of BEVs may not be as favorable — at least not yet.

For some fleets, the sustainability benefits of BEVs drive electrification, even for use cases where economics are not yet as favorable.

Those are takeaways from trucking fleets and others speaking at ACT Expo 2024.

As Art Vallely, president at Penske Truck Leasing explained while moderating a CEO roundtable on scaling vehicle electrification at ACT Expo, some fleets are pursuing electrification “regardless of the ROI” because they’ve made “ambitious sustainability commitments.” But the vast majority of fleets “are eager to transition to ZEV when total cost of ownership and vehicle performance are on par with traditional fuels," he said.

For many fleet operators, keeping costs low is essential to delivering on their brand promise to customers. That’s the case for Walmart, where low prices are the cornerstone of the company's corporate strategy.

As Transportation Vice President Ryan McDaniel explained on a panel with fellow Walmart leaders, “We have to keep cost low inside our transportation business. It’s not acceptable to pass higher costs associated with zero-emission vehicles on to our customers.” (To be clear, Walmart is electrifying substantial components of its fleet — where it can do so without raising cost to customers.)

Speaking specifically about government mandates such as California’s Advanced Clean Fleets rule, Ryder CEO Robert Sanchez said in a keynote address, “It’s consumers who would pay the price if companies are required to convert to EVs before the technology and infrastructure are ready for widespread adoption.”

The impact could be quite significant, Sanchez said, given that 72% of goods in the U.S. are transported by trucks. But that calculus doesn’t account for the substantial positive impact — including financial benefits — of decarbonization. (The California Air Resources Board expects ACF to deliver net cost savings of $48 billion to fleets and save $26.5 billion in statewide health benefits from criteria pollutant emissions.)

Factors Affecting Total Cost of Ownership for Electric Trucks

When it comes to assessing the economics of electrification, it’s not only the cost of the vehicle that matters. While the purchase price of a BEV is typically higher than a comparable internal-combustion vehicle, other economic factors affect the total cost of fleet ownership.

TCO also includes the cost of fuel, the cost of the chargers and the charging facility, and is influenced by a variety of other factors, including maintenance costs, payload capacity, and time in use.

Thinking about vehicle procurement cost, Walmart Senior Engineering Manager Brooke Weeks explained, “We hope the cost curve will start bending as there is more consistency and scale in vehicles, but today for some use cases ZEVs are two-and-a-half times the cost of diesel.”

Einride, on the other hand, is “seeing variable costs lower with EVs than ICE trucks,” explained David Hallgren, general manager of Energy & Charging Infrastructure. Recouping the higher upfront investment associated with BEVs “is all about utilization," he said.

On operating costs, Walmart’s Weeks said, “We are seeing lower operating costs for zero-emission vehicles and we can achieve more by managing charging schedules and sharing charging infrastructure.”

Warren Moore, vice president of dedicated delivery at Walmart added, “In the last-mile space I’m proud of the strides we’ve made to make operating electric vans on par with ICE vans. And we’ll continue to get better through operational factors like routing and how we load.”

Payload capacity is an important cost driver because it can affect the number of zero-emission vehicles a fleet needs.

In Tesla’s first appearance on the stage at ACT Expo, Dan Priestly, senior manager of Tesla Semi, said, “We understand that maximizing payload is key to success.”

For many heavy-duty use cases, electric vehicles cannot carry the same payloads as diesel vehicles can, so fleets need to buy and operate more EVs to manage the same total loads. That’s poor economics, even if an EV truck cost the same as a diesel truck.

Megawatt-level fast charging, Priestly said, unlocks the next level of economics. “We’re actively using MW charging in the field today, and it is unlocking operational equivalents between EVs and ICE vehicles. We’re in a position where we only need one EV to replace one diesel vehicle.”

Keith Wilson, president and chief executive officer of Titan Freight Systems, which added electric trucks to its fleet last year, agreed that megawatt-level charging is key to optimizing the value of EVs in the fleet.

“If I can get between two and four trucks on one charger, that really drops the total cost,” Wilson said. “I want each truck to run 20 hours a day in a two-duty cycle, but I need a MW charging network to accomplish that.”

Operating costs “pencil out fast” Wilson said, “when I can really sweat my capital assets.”

The Use Case Matters

Total cost of ownership depends heavily on the use case. Class 8 drayage trucks that drive defined routes and fairly short distances are ideal for electrification, for example. So are light-duty and medium-duty delivery vehicles driving urban routes and returning to base at night.

It can be more difficult to make the economic case for BEV Class 8 trucks that drive varied long-haul routes.

Ryder recently published a report, Electric Vehicle Total Cost to Transport Analysis, which revealed that for Ford Transit vans running short-haul deliveries of about 80 miles, two trips per day, with an average payload of 2,500 pounds each, there is almost cost parity between ICE and EV.

Operating an electric transit van in California costs 3% more than an ICE van. Most of the higher cost is due to the price of the vehicle (71% higher for EV) and higher labor costs (19%) due to additional hours of service required for EV charging time. Those costs are mostly offset by lower fuel costs (71% lower for EV) and lower maintenance costs (22%).

However, the TCO difference is substantially larger in Ryder’s analysis for Class 8 trucks running hauls ranging from 100 to 500 miles, running one to two trips per day.

The average payload is 29,000 pounds for an ICE truck and 22,000 pounds for an EV.

“Given the payload differences between ICE and EV heavy-duty commercial vehicles, as well as accounting for EV charging time and equivalent delivery times, Ryder estimates that nearly two EVs and more than two drivers are needed to equal the output of one ICE vehicle," said Robert Sanchez, Ryder System’s CEO and chairman.

While fuel costs and maintenance costs are substantially lower for EVs in this scenario, too, the need for additional vehicles and the higher price of those vehicles makes the economics quite challenging.

Ryder’s analysis reveals that in this scenario it costs 94% more to operate a fleet of EVs than ICE trucks.

Nevertheless, Sanchez reflected optimism that the cost gap between diesel and electric will close. Drawing a parallel with the evolution of the cell phone — from the 80s-era “brick” to today’s pocket computers — he said, “That first cell phone wasn’t the answer, but it paved the way for the development of cell phones as we now know them.”

To get there in the transportation space, he said, requires “a breakthrough in battery technology, reduced vehicle cost, and ubiquitous fast charging infrastructure.”

Sanchez added, “Also remember there are other ways to reduce vehicle emissions beyond BEV.”

Shelley Simpson, president and incoming CEO at J.B. Hunt Transport Services, shared a similar perspective: “Customers are approaching us to reduce their carbon footprint. and they’re often interested in ZEVs but surprised when we talk about carbon intensity relative to cost.”

J.B. Hunt measures dollars spent per metric ton of carbon reduced, and the goal is “to reduce our carbon intensity in the most economical way possible,” Simpson added.

The Role of Incentives in Commercial EV Adoption

Given the outsize impact of higher EV purchase prices on TCO, incentives and grants that subsidize EVs can make a big difference in the economics of electrification — allowing fleets to fully reap the benefits of electric vehicles’ much lower fuel and maintenance costs.

Speaking on a panel, Fleet Case Studies – Heavy Duty Vehicle Charging, Titan’s Keith Wilson shared his fleet’s TCO breakdown.

Even with a $160,000 discount from grants and a federal tax credit, the unit cost of an electric Class 8 truck is still 72% higher than an ICE truck. Utility make-ready credits for infrastructure and federal tax credits for chargers reduce the cost associated with charging, but a fleet doesn’t have to expend any money on that with ICE vehicles.

It’s with variable costs that the benefits of electrification start to show, Wilson added. Titan receives a per-mile credit from the Oregon Clean Fuels Program, which actually brings variable costs below $0. Not counting that, Titan’s fuel costs per mile are about 63% lower with the EV than the diesel truck. Maintenance costs are 25% lower.  

All told, including the grants and incentives Titan receives, operating an electric Class 8 truck costs 7% less than operating an ICE Class 8 truck.

“And that’s just for the first truck,” Wilson explained. “Once we’ve made the upfront investment in the infrastructure, we’re saving 30% per EV.”

Moderating a panel discussion with leaders from Sysco, Maersk, DHL, IKEA, and PepsiCo, GNA President Erik Neandross asked, “How much electrification is driven by incentives versus doing it because you have to?”

Javier Garcia Atique, regional head of customer delivery for Landside Transportation at Maersk, replied, “Electrification has to be economically viable. EV equipment is more expensive. Over time there has to be a level playing field. Everyone needs to come together and push in the same direction. We need regulatory rules that incentivize the use of cleaner fuels. And we need OEMs to rationalize vehicle price through technology improvements.”

Many fleet leaders explained that currently their electrification plans are not driven by economics but by sustainability goals.

Dan Purefoy, chief supply  chain officer at Sysco, explained, “Today electrification is not a strategy to drive revenue. Its value proposition is its contribution to our transition to zero carbon. It’s helping us fulfill our ‘One Planet. One Table.’ strategy, which represents another step forward in Sysco’s commitment to lead the industry towards a more sustainable future.”

A Decarbonized Commercial Transportation Future Will Take Time

As with any major transformation, the electrification of transportation will take time, and progress will not be even.

The economics already make sense for many use cases, and many forward-thinking companies with ambitious sustainability goals are investing in electrification even for use cases where the economic case for BEVs is still not on par with ICE vehicles.

Even among those fleets who take a slower approach to electrification, there is consensus that transportation will be decarbonized, and it will be beneficial — economically and environmentally.

This contributed guest article was authored and edited according to Heavy Duty Trucking’s editorial standards and style to provide useful information to our readers. Opinions expressed may not reflect those of HDT.