How top corporates are navigating the transition to zero emission fleets?
We found that a combination of EV supply chain constraints, long waiting lists, and charging infrastructure concerns are hampering the transition. But at the same time soaring fossil fuel costs and the growing popularity and effectiveness of EVs are strengthening the business case for deploying zero emission models as quickly as possible in a rapidly expanding number of use cases.
The auto industry is in the midst of its biggest transformation in over 100 years.
With the government’s ban on sales of new petrol and diesel cars and vans only eight years away, fleet operators are faced with the tough question of whether to transition to EVs now or to delay. There are pros and cons to both approaches, says Andrew Kirkby, Senior Manager of Sustainability at Openreach:
“There are a lot of people thinking ‘leave it – wait until the last possible minute. If the government’s going to ban new petrol and diesel sales in 2030, then we’ll leave it until 2030.’ There is a logic to that school of thought because it means that the EV that you buy now won’t be as good as the one you can buy in 2030 – it’ll have a better range, a faster charging time, and will probably be cheaper. The reason Openreach isn’t waiting is because you’re limited by the size of your fleet. If we waited until 2029 to convert our fleet to electric, we’d have to order and distribute 30,000 vehicles in one year, and it’s just not operationally possible to do that.”
If we waited until 2029 to convert our fleet to electric, we’d have to order and distribute 30,000 vehicles in one year
Moreover, the transition plans being pursued by leading auto manufacturers have been hit by the geopolitical disruption that has dominated the last three years. First Covid, and then Russia’s invasion of Ukraine, have caused huge disruption for global auto industry supply chains and triggered soaring energy and component costs. EV plants have been particularly hard-hit.
While the potential of the sector depends on how quickly costs can be brought down, if the sector were to grow by 25 per cent a year from 2025, DAC capacity could reach around 4.5Gt CO2/year by 2050, Burchett says.
Keeping track with soaring demand is proving a major challenge for the auto industry. Many leading manufacturers may have committed to decarbonising their product portfolios over the next 20 years, but building new EV factories and retooling existing factories to produce batteries and electric motors rather than internal combustion engine is a huge multi-billion dollar undertaking.
The current disruption to the supply of EVs has several causes. First of all, demand for EVs is skyrocketing. According to the UK government, 190,000 EVs were sold in the UK in 2021 – that’s more than in the previous five years combined. And this surge in demand is being felt in all the world’s major markets. A 2022 report by PwC revealed that “in the first quarter of 2022, BEV [battery electric vehicle] sales in the top five European markets grew by 46 per cent from the corresponding period in 2021”.
EVs require specific materials in their manufacture, such as lithium, nickel, and cobalt for batteries, semiconductors for microchips, and extensive amounts of wiring. Supplies of these materials have been directly impacted by the Russian invasion of Ukraine and the resulting sanctions imposed on the Kremlin. Russia was the world’s third largest supplier of nickel in 2021 , but international sanctions on Russian exports mean that this important source of supplies have now collapsed. Similarly, Ukraine was a major producer of wiring for the electronics industry, but the conflict has shattered supply lines.
More broadly, Covid lockdowns across Asia have impacted many of the auto industry’s most important suppliers of rare earth minerals and components. The net result is that manufacturers worldwide are struggling to keep up with demand for EVs that is exceeding expectations. Herbert Diess, chairman of Volkswagen Group, revealed earlier this year that the company had a backlog of 300,000 EVs on its order books in Western Europe. And in May 2022, Mercedes Benz and Volkswagen reported that they had already sold out of EVs for this year. Even market leader Tesla continues to face notoriously long lead times for the delivery of its vehicles.
Having to wait longer for EVs to materialise creates its own challenges for fleet operators. The process of transitioning to EVs does not end at the point of delivery. These vehicles have to be strategically placed within fleets alongside investments in charging infrastructure.
Although there's a supply shortage of EVs in general, some parts of the EV market are facing greater shortages than others, with sourcing light commercial vans (LCVs) a particular challenge. Heidi Thompson of Mitie revealed that the lack of options available in the electric van market last year led her company to refocus its efforts elsewhere:
Fleet operators find themselves caught between a regulatory rock and a hard marketplace. The coming ban on new petrol and diesel sales requires action, yet there are not enough EVs to satisfy the demands of today, let alone the soaring demand that is expected to come over the next five years.
Editor-in-chief, BusinessGreen
James Murray
The surge in the number of zero emission vehicles on our roads is arguably the most visible embodiment of the wider clean tech revolution and the net zero transition it is enabling. As such, it is set to impact businesses of all shapes and sizes, providing them with an opportunity to curb their running costs, enhance their reputation, reduce their carbon emissions, and ensure they are well prepared for upcoming regulations.
But the switch away from internal combustion technologies that have dominated the auto industry for over a century is characterised by numerous challenges and complexities. Growing numbers of companies may want to operate zero emission fleets, but securing the necessary vehicles and charging infrastructure is not yet as simple as it arguably should be.
As such, our latest BusinessGreen Intelligence Whitepaper, drawing on direct testimony from fleet and sustainability managers working at the cutting edge of this transition, provides invaluable insights into the challenges and opportunities that define the switch to EVs.
From EV procurement and cost of ownership calculations that have been complicated by the global supply chain and energy security crises to infrastructure requirements and employee engagement, this report dives into all the key issues facing companies considering a switch to a zero-emission fleet and offers invaluable guidance on how to overcome the various roadblocks.
With EVs securing ever more market share with each passing month and the government committed to ending the sale of new petrol and diesel cars and vans from 2030, the transition to zero emission vehicles is all but inevitable. As such, it pays for businesses to understand how they can best keep pace with an EV market that is really starting to motor.
Photo credit: www.storegga.earth
The current shortage of EVs has made it even more important for fleet operators to stay in close communication with manufacturers and lease providers to know exactly when vehicles are going to land. “Manufacturers are struggling to accurately predict delivery timelines at a customer level”, says Richard Jones of Lex Autolease, which makes proactiveness on the part of fleet operators even more important. Checking in regularly with suppliers helps to take as much uncertainty out of the EV procurement equation as possible. By knowing when EVs will arrive, fleet operators can make more accurate assessments of where EVs should be placed within their fleet, and what infrastructure requirements they will need to keep those vehicles charged.
Corporates and consumers alike are experiencing the fall-out from these supply chain disruptions. Richard Jones, Managing Director at Lex Autolease, the UK’s largest lease provider of fleet vehicles, says the wait time for EV orders to be fulfilled has substantially increased: “We’re seeing really elongated times between order and delivery, and it’s affecting all vehicle types.”
Massive disruption to EV supply chains over the past year has complicated the issue even further, leaving companies unable to transition to electric models as quickly as they would like. The factors underpinning this disruption are such that it is anyone’s guess as to when supply chain constraints will be resolved.
This industrial revolution is now well underway. Global sales of EVs rose 63 per cent in the first half of this year to 4.2 million units, according to new data from analyst firm Canalys.
Chapter 3
Introduction
Chapter 1
Chapter 2
How are fleet operators responding to supply chain challenges?
The supply of EVs
What is causing the supply chain disruption?
What effects is this having on fleet operators?
Depot/worksite charging
Quality of service
Infrastructure
Home charging
Conclusion
The complexity of total costs of ownership
Government help
Demand: Building the business case for EVs
When the rubber hits the road:
But while EVs now enjoy running cost savings, some experts fear supply chain challenges could delay the point at which they undercut petrol and diesel models in terms of ticket price. According to recent research by Wells Fargo, “the rise of battery raw material costs has delayed [battery electric vehicle] cost parity to [internal combustion engine] by at least a decade.” It is an analysis that will fuel fears that EVs would not reach cost parity with petrol and diesel vehicles until after the UK government’s 2030 ban on the sale of new internal combustion engine cars and vans. Such a scenario would lead to intense political pressure on the government to defer the target date. But it could also mean that fleet operators who are putting off their transition to EVs in the hopes that their upfront cost will fall could end up missing out on significant running cost savings for longer than expected. In addition, firms looking to delay their switch to EVs could be taking on significant operational and compliance risks, if the government stands by its 2030 target date and they are required to rush to deliver an EV fleet in the late 2020s.
Undertaking such estimates is challenging, even if you know new vehicles are set to arrive within 12 weeks. Expand that window to over 12 months, says Andrew Kirkby, Senior Manager of Sustainability at Openreach, and there is considerably more uncertainty to navigate.
As we will explore later, companies may also decide to install charge points at their depots or worksites, in which case they will first need to run a cost-benefit estimate of any upgrade work to the local grid infrastructure.
We analysed the telematics data of our current commercial fleet using the data to look at the daily mileage that each vehicle is doing, and who can have a home charger installed. People who have low mileage and are able to have a home charger fitted can be transitioned easily to EVs with minimal impact on their working day.
Companies need to be as sure as possible that drivers can charge their EVs easily and with little to no disruption to their work duties. For Heidi Thompson of Mitie, that meant conducting analysis of which drivers drive the shortest routes, and which could potentially charge up their EV at home.
Increased uncertainty
“We’ve had challenges with supply because of the microchip shortages, and we haven’t seen the number of commercial vehicles that we had ordered back in 2021 come through in the volumes that we were anticipating. We have now had a commitment for 150 electric vans per month by the end of the year. Lead times are increasing because of the demand, not just from Mitie, but other large organisations and fleets as well. Ordinarily we’d probably wait 8 to 10 weeks for a new EV car order. Some manufacturers are now saying 6 to 12 months on certain models.”
In some cases, the delay can be as much as a year between order and delivery, according to Heidi Thompson, Fleet Operations Manager at Mitie - one of the UK’s largest facilities management companies.
Increased lead times
1 https://www.strategyand.pwc.com/de/en/industries/automotive/e-mobility-sales-review-2022-q1/strategyand-e-mobility-sales-review-2022-q1.pdf 2 FT citation
Volkswagen Group's backlog of EVs on order for Western Europe
300,000
First quarter sales of BEV grew in the top five European markets
46%
EVs sold in the UK in 2021
190,000
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Rise of EV global sales in the first half of this year
63%
Overall, the whitepaper offers a comprehensive overview of one of the most important components of any business’ net zero strategy and demonstrates how the switch to EVs promises to deliver multiple cost, energy security, and reputational benefits for businesses of all sizes.
Moreover, those working on the transition provided invaluable advice on how to build the business case for EV fleets, overcome charging infrastructure challenges, calculate returns on investment, and convince fleet drivers of the merits of EVs.
For our latest BusinessGreen Intelligence Whitepaper we spoke to senior executives involved in some of the UK’s most ambitious EV fleet transition plans to discover the opportunities, risks, and challenges they are experiencing as they look to navigate the EV revolution.
However, completing this transition is easier said than done. Businesses have to prepare for a world where EVs are dominant, and many top firms are leading the way with pledges to deliver fully zero emission fleets, but those companies making the switch to EVs are facing significant challenges.
This surging consumer interest has provided policymakers with the confidence to introduce new targets to end the sale of new petrol and diesel vehicles. The UK now has a goal in place to end sales of new internal combustion engine cars and vans from 2030, while the EU is considering a similar target for 2035. After over a century of dominance, the internal combustion engine and the pollution that comes with it is on its way out.
China is far and away the world’s largest EV market, accounting for 57 per cent of the market in the first half of the year. But it is Europe that is pushing the limits of what was once thought possible as EVs start to really challenge the dominance of petrol and diesel models. In Norway, over 80 per cent of new cars sold are EVs. In other leading markets such as the UK, Germany, the Netherlands, over a fifth of cars sold now have a plug, and demand for EVs is far outperforming every other segment of the market.
Global companies that made their name based on internal combustion technologies have unveiled multi-billion dollar strategies to switch fully to battery electric vehicles (EVs). Challenger brands – or one in particular – are now among the most powerful companies in the world. Corporate customers all around the world are pledging to switch their giant fleets over to EVs.
“The lead time for most manufacturers is now in excess of 12 months, and that’s culture shock for us because normally the lead time is 12 weeks. We’re having to think about our forecast for demand in 2023, and as you can imagine there is a risk profile to that because we don’t know if we will need more vans or fewer in that period of time. So, as a customer, it does remove some of the comfort you get from a shorter lead time.”
Increased prices
The last thing any business looking to maximise its return on investment wants is new EV charge points and no EVs to plug into them. Meanwhile, attempts to model future demand and energy prices are currently complicated by the considerable economic headwinds that are expected to dominate the next 12 months.
Longer lead times on EV orders means that many manufacturers are putting up their prices in between the point of order and the point of delivery, reveals Richard Jones of Lex Autolease.
“We are seeing more instances of the vehicle price changing between the point of order and the point of delivery. The requote levels on our live order bank have gone up more than five-fold versus normal times because of the elongated timeline”
This, and the current high-demand low-supply environment, are helping to keep EV ticket prices relatively high, compared to their petrol or diesel equivalents. Analysts have long predicted that the fact EVs contain fewer parts than internal combustion engine vehicles means prices should ultimately undercut the price of fossil fuel models as EV manufacturers start to enjoy economies of scale. Some experts have predicted EVs could reach cost parity by 2025 or earlier.
"We are talking with our manufacturers several times a week regarding delivery schedules and build slots so that we’ve got a better understanding of when we’re going to see these vehicles land, and then we can decide where we’re going to put them within our business."
Talking with manufacturers
Heidi Thompson says that Mitie is in regular communication with its suppliers so that the company can be more certain when its EVs will get delivered:
Changing tack
What regular communication cannot address, of course, is the underlying macroeconomics of the EV shortage. If EVs aren’t coming through in sufficient numbers, fleet operators will need to make alternative provision. Andrew Kirkby at Openreach says that the current situation has left his company with no option but to renew leases on existing diesel vehicles for a period.
Extending existing leases
“Our hard cut off for buying larger diesel vehicles is 2023, but we may need to augment our fleet with diesels for the next couple of years, and as we go past 2023 we’ll be looking to reduce the lease on those large vehicles from the standard seven year term to six years, then five, then four etc. Although we’d love to buy all electric, there’s just not enough EV options out there – not in the quantities we’re buying them in.”
Several manufacturers, like Mercedes Benz, Volkswagen, Ford, and BMW are rumoured to be vertically integrating their EV businesses to bring processes like battery manufacturing in-house. In theory, this would help to better insulate them from the geopolitical shocks currently affecting supply chains. Whether or not this stimulates EV manufacturing in practice remains to be seen. Vertical integration would take time, with some observers expecting it to take until 2025 for these firms to really reap the benefits from their new manufacturing strategies.
“We have to keep reviewing our approach. Last year that was to electrify our van fleet quicker. That wasn’t happening at the pace we wanted it to, so we focused back on our car fleet. We are now starting to see electric vans land – and we’ve got a clear plan of 150 vans each month and where they will be delivered to within our business.”
Where EV adoption is concerned, sitting still may well mean going backwards.
Even if vertical integration goes to plan, manufacturers would still need to source semiconductors and materials like nickel, cobalt and lithium to manufacture EV components in-house. The only way to ensure reliable access to these materials without going back to square one would be to enter the mining industry and source their own materials. Tesla and GM are rumoured to be moving into lithium extraction, but again, this will not be a quick fix, and for fleet operators in the UK and elsewhere the regulatory clock is ticking.
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3 https://www.ft.com/content/fbe8843e-1d2e-4a25-bce8-dcf77304fc37
4 https://www.strategyand.pwc.com/de/en/industries/automotive/e-mobility-sales-review-2022-q1/strategyand-e-mobility-sales-review-2022-q1.pdf
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Managing employee reactions
THE SUPPLY OF EVs
introduction
The EV transition is moving into the fast lane, and businesses that fail to respond risk being left in its slipstream.
Fleet operators are doing everything in their power to make the best of a bad situation, but it is vehicle manufacturers that ultimately hold the key to boosting supply.
However, it is important not to overstate supply chain challenges that were always going to be a feature of a fast-evolving industrial revolution. The EV market is still growing fast and more manufacturing capacity is coming online with every passing month. There are reasons to be confident global supply chain issues will eventually get resolved. In the meantime, fleet operators are faced with the choice of whether to start moving to EVs now, or to wait and see. Although there are credible arguments for waiting – and certainly less risk for those with smaller fleets – the geopolitical turmoil of the past two years will surely have a long tail, and the boost provided by a more vertically integrated manufacturing sector is still a long way off. Those who want to wait until EVs become cheaper may find that they are financially no better off as a result of the delay, but logistically far more compressed.
So what strategies are those fleet operators committed to switching to EVs using to manage these challenges.
This challenge is real, but can be overstated. Studies show the majority of EV motorists tend to charge up at home or work. Vehicle ranges are typically now big enough to allow a driver to carry out their tasks during the day and then overcharge at night at home or at the depot. However, for fleets where the level of mileage drivers have to do in a given day is less predictable or where drivers do not have access to home or workplace charging the shortfall in public charge points presents a major problem.
But for all this current growth and future ambition, public charging infrastructure still poses fleet operators with many challenges.
Public charging points are becoming an increasingly common sight across the UK. A recent government report put the current charge point total at 29,600, of which around a quarter are rapid charge points. The network is growing all the time, to the tune of 100 new charge points every month in 2021. By 2030, the UK government aims to have expanded the network to over 300,000 charge points and has earmarked £950m to boost the roll out of rapid charging.
If the UK is to successfully transition away from petrol and diesel vehicles towards EVs, it must also make provision for how those vehicles get charged.
Chapter 2: Infrastructure
Charger queues
The State of UK EV Infrastructure
The anecdotal feedback from engineers is that they used to be able to go to a public charger and wait 20 minutes to charge up and go on to their next customer and complete their job. But what’s happening now is that, when engineers are getting to chargers, they’re increasingly finding that other people are already using that charger, so there’s now a delay of 30 minutes to an hour before the engineer can plug in their vehicle and move on.
Although the UK’s public charging network is expanding, its rollout isn’t growing fast enough to keep pace with the demand that is resulting from soaring EV sales. The government has already highlighted the pace of the charging network rollout as one the main infrastructure challenges facing the EV sector. Andrew Kirkby of Openreach agrees with this view, and warns that drivers are increasingly having to wait to use public chargers that are already occupied:
For a weekend motorist, waiting at a charge point would be inconvenient enough. But for fleet operators, the aggregated amount of time that gets wasted while their drivers wait to use public charge points presents a sizeable threat to productivity, customer service, public image, and ultimately the company’s bottom line.
Even if a public charge point is available without the need to queue, if it is a slow charger then it could take hours to get a full charge. This again eats into work time and slows productivity. With time being of the essence, Richard Jones of Lex Autolease says that UK fleet operators would benefit from a wider provision of rapid charge points across the network:
“Customers need to be confident that charge points are going to work when they drive up to them. They also need to be confident that they’re going to give the right delivery of charge. There’s nothing worse than going to a 50kw charger and getting 15kw charge which turns a 30-minute visit into an hour and 30 minutes. Whether you’re travelling either for business or for leisure, that’s a problem! It also creates charger queues because ever driver takes longer to use it”
“Our original electric charge card only gave us access to 4,700 chargers. That presented challenges because most of those chargers were in city centres, which didn’t help most of our drivers. We spoke to our provider and have launched a visa-based EV expense card which can be used on any charge point that accepts visa as a payment. That’s widened the charging network for us considerably, and because Mitie gets invoiced directly it also means our drivers aren’t out of pocket and are free to seek out rapid or super chargers, saving them time too.”
Heidi Thompson of Mitie, who encountered similar problems with the array of different EV fuel cards, says that the company has worked with their fuel card provider on finding a solution:
“Roaming is based on contactless debit or credit card payments, but that won’t work for us. If I give all of my engineers a company credit card, all that shows me is how much their charging costs are and where and when the card was used. A fuel card on the other hand shows me how many KW were dispensed, and that KW figure is a key bit of our reporting, not just so we can track efficient driving behaviour, but also so that we can show shareholders where we’re spending their money.”
One universal solution would be to allow contactless debit or credit card payments at charge points, and the government has been working on giving motorists this freedom to roam. The problem with such an approach though, says Kirkby, is that while a debit card solution works for passenger cars, it does not work as well for fleets:
In addition, public charging in the UK is a highly fragmented landscape, with big players like Tesla, Instavolt, Osprey, BP, and Shell all operating separate networks across the UK, and a host of smaller companies operating regionally. If you want to charge up your EV on a particular network, you will typically first need that network to issue you with a fuel card or app. But these payment systems will not necessarily work across other charging networks. That leaves fleet drivers in a difficult position, says Andrew Kirby of Openreach:
As Richard Jones of Lex Autolease observes: “You get too many instances where you pull up to a charger and it’s not working. Service companies in this market tell me that a significant number of issues with malfunctioning chargers are down to simple faults with the software coding or a simple trip switch issue. If the simple issues can be resolved very quickly either remotely or on site then the availability of working charges can take a big leap forward and I think it’s vital that customers have confidence in reliability.”
The other major problem with the UK’s charging network, as highlighted by both motorists and the government, is the quality-of-service users get, which itself comprises a number of separate issues including “poor customer service, opaque or excessive charging costs, poor reliability and complex access regimes involving numerous apps and smartcards”.
5 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/ attachment_data/file/1065576/taking-charge-the-electric-vehicle-infrastructure-strategy.pdf
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PRICES
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Reliability
The issue with EV fuel cards is that they’re not universal. If you have one, you also need to have a list of the charging providers that you can use that fuel card with.
Universality
There can also be eye-watering disparities in the prices different networks charge for what amounts to the same electricity, according to Andrew Kirkby of Openreach: “There can be big differences. You could go from one charger to another and the price difference could be up to 100 per cent between the two.”
Patchiness
As well as disparities in price, there are also disparities in provision to contend with. Although the UK’s public charging infrastructure is growing, it is not growing everywhere equally. Towns and cities tend to be relatively well-stocked with charge points, but for fleet operators who live or work in more remote rural areas, there can be a sharp fall off in their availability, says Jamie Colquhoun, Transport Energy & Clean Mobility Adviser at Costain:
What’s the magic charging solution where your worksite is in the middle of a field in darkest Cornwall and connectivity is difficult, but you still want to be able to deliver electrified vehicles?
With the government now seeking to ramp up infrastructure investment in the run up to 2030, wait times at charge points and quality of service issues should become less of an issue going forward. Meanwhile, growing numbers of network operators are putting in place pay-as-you-go functionality and roaming agreements that should make it much easier to access chargers. But fleet operators who are making the transition to EVs tell us that they intend to reduce rather than increase their reliance on the public charging network, and are making alternative provision instead. There are typically two parts to their strategy.
6 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/ attachment_data/file/1065576/taking-charge-the-electric-vehicle-infrastructure-strategy.pdf
And according to interviewees, the main beneficiaries of that lower cost are increasingly the fleet operators themselves rather than their employees. That is because many companies are starting to pay upfront for their employees’ EV charging costs rather than expecting employees to foot the bill in the first instance and then expense it back. As Mitie’s Heidi Thompson explains:
“Where drivers are having to charge at home, we understand that they don’t want to be pay for charging their vehicle for business purposes. So, we’ve found a partner that will enable us to directly pay the energy provider for the drivers’ energy costs for home charging so that the driver’s not financially out of pocket.”
The first way fleet operators are reducing their reliance on public charging is to invest in rolling out home charging for their drivers. Being able to charge your EV at home has lots of advantages. First of all, it is exceedingly time-efficient, allowing the vehicle to be charged overnight instead of having to take that time out of the working day. Fleet operators quite understandably do not want their workforces to be sat idle at a charging point instead of doing their actual jobs.
The price of electricity can be cheaper with home charging compared to public chargers too, says Andrew Kirkby of Openreach:
"The cost of public chargers is now hitting 60p per KWh. Our vehicles travel 2 miles per KW. So at 60p per KW, the running cost is 30p per mile, and that’s more expensive than diesel. At home and at worksites, because the average cost is 28p per mile, the cost per mile for an EV is actually cheaper than diesel"
But there are still challenges associated with home charging, the most obvious being that it requires employees to have off-street parking – something that not every driver will have access to. In fact, when Mitie ran a recent survey of the driving habits for its diesel fleet, it found that only 55 per cent of its drivers were able to install a domestic charge point. Thompson adds:
“[For the rest] they either don’t own their property, and their landlord won’t allow them to have a charger installed; or they don’t have off-street parking, in which case it’s not safe for them to have a domestic charger installed because the cable would be going across a public pathway; or they’re in an apartment or block of flats, which aren’t in a position to have a charger installed because the parking area isn’t close enough to the fuse board.”
A second challenge with home charging is the cost of installing the charge point, and the question of who foots the bill – the company or the employee?
Interviewees revealed that the cost of installing home chargers is now in the region of £1,000 per charge point. Until recently, most employees could receive £350 towards the cost of installation through the government’s home charging scheme. However, a recent change in the eligibility rules has meant that, from March 31 this year, owners of detached, semi-detached, terraced houses, and bungalows are no longer eligible for the grant, which will now target landlords of rental properties and leasehold flats instead. As such, home charge point installation has become a more expensive undertaking for most employees.
Companies such as Openreach and Mitie say that they fund the roll out of home charging for employees. But does that come with risks? For example, what happens if the company pays for an employee’s home charging point, only for them to then leave the company a few months later? Would the company get reimbursed by the employee for losing the benefit of something it has paid for, or does the company simply lose out on its investment? And to what extent could the installation costs eventually be offset by the savings made through running the employee’s EV?
This is where having home charging as a service could benefit companies. Instead of the employer spending potentially thousands of pounds installing this infrastructure, they may work with a charge point operator to have a charger put on the employee’s wall at home for a monthly fee and then, if that employee leaves the business, the charge point operator can take it back off.
Costain, whose policy has been for employees driving for the company to purchase their own home charge points, is now investigating the ‘charging-as-a-service’ option as a way of maintaining flexibility as well as protecting employees from rising installation costs, says Jamie Colquhoun:
“What we’re doing is looking at leasing options instead. The idea would be that they’d have a three year lease, and there are organisations – CPOs – out there that have a simple charge point installation and removal process. So that reduces the initial capital outlay for the end driver so that they’re not having to put their hand in their pocket up front.”
At present, the cost of upgrading the local grid for the purpose of installing EV charge points falls on the shoulders of whichever fleet operator makes the request. Yet other companies in the local area, which might also be looking to install EV charge points, stand to benefit from the same upgrade, despite having contributed nothing to its cost.
However, despite these various technical and financial challenges, there are still ways in which such hurdles can be overcome.
Spreading the cost
“Power upgrades can range from as little as a £25 administration charge, where all you’re doing is upgrading your certificate, to investing millions of pounds in upgrading substations and underground cables to the site… In terms of return on investment, as soon as you’re looking at millions of pounds, you’re talking about running EVs for decades to get that money back, so you’ve got to be really convinced that that’s the right area to be deploying EVs in.”
The price tag of such upgrades can be sizeable. For Andrew Kirkby of Openreach, that means having to think long and hard about whether or not the company would make back its investment in the long term through, for example, the lower overall running costs associated with running EVs compared to petrol or diesel vehicles:
“When we’re building offices or project offices at a site, that site doesn’t have an electricity in the first place, so we’re not actually upgrading, we’re delivering a new connection…The connection for delivering power to a traditional project office – lighting, heating appliances – becomes very different with the potential inclusion of charge points, which require significant added capacity. The good news is that the market has recognised this challenge and we’re starting to see innovation in grid constrained charging solutions to try and meet this need.”
Moreover, there’s the potential for significant installation costs. Installing and running multiple electric charge points puts a significant strain on the local power grid, says Jamie Colquhoun of Costain, and often necessitates either the creation, from scratch, of new electrical infrastructure or an upgrade of what is already there:
But there are significant hurdles to overcome with charging at depots or worksites. For example, although companies tend to own their depots, they might not own their worksites, which could be shared with a number of other businesses. Thompson of Mitie warns landlords may not always share their tenants’ enthusiasm for upgrading the local grid:
When we’re a tenant, it’s sometimes very difficult to get landlord permission [to install charge points] – they might not be around, or understand the benefits of digging up the car park to install high voltage power infrastructure. We must continue to explain and incentivise the benefits to Landlords to make sure we can grow the EV charging infrastructure across the UK
“We’re looking at whether the vehicles might be left idle for three or four hours whilst our driver is at a client site doing their work – can they charge while they’re doing that? We’re doing that analysis at the moment.”
The degree to which companies would benefit from allowing employees to charge at work depends on their working pattern. For companies like Mitie, whose drivers might spend a few hours each day parked up at a worksite, giving drivers the option to charge during those hours means that work time does not get wasted. Thompson explains:
Fleet operators who want to reduce their reliance on the public charging network, but who might lack the means to roll out home charging for their employees, have another option at their disposal: to install charge points at their depots or worksites.
Any cost-benefit analysis is a complex equation with many moving parts, and the answer you get will partly hinge on how accurately you can forecast what your future EV usage will be as well as your broader energy needs at the worksite – something that the current disruption to supply chains is makes exceedingly difficult to do.
OFGEM has stepped in to address this situation and determined that all boats should pay for the rising EV charging tide. In their recent Access and Forward-Looking Charges Significant Code Review (Access SCR), the regulator stated that from April next year the company requesting the grid upgrade will no longer have to shoulder the whole upfront cost. Instead, other network users that may stand to benefit from the upgrade will have to put their hands in their pockets too.
Although this ruling is likely to make network upgrades cheaper for fleet operators in the long term, it may also cause a short-term lull in demand for upgrade projects while the clock runs down on the old rules. As one source observed:
“There will be organisations that are just waiting to see because there will be less cost as of next April. If I were a business, thinking about the considerable cost of a network upgrade that could be reduced if I waited a bit, then I probably would do. If I couldn’t wait, then I’d have to swallow it as part of my project costs.”
Quality of Service
HOME CHARGING
INFRASTRUCTURE
In addition, EV charging is likely to be subject to less price volatility in the long term than a continued reliance on fossil fuels. As such, many manufacturers and fleet operators maintain that the sharp reduction in fuel and maintenance costs mean EVs can undercut petrol and diesel models on total cost of ownership in a lot of use-case scenarios, which is precisely why so many leading firms are now pursuing 100 per cent electric fleet strategies.
A significant number of studies have shown how, all things being equal, it costs significantly less to charge an EV than refuel and petrol or diesel car – and, despite fears to the contrary, the business case for recharging over refuelling appears to hold even when factoring in looming increases in energy bills this winter. The government’s promised energy bill freeze and support package for businesses should help to further bolster the fuel cost savings EVs can offer.
Those infrastructure costs also need to be factored in when looking at the relative prices of electricity vs petrol or diesel fuel. With the latter recently at historic highs, you might think that switching to EVs is the obvious choice from a financial point of view. But the price of electricity can vary substantially from one public charge point to another. Soaring energy costs have prompted some reports suggesting that the fuel cost advantage enjoyed by EVs is being eroded. However, closer analysis has shown that EVs still tend to enjoy sizeable running cost advantages and these can be maximised further if drivers take advantage of the cheaper electricity rates available when you charge at home or at company worksites or depots.
Matters become more complicated when you factor in charging costs. A fleet operator buying or hiring an ICE vehicle can afford to rely on petrol stations to refuel; but, for reasons already outlined, an EV buyer may have understandable misgivings about relying on public charge points and may need to factor in the costs of any alternative charging arrangements, such as installing charge points at employees’ homes, or at worksites or depots. As we have seen, these installation costs can vary substantially depending on the extensiveness and complexity of the work required.
Arguably the simplest comparison to make is between the relative costs of service, maintenance, and repair. There are fewer components that can go wrong with an EV, which means that, all other things being equal, the service, maintenance and repair costs of an EV are lower than for ICE vehicles. This also means that an EV is likely to have a longer working life than a comparable ICE vehicle, so a comparison of their respective total costs of ownership also needs to factor in the difference in their expected longevity. Fleet operators need to ensure that they are comparing apples with apples.
The high upfront cost of EVs may be a challenge for fleet operators, particularly in a time of dwindling government support and looming economic headwinds, but there is a silver lining: the total cost of ownership (or whole-of-life cost) for EVs can be considerably lower than for petrol or diesel cars, at least in theory. In practice, total cost of ownership calculations are never simple to evaluate and require a careful piecing together of the different types of costs an EV can accumulate over its lifetime compared to an ICE vehicle. Relevant factors include fuel costs, vehicle taxes, costs of maintenance and repair, and how much the vehicle can be sold for on the second-hand market, to name but a few.
Potential taxes and duties
Cost of charging and associated infrastructure
Then there’s the question of taxes and duties. This is, at present, a win for the EV owner over the petrol or diesel vehicle owner. EV drivers do not have to pay the fuel duty associated with ICE vehicles, and nor do they have to pay vehicle excise duty, which helps to further reduce the TCO of EVs and strengthen the business case for investing in them.
Clean air zones
The direction of travel is such that the number of ICE vehicles on the roads should diminish year on year, and so too will the tax take from them. Is that fiscally tenable in the long term? And could the government decide to impose road tax, road pricing, or fuel duties on EVs in the future?
Another consideration affecting the TCO calculation is whether or not your company fleet has to operate in a clear air or low emission zone. In a growing number of urban areas, older petrol and diesel cars have to pay to drive into the central part of town, whereas EV drivers do not. Fleet operators who work within or who cross into such zones need factor in the total cost of these charges and whether or not they have a material effect on the TCO calculation.
This approach must be backed by clear leadership, all the way from the top of the company, says Thompson, or drivers’ anxieties can get the better of them:
“Our drivers know that, unless they have a business-critical reason, they have to have an EV - it’s company policy. If we didn’t have that policy of being EV first, which is supported by our senior leadership team, then those conversations with our drivers would be much more difficult to have. Businesses must lead from the front to encourage EV roll out.”
Another hurdle affecting demand is employees’ reactions towards EVs. Studies have shown many drivers who make the switch to EVs would never switch back, with fans of the technology praising the improved driving experience and lower running costs. But according to fleet operators, some drivers have an understandable attachment to the familiar, and a similar aversion to the new. Drivers making the switch to an EV may also have concerns around how they will charge the vehicle, what happens if their battery goes flat mid-journey, and how much money it will cost them to charge up.
In the face of such opposition, some companies may have concerns that employees could prove a barrier to the transition to EVs. But Heidi Thompson of Mitie says that the way forward is to ‘lean in’ to employees’ concerns:
"Employees can have a lot of anxieties around things like vehicle range, whether they can or can’t have a home charger, and how the switch to driving an EV will work. With our policy of being EV first, we’ve found that as long as we communicate regularly with our drivers and give them as much training and insight as possible into the benefits of EVs, they soon start changing their mindset."
Once employees get that push, their emotional aversion to EVs very often becomes an emotional attachment, typically leading the strongest critics to be most vocal champions. Thompson provides one such example:
“We did a survey of our EV drivers, and one said he really didn’t want one and thought it was going to be such a pain, but now loves it. The people that put up to the most resistance to EVs are now the biggest advocates for them.”
A world of zero emission, cost effective, and highly reliable EV fleets is within reach, but it will require significant investment in charging infrastructure and auto industry supply chains if it is to be realised in time for internal combustion engine models to be phased out from 2030 onwards. As our whitepaper shows, many leading businesses are up for the journey, but there are likely to be some twists and turns in the road ahead.
However, it is vital for businesses to recognise that this is not a simple transition. Barriers to EV adoption and deployment remain, primarily as a result of supply chain constraints and infrastructure challenges. These challenges should be overcome, but it will require businesses and policymakers to work closely together to identify problems and plan ahead to overcome them.
Meanwhile, the rapid improvement in EV technologies are serving to win over many detractors. Businesses are not switching to EVs for PR purposes. They are doing so because they offer a means of slashing fuel and maintenance costs, protecting themselves against future fuel price volatility, and meeting consumer and employee expectations.
The sense of momentum around this transition is provided not just by government policies and corporate commitments, but also the multi-billion dollar transition plans being pursued by the world’s largest auto companies, many of which are now committed to operating fully zero emission fleets from the mid-2030s onwards.
The transition to EVs is now well underway and all but inevitable. Many leading businesses are rapidly expanding their EV fleets and are committed to switching fully to zero emission models as swiftly as possible. Car and van fleets are set to largely switch to EV models before the end of the decade and the ban on the sale of new internal combustion engine vehicles. Early pilot projects that are now testing the effectiveness of electric trucks, buses, bin lorries, and other heavy transport options suggest even HGV fleets could become zero emission in the coming decades.
Costs of that magnitude require a strong business case, regardless of the looming 2030 deadline for ending the sale of new fossil fuel vehicles. So how can companies justify the cost of transitioning to EVs? And how are fleet operators convincing their finance departments to support the switch?
According to interviewees, EVs can be anywhere between £5,000 and £10,000 more expensive than their petrol or diesel equivalent, depending on the model. And that’s per vehicle. For fleet operators looking to transition thousands of vehicles between now and 2030, that difference in cost can mount up substantially.
Demand for EVs is exploding. It is one of the main factors exacerbating current supply issues, and it is also why government grant programs are starting to shift focus away from mature areas of the EV market, such as passenger cars, and towards those segments that are less advanced, such as vans and taxis. And yet, perhaps because of such huge demand at a time of constrained supply, the upfront cost of EVs remains relatively high compared to the petrol or diesel equivalents of the same model.
Chapter 3: Demand - Building the business case for EVs
Service maintenance and repair
But some experts are now asking how long this advantage will continue?
The imposition of new taxes on EVs could throw out TCO projections wildly, and fleet operators say they would like to see more reassurance and forward guidance from the government on this front. Ministers have to date been reluctant to discuss the prospect of fuel duty one day being replaced by road pricing schemes or other forms of taxation on EVs, but many experts reckon such a transition is inevitable as EVs come to dominate our roads.
Even when taking into account just these four elements, the total cost of ownership is a complex equation characterised by a considerable amount of uncertainty, and that is before you consider the harder to quantify costs and benefits such as cleaner air, reputational gains, or enhanced employee retention.
However, companies considering switching their fleets to electric need to get an understanding of the cost and benefits, the likely pay back periods, and the risks involved in any long-term price projections. Financial departments are increasingly approving spending on EV fleets, but they need to be provided with assurances that the returns stack up.
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Mitchell Tulloch is a Senior Research Analyst with Incisive Works. Over the past 8 years, he has conducted extensive research on a range on topics within the institutional and retail asset management markets, and has recently expanded his focus to include issues around sustainability
About the author
That is bad timing for a government already stretched thin on funds, but unless there is an established second-hand market for EVs soon, fleet operators will lack a crucial part of their business case for investing in EVs - resale values.
“Currently all the financial support for EVs is focused on the first buyer, which is natural at this stage of the adoption cycle. However the second buyer is so important, the value of new EVs assumes there is demand for the product as a used vehicle. Used car sales in the UK outnumber new car sales by five to one, so in the next two to three years, we’re going to have to dial up support for the second hand car buyer.”
One other area that needs urgent government support, according to Richard Jones of Lex Autolease, is the second-hand EV market:
Critics have also noted how countries with significantly higher levels of EV penetration, such as Germany, the Netherlands, and global market leader Norway, still all operate significantly more generous grant schemes than the UK.
If you’re a manufacturer and all of a sudden the demand for EVs has reduced, but the demand for a vehicle is still there, you’re now financially incentivised to continue to research and develop and manufacture petrol and diesel vehicles, because that’s what your customer base is buying.
By turning off the grant funding now, Kirkby feels that there is also a risk of the government counter-incentivising fleet operators and manufacturers from investing in EVs:
Andrew Kirkby of Openreach says: “When we see that sort of manoevre from government, it does cast a shadow over our confidence in ordering future EVs. With the lead times I’m looking at now, am I really going to order 1,000 EVs today and then, by the time they’re delivered, the government has reduced or removed the grants, and now those 1,000 EV have cost us an additional £5,000,000 to purchase?”
Fleet operators acknowledge that the government does not have an infinite pot of cash, and grants were always expected to fall as EV ownership increases. But many think that the government is going in the wrong direction by reducing grants now, when the price disparity between electric versus petrol and diesel remains so stark.
The government says that funds it used for grants will now be redirected away from electric cars towards other types of EVs, such as vans, trucks, motorcycles and taxis, and towards continued improvements to charging infrastructure. But some cuts are also being imposed in these areas. In December 2021, the plug in grants for light commercial electric vehicles and large electric vehicles were both reduced. The government also brought in a limit for the grant, so that its use is limited to 1,000 EVs per corporate customer per year – a significant restriction for the largest fleets.
But as the EV market has matured, some of these government incentives have diminished whilst others have disappeared altogether. In June 2022, the government abruptly withdrew its plug-in grant for electric cars, arguing the scheme had succeeded in creating a mature market for ultra-low emission vehicles: a somewhat questionable claim given that electric cars have not yet reach the point of price parity with their petrol or diesel equivalents.
"The benefit in kind tax relief is a huge selling point for our drivers because it’s money back in their pocket for going electric. So, as an example, the benefit in kind is one per cent this year and two per cent next year for company drivers. Compared to a diesel, they could be saving anywhere from £200 to £500 per month, depending on which vehicle grade they sit in and how much benefit in kind they pay. I would encourage any Fleet Managers to maximise the incentive with benefit in kind with their drivers."
For fleet managers like Heidi Thompson of Mitie, incentives such as benefit in kind tax relief on electric cars have helped to create a positive financial case for going electric for many employees.
The UK government has been providing financial assistance to new EV buyers through a series of grants and tax reliefs designed to lower upfront costs.
DEMAND - BUILDING THE BUSINESS CASE FOR EVs
CONCLUSION
