Roland Berger warns that a zero-emission future for commercial vehicles will require a fundamental transformation of the business model among OEMs, fleets and utilities
The case for de-carbonising transport applications in North America in light of increasing challenges due to climate change is clear. The environment for de-carbonising transport applications in the US as the largest market has never been more positive looking along the dimensions of ZEV policies, technology and demand as well as raw material and charging availability. While it is not a question of if the industry will decarbonise, the when and how still requires significant debate which is the focus of this article.
ZEV policies have become increasingly demanding at the state and federal level while the US has also taken a positive approach towards incentives to drive the clean transportation transition. In some sense, the US government is working with a significant carrot as well as a stick approach in contrast to the European Union, which has focused much more on legislative sticks. An overview of selected current regulations and incentives is given in Figure 1.
In addition to the legislation outlined above, the current EPA Phase 3 proposal for Green House Gas emissions is a further step towards tightening emission norms. Compared to Phase 2 regulation, Phase 3 would reduce GHG emissions by an additional 10% in 2027 and foresees significant further reductions by 2032. Attaining this standard will require a transition towards ZEV trucks at the fleet level.
From a ZEV technology perspective, the overall advances in battery, vehicle and charging technology have been significant. All major OEMs have electric vehicles in their line-up and are planning production ramp ups. Given IRA incentives which reduce battery costs to the tune of US$40/kWh, electric truck prices that are TCO competitive seem to be within range.
Demand from fleets is strong as many major fleets have made significant commitments towards emissions reductions as shown for some selected fleets in Figure 2. In principle, fleets are open to switching their vehicles to fully electrified or hydrogen based solutions. In practice, however, significant challenges remain. Deploying electric vehicles in a fleet operation, in particular, requires significant changes in fleet management and operation. Challenges from sufficient depot space for charging stations to efficient route planning and retraining of maintenance personnel abound. At present, many fleets with electric truck or bus experience report a loss of efficiency with electric vehicles vs diesel vehicles due to reduced flexibility to use vehicles across routes. As a consequence, overall cost competitiveness vs diesel is difficult to achieve. In addition, getting adequate energy to owned depots and figuring out what to do in the case of rented depots are complicated challenges,
The availability of battery raw materials both from a mining and processing side needs to be watched carefully. With exploding demand for passenger vehicle and commercial vehicle batteries as well as other applications such as stationary storage, cell demand is likely to increase by a factor of six from today till 2030. Clearly, this puts pressure on the production capacity of battery cells as well as the availability of critical raw materials such as lithium, nickel, etc.
Lastly, the availability of charging is a challenge, especially for commercial vehicle applications. Based on current projections, Roland Berger believes that industry volumes in North America could amount to about 100,000 units of battery electric commercial vehicles in 2028. The incremental energy demand for this fleet would be about 16 TWh or less than 0.4% of today’s US electricity consumption. In comparison, passenger cars would consume about 86 TWh in 2028 or 2.1% of today’s US consumption. Given opportunities in energy savings as well as renewable energy additions, it is clear that the availability of energy will not be a problem. However, commercial vehicles have large batteries and their overall distribution is very much concentrated in depots. For example, a private logistics centre with about 25 heavy-duty trucks, 75 medium-duty trucks and 150 walk-in vans would require about 8 MW of additional peak power. Depending on the local grid, this could exceed the peak of the network load curve and would trigger investment needs. In addition, the segment needs large cables that get sufficient power to the depot which again would trigger investments. To put things in perspective, Figure 3 relates the power and energy needs of selected commercial vehicles to average US homes.
The challenge with bringing this energy to commercial vehicle depots is, among others, the collaboration with utilities. Utilities are open to invest for electrified transportation as they are paid a certain margin on their investments. Yet, their investments plans need to be acceptable to the regulator and must be prudent. As a consequence, utilities are faced with a chicken and egg problem of their own: build the infrastructure and hope demand will come or wait for demand and then build the infrastructure? As the time to connect a site can vary significantly, infrastructure development besides its cost can be a show stopper. Connection times can be as short as several months if the work is only on the customer site. Yet they can take up to seven years if upstream work is required. In the latter case, work needs to start now to support BEV sales in 2030.
As a consequence, a key need for the electrification of the US commercial vehicle market is the close collaboration between OEMs, fleets and progressive utilities to drive pro-active planning and execution. In summary, North America is well on its way to de-carbonise transportation. The way is long and requires a fundamental transformation of the business model of OEMs, fleets and utilities. Proven approaches exist to help companies get through this disruptive period and help them manage the risk while leveraging the inherent opportunities.
About the authors: Wilfried Aulbur and Dan Gabaldon are Senior Partners, Walter Rentzsch is Director and Erin Sowerby is Principal at Roland Berger Strategy Consultants