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Meeting corporate emissions targets requires a robust strategy to decarbonize transport, including dedicated efforts for the electrification of ground logistics fleets. This is especially true of fleets comprised of medium- and heavy-duty vehicles, a transport segment highly relevant to the consumer goods (CG) industry.
There is significant momentum to electrify mobility in the CG industry, driven by regulations, incentives and corporate demand alike. Yet the nature of commercial transportation creates obstacles for operators seeking to electrify their fleets. First is the sheer complexity of integrating a new fuel source, which brings opportunities and challenges in equal measure. Second is market maturity, seen in the upfront cost and market availability of EVs and the potential costs and difficulties of securing reliable access to charging infrastructure. And third, is the potential for operational disruption to corporate fleets as they seek to meet their needs with assets that have a different set of working parameters than they are accustomed to.
The lack of EV ecosystem maturity, particularly for medium- and heavy-duty vehicles, impacts the availability and flexibility of options compared to internal combustion engine vehicles, forcing companies to develop bespoke solutions. In fact, our experience working with several organizations shows that creating tailor-made solutions is currently the rule rather than the exception. It may be challenging for commercial fleets to adjust to EVs, but it is doable. And it’s doable not only because it’s desirable, but also because many developments are making it more financially and operationally viable.
The significant impact of ground transportation derives from all business sectors, contributing approximately 18% of global GHG emissions, according to Nature citing data from the Carbon Monitor project. This makes the impact of ground transport significantly greater than other modes of transport, such as aviation and maritime. While emissions from light-duty vehicles contribute the most due to the sheer volume of consumer vehicles on the road, medium- and heavy-duty trucks used mainly for transporting goods are responsible for nearly a third of ground transport emissions. Trucks, buses, and other cargo vehicles are the focus of our work to help corporations decarbonize their mobility, as this is what most of them are operating.
Despite the current narrative that EV demand is softening in Europe and the U.S., the persistent trend in EV forecasting is regular upward revision of the forecasts, as adoption continues to grow. The two charts below from BloombergNEF, one of which was published several years ago and one very recently, demonstrate this clearly. Each time an organization makes a forecast about EV adoption through 2040, they revise it upward, as the deeper we get into the decarbonization of transport, the greater the momentum and the infrastructure there are for supporting faster adoption.
Also noteworthy is that it is not just Bloomberg making these optimistic projections. The list includes conservative organizations without a clear motivation to predict the rise of EVs, such as OPEC, Exxon and BP. We hear the same bullish opinion about the advance of EVs whether we talk with individual consumers, auto dealerships or fleet operators. There will certainly be bumps in the road, but there are plenty of reasons for optimism, even about the medium- and heavy-duty segments.
There are significant drivers that suggest these broader trends in the electrification and decarbonization of mobility will continue. We can point to three in particular: regulations and incentives, emerging demand, and increasing supply.
In Europe, there is a more ambitious regulation expediting the decarbonization of heavy-duty vehicles, with a 65% emission reduction target by 2035 and 90% by 2040, compared to 2019 levels. The U.S. Department of Energy is also moving aggressively on decarbonization targets for vehicles, managing funding from the Inflation Reduction Act which is making billions of dollars available for clean technologies, including $7.5 billion for developing an EV charging network, and $50 billion for public-private sector investment in creating a hydrogen economy, the first $7 billion of which was recently released for hydrogen hubs. This is not exclusively for transport but will certainly benefit it.
It is worth noting that the State of California, and more specifically the California Air Resources Board, through a series of policy measures has motivated if not forced automakers to start producing more electric and hydrogen vehicles and has recently implemented regulations on fleet operators that will force them to procure more zero-emission vehicles. Additionally, the SEC (Securities and Exchange Commission) has proposed that corporate climate-related risks and targets should be added to the financial statements of public companies. The combination of federal, national and sub-national regulations, in addition to investor pressure, is a strong motivator for corporations to move towards clean technologies.
We are seeing much movement in the market mainly due to decarbonization target-setting by corporations, as transport is among the main levers used to meet those targets. With the EV market not fully mature, leading logistics companies like Amazon and FedEx are taking matters into their own hands, crafting bespoke solutions to help them meet their targets. Amazon, finding the available options lacking, signed a massive contract with the unknown electric cargo-truck startup Rivian to make their delivery trucks to Amazon’s specifications. With Amazon’s support, Rivian is now a viable player in electrified commercial fleets.
In addition to logistics organizations, numerous companies see transport as a key decarbonization lever and must decide which vehicles they can switch from fossil fuels, the right timeframe, and how to establish a charging infrastructure. As we approach 2030, many more companies will start confronting their 2030 benchmarks, increasing the pressure on the automotive sector to manufacture vehicles that conform to the regulations and meet corporate demand.
Rising demand is translating into automaker action. It may not be as fast as desired, but almost all major automakers are taking significant steps toward decarbonization. Concerning sales, EVs represent a small percentage of sales for all automakers except Daimler’s Mercedes, whose EVs account for 15% of sales, with 100% of sales targeted for 2035. Daimler Truck AG and other manufacturers in China and the U.S. are also targeting a significant percentage of sales for EVs by 2035, which will phase out a large portion of emissions from the transport sector.
These market changes are translating into corporate investment, enabling automakers to move capital into different capabilities like charging networks, battery manufacturing, and product design. And the very fact that new, credible automakers have emerged in this largely static industry is a strong indication that a sizable shift in EV availability and capability is on the way.
The other trend that draws great attention is hydrogen vehicles (H2Vs). There are H2Vs on the market but in much smaller volumes, and based on our observations, we do not see much opportunity for H2Vs to eat into the EV market in the light-duty space. Light-duty H2Vs lack a clear market opportunity, as BEVs (battery-electric vehicles) and PHEVs (plug-in hybrid electric vehicles) meet most consumer requirements with a lower total cost of ownership. H2Vs show promise in use cases where vehicles travel more than 500 miles (805 km) per day, such as long-haul semi-trucks, which is very challenging for an EV. Even so, the current lack of low-cost hydrogen, and particularly green hydrogen, is a limiting factor. There is still a long way to go to make H2Vs commercially viable.
Whether motivated by consumer or investor pressure, or by the desire to assume a leadership position on carbon reduction, an increasing number of companies are decarbonizing their ground transport fleets. To do so, organizations must navigate a market that is still emerging, and whose solutions are not yet off-the-shelf. As a result, they face challenges such as the availability of certain vehicle types, meaning they currently have less flexibility compared to internal combustion vehicles (ICVs). They also face CAPEX issues, both for the EVs themselves as well as charging infrastructure. Given the current landscape, moving forward often means forging one’s own path.
In this pilot-type situation, companies will need to develop internal capabilities. This, and having a strategy for how to decarbonize a fleet, are important first steps. In our experience, the keys to defining a bespoke solution are internal organization, access to finance, and stakeholder engagement. This is what is needed when there is no ready-made, one-size-fits-all solution available.
A successful transition to a Net Zero fleet requires a holistic solution comprised of four interdependent components, each with their own set of questions:
When defining which components will be included in the overall package, the use case must be front-of-mind, so the various elements meet the operational and business requirements. Quite simply: can the electrified fleet run efficiently given the conditions of the regions where it will operate?
Which vehicle(s) should be procured given the required range, payload, powertrain, and CAPEX? Is the vehicle needed currently on the market? Should it be an EV or a H2V?
Which infrastructure is best for the use case – public or private? Are subsidies available or are there regulations to adhere to? What technical specifications are needed to charge the vehicles and where are the stations located?
Does the use case call for green electricity or green hydrogen and e-fuels? And how will these be procured?
In short, defining a business case and designing a fleet to match involves assessing different options to mitigate potential operational risks, and calculating the total cost of ownership. Finding the right configuration then requires testing combinations of the various components to find the optimal setup. Fleet decarbonization should be viewed as a process of crafting a holistic solution comprising these interrelated technical components rather than using an off-the-shelf solution. The final consideration is the human element.
Creating a holistic fleet electrification strategy from scratch requires an ecosystem of partners to develop end-to-end solutions. Mobilizing the right partners is one of the key success factors – and a potential obstacle to overcome – particularly if a company is relying on third-party logistics providers for their fleet. And even then, organizations can still pursue Net Zero logistics initiatives by leveraging positive developments in the market. We can point to three developments that facilitate decarbonization with third-party logistics providers:
Whether working with a third party or developing their own system, companies pursuing mobility and fleet transitions require strong collaboration between areas of responsibility within the organization. Often those connections aren’t made until the point where fleet decarbonization needs to happen, and then suddenly operations people need to talk with sustainability functions, and fleet management with facilities and finance to create novel solutions. Recognizing the need for internal stakeholder alignment early will smooth the process.
A large, global consumer goods manufacturer was interested in assessing opportunities to electrify Class 8 trucks1. The company wanted to produce a feasibility and cost-benefit analysis, as well as a fleet electrification roadmap. ENGIE Impact took a five-step approach to defining and executing a strategy.
The outcomes were remarkable. We found that if they replaced the trucks that could be electrified without impacting operations, they would reduce 91% of their fleet emissions by 2030 relative to the baseline. In doing so, they would also save $7 million per year in operating costs, without assuming subsidies or cost-sharing with other parties. Not only would emissions be dramatically reduced, but they would also save money.
As for the changes electrification would bring to their operations, we concluded – taking their busiest week over the course of a year – that when using their current dispatch profile and their current stops for drivers along the way, there was approximately a 30-minute difference over the course of a week, making it an obvious win-win situation: the company could maintain their current operations while reducing emissions and saving money.
The push for corporations to decarbonize ground transport fleets, which is critical for companies in the CG sector to meet their climate ambitions, is gaining momentum. While acknowledging the challenges of integrating EVs into commercial fleets, and despite recent narratives suggesting softened EV demand, the overall upward trend in EV adoption remains steadfast. When it comes to decarbonizing a fleet of EVs equipped to meet operational needs, a bespoke approach is needed, considering factors such as mobility usage, selecting vehicles suited for the task, navigating the complexities of a charging infrastructure in diverse geographies, and securing the right green fuel supply.
Holistic collaboration when undertaking such a transformative journey is pivotal. As corporations and their sustainability advisors navigate this space, innovative partnerships need to be forged and third-party providers need to align their offerings with the decarbonization goals and operational needs of their clients. It will at times be a challenging process, but the evolving narrative is one of optimism, driven by a collective commitment to sustainable mobility and a cleaner future in ground transportation.
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