By Gregory Genette
While the passenger cars and two-wheelers are adopting the electrification technology at a fast pace, commercial vehicles, especially medium and heavy commercial vehicles (MHCV) are lagging behind. Why the MHCVs are lagging in terms of electric powertrain penetration?
Governments and truck manufacturers around the world are turning their focus to zero-emission technology as climate change takes centre stage in the medium and heavy commercial vehicle (MHCV) industry, which includes trucks and buses GVW 6.0 tons or more. However, millions of miles driven, a wide variety of applications, and traditionally small operating margins provide an interesting and challenging backdrop as the industry strives for a carbon-neutral future.
Compared to their light vehicle counterparts, penetration rates of electric MHCV’s currently remain significantly lower in terms of market share and product availability. Trucking fleets are particularly sensitive to major changes in their operations; when evaluating new investments their primary focus is on the total cost of ownership, upfront initial cost, and ongoing profit margin. Today, most zero-emission trucks are in a testing and exploratory phase, but with advancing technologies, pending regulations, and shifting OEM focus, change is inevitable. Exactly when and how remains a looming question.
Given the current state of EV technology, heavy batteries onboard a truck will have a negative impact on the available capacity to transport goods, giving fleet operators added concern over reduced profits.
By 2030, IHS Markit expects fully electric MHCV penetration will be significantly higher than it is today, driven by a changing market landscape, improving technology and a regulatory environment in select regions pushing zero-emission technology. However, significant change will not happen overnight, the industry must address major barriers before widespread adoption can happen. Despite rapid growth, the penetration of electric commercial vehicles will still be limited in terms of production. As an example, according to current IHS Markit forecasts, global production of electric MCHVs are expected to be 9% in 2030.
Despite the desired change, the industry faces many challenges
Electrifying medium and heavy commercial vehicles pose some significant challenges, the most prominent of which is the availability of charging infrastructure, which is considered by many to be the most immediate challenge the industry must face. Grid capacity issues, as well as charging station availability will need to be addressed in ways that will allow fleets to adopt this new technology without significant alterations to their current operation.
The second challenge in focus is the potential of a reduced payload capacity, an important metric to understand when evaluating electric MHCVs. Given the current state of EV technology, heavy batteries onboard a truck will have a negative impact on the available capacity to transport goods, giving fleet operators added concern over reduced profits. Furthermore, battery range, product availability and total cost of ownership are additional challenges the industry must face in the next decade.
By 2030, the penetration of electric MHCV’s is not expected to exceed 10% of production, and the early movers will represent the majority of these volumes.
Early adopters from now until 2030: who are they?
By 2030, the industry will still be in the early stages of the “charge” towards electrification. Therefore, it is important to understand what type of trucks and what type of fleets are expected to be early movers. By 2030, the penetration of electric MHCV’s is not expected to exceed 10% of production, and the early movers will represent the majority of these volumes.
From a segment perspective, the smaller Class 4 & 5 trucks will be among the first early adopters. Within these applications, trucks operate in the regional and local delivery segments, with reduced payload needs, shorter routes and the opportunity to charge at a single location at the end of a day. This type of opportunity has the potential to alleviate many of the challenges expected to impact electrification penetration in these segments.
Secondly, in many parts of the world, a large portion of bus sales are purchased from government groups. For example, in the United States, 67% of all bus registrations since the start of 2018 have been from the Local, State or Federal governments. As a result, funding the initial investment of an electric bus becomes less of a barrier and more of an opportunity to use government funds to support an effort toward sustainability and climate change.
Large trucking companies have access to significantly more capital for future investments compared to smaller trucking operations.
Lastly, large trucking companies have access to significantly more capital for future investments compared to smaller trucking operations, giving them the opportunity to not only participate in electric truck testing but ultimately purchase the more expensive battery-electric trucks without significant and detrimental impact to their business. Also, over the last 12-18 months, additional pressure and focus are mounting regarding environmental, social, and corporate governance (ESG). For example, large publicly traded companies have a novel focus on their carbon footprint and the impact their business operations have on the climate, both in the short-term and long term.
Regulatory Environment: A key challenge for OEMs & fleets, but a driver for zero-emission technology
A view to 2030 cannot be complete without discussing the impact government regulations and policies will have on the penetration of electrification in the MHCV market. Recently, in markets such as the United States and Europe, there has been unprecedented momentum and announcements surrounding vehicle emissions, zero-emission technology, and climate change.
By 2030, regulations such as California’s (California plus 14 other states, plus the District of Columbia) Advanced Clean Trucks, which requires manufacturers to sell an increasing number of zero-emission trucks, together with a wide variety of upcoming policies in Europe, including initiatives from the Green Deal and “Fit for 55” package, will impact the market over the next decade.
In addition, it is expected that Mainland China will continue to promote zero-emission technology with new investments, regulations, and incentives over the next 10 years. In the past, regulations have had a primary focus on air quality and greenhouse gas emissions — however, moving forward, regulations focused specifically on zero-emission technology will alter the way industry players invest for the future.
The trucking industry is complex in nature and differs in many parts of the world.
A view to 2030: Not an overnight change, but momentum is growing
Overall, this industry will experience a wide variety of challenges as major industry players turn their focus to zero-emission technology. By 2030, it is expected that electric MHCV’s will be purchased, deployed, and operated among their diesel counterparts.
However, given the dynamics of this industry and the wide variety of challenges the industry must address, the rapid growth over the next decade will still represent only a small portion of production and sales by 2030.
The trucking industry is complex in nature and differs in many parts of the world, however, one thing is for certain, the industry has hit an inflection point and there is limited reason to believe momentum towards electrification will not continue.
(Gregory Genette is Senior Research Analyst, MHCV at IHS Markit.)
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