EV: driving down supply chain costs as well as emissions
A new age of electric HGVs is dawning
A new age of electric HGVs is dawning
In comparison to the number of electric cars seen on Europe’s roads, the visibility of commercial electric vehicles (EVs) is very fractional, particularly in the case of heavy goods vehicles (HGVs). The picture is somewhat different in larger urban areas, where fleets of electric vans delivering items such as groceries, parcels and the post are a common sight. This begs questions as to why HGVs are relatively inconspicuous, and how does their effective power, range, chargeability, suitability and affordability stack up against existing diesel vehicles? To the uninformed observer, their low visibility might suggest that logistics operators don’t think electric HGVs are up to the task or simply aren’t worth the money, and that this is reflected in low levels of interest and demand.
On all counts, this is far from the case. While there are relatively few early EV adopters, there are businesses both large and small that are more than just interested in going electric. All the major commercial vehicle manufacturers – such as Volvo, Scania, DAF and Daimler – have burgeoning order books, with companies like DHL, DFDS, Tesco and Amazon having placed orders or taken delivery of their first electric HGVs. Albeit a much smaller and cheaper vehicle, when Ford launched an electric version of its mainstay truck – the F150 Lightning – in the U.S. last year, the response was phenomenal: there are now 200,000 on order, causing a wait time of three years and a massive premium on used versions. Simply put, manufacturers cannot make commercial EVs quickly enough. At the moment, vehicle production is still in the thousands, rather than the hundreds of thousands that will eventually be needed. But as we finally emerge out of the disruption of the pandemic and begin resolving major global supply chain issues, manufacturers will soon be able to scale up facilities and production.
While a disrupted global economy has undoubtedly hindered EV production and delivery, there has been greater momentum in terms of technological advancement on component parts, most particularly on battery specification which, importantly, has significantly elongated the range potential of EVs and strengthened the operational case for an EV strategy. As vehicle prices start to come down, the economics of operating electric vehicles is becoming more obvious, particularly for HGVs.
Beyond the pure business and financial considerations of whether to go electric, there are, of course, the environmental considerations, which will inevitably tip the balance on whether or when EV commitments are made. Increasingly, more companies are committing to net zero targets and this will impact those operators with even the smallest vehicle fleets. At the same time, national and local governments across Europe are increasingly imposing limitations on polluting vehicles through initiatives such as low emission zones (LEZs). What is happening in our cities is likely to be a catalyst for what happens on a wider geographical scale.
The increasing and compelling appeal of EVs
In very rudimentary terms, an electric vehicle compared to a diesel-fuelled one is cleaner, quieter, safer and more energy/’fuel’ efficient. It also requires less maintenance, has lower engine wear – and hence a longer life on the road - and across total costs is cheaper to operate, including not having to pay tax penalties for driving fossil-fuelled alternatives. On the downside, EVs are perceived as having poor range (and thus versatility) and less power, and are far from convenient to charge (or ‘refuel’) due to limited charging points. At the same time, they are expensive both in initial vehicle cost and replacement parts. While these ‘negatives’ still exist, they are beginning to diminish – particularly with regards to range and power - while the ‘positives’ are quickly being accentuated when the costs and benefits of going electric are analysed.
The very latest electric HGVs have advanced far since the earliest models. Improved batteries in combination with enhanced drive trains and vehicle design have radicalised energy capacity and efficiency, leading to much greater vehicle range. Software advances have also aided optimum power management. Meanwhile, the now lower costs of components are helping to reduce vehicle prices. Recent cost-benefit analyses estimate savings of between 10% and 30% across the lifetime of an electric HGV, which for the logistics sector (with margins of typically 3% to 5%) is significant. Importantly, these efficiencies become more considerable the larger the vehicle, where there can be as much as a 75% cost-per-kilometre saving against diesel-powered vehicles.
The case for EV adoption has already been proven at an urban logistics level and the ‘last-mile’ delivery element of the supply chain. The logical progression for further adoption is the vast volume of heavy goods traffic that goes in and out of cities or between distribution facilities. This inter-depot transport constitutes the bulk of national logistics activity across Europe (not long-haul operations as some might believe). What makes this segment of the market particularly suitable for electrification is the frequencies of the journeys and the short, predictable nature of the routes. A round trip of 150-250 kilometres from operators’ hubs allows there to be complete confidence on range and minimal risk of a vehicle not reaching its destination, with requisite charging points at either one or both of the depots involved. It is this particular market that is likely to profit next from the greater implementation of EVs.
Longer-haul journeys (especially across international borders) will also be electrified, but at a later stage, generally due to the greater distances involved, the unpredictable nature of the routes for any individual truck and the lack of sufficient availability of charging points at rest stops and/or within an operator’s control. However, as vehicle and battery technology and the supporting infrastructure continue to advance, the potential range and rechargeability of vehicles will improve, meaning that today’s major hurdles might not be so in the next 5-10 years.
The case for electric vehicles is therefore highly compelling and very much a win-win for both significantly reducing supply chain operational costs and an operator’s carbon footprint. But what about alternatives? Wasn’t hydrogen meant to be a contender with its similar environmental credentials, a far greater range and much quicker and easier refuelling? In short, it was a contender but the tipping point towards EV has come with a leap forward in battery technology and vehicle range. As a result, some big manufacturers are now downscaling their existing interests and investments in hydrogen-powered vehicles.
The right infrastructure and a holistic approach will be crucial
For EVs to operate efficiently and perform their role reliably in the supply chain, access to charging points within the operator’s control will be a fundamental infrastructure requirement. The option to simply refuel at a service-station is no longer viable due to charging point availability, charge time and a much higher cost. An operator’s facilities will therefore have to be EV-enabled, with charging points installed in loading and parking bays ready for trucks and other vehicles using a site. This will require the right physical space and conduits to be in place.
While the deployment of new infrastructure might require retrofitting by the landlord or relocation to a newer facility that is already EV-charging specified, there are other considerations beyond just installed charging points that will decide a building’s suitability. One of these is the strength, availability and reliability of the local power grid – not all are the same, even within close geographies. Warehouses and all their electrical working parts – including robots and other automated technologies - are now heavy power consumers. Charging points will only elevate that consumption.
A clear solution is the use of on-site renewables to provide a degree of energy self-sufficiency to support EV charging and much more. In particular, solar panels (PVs) can produce impressive and cost-effective GWs of power for a warehouse, even in countries and regions with below-average sunlight records. In the near future, PVs are very likely to go hand in hand with EVs. This could clearly serve an operator’s broader energy management and environmental/sustainability plans very well, and therefore might be a pivotal factor in your building specification and location decision if you transition to an EV strategy.
Planning well ahead and looking at the broader picture
The transition to an EV strategy will not be a short or easy process, and fundamentally will involve key decisions on vehicles and infrastructure. While purchase decisions might still be far off and delivery even further away, the monitoring, testing and planning of EV integration should start as soon as possible, even if initial implementation is two-three years away. It constitutes a major strategic investment which will require high levels of research and analysis and a constant evaluation of risks and opportunities. It will also involve stakeholders in and outside the organisation – including clients, suppliers and landlords.
Vehicle selection will be a major element in the process. EV models and specifications are being developed rapidly, and close monitoring of what EV makes and models meet your future requirements should be ongoing to ensure timely decision-making as suitable alternatives become available and prices come down. Test-driving EV models that are in an operator’s short list will clearly hone final decisions. And further down the line, driver upskilling will be required on vehicles that will need careful energy management when on the road.
The choice of vehicle types and the numbers finally purchased will undoubtedly be influenced by the operational role they need to fulfil and this will involve a meticulous evaluation of routes, schedules, capacities and frequencies to identify the optimum fleet specification and size within an EV context. It is unlikely that a simple like-for-like replacement of existing vehicles will lead to a cost-optimal outcome.
A critical part of the planning is also timing. When do vehicles need to be replaced and what is the window for shortening and extending a vehicle’s life? (A decision that might be influenced by pricing at a particular point in the future.) At the same time, property decisions will be crucial. When is your next lease expiry or lease renewal? Does your existing property have charging points and on-site renewable energy, and if not, is your landlord committed to retrofitting or installing what’s needed (and in time)? Moving to a fully EV-specified warehouse powered by renewable energy and in a reliable power grid area might be a stronger choice.
A powerful influence on your ultimate decision to go electric will undoubtedly be what your clients might expect of their suppliers, particularly with regards to Scope 3 emissions. As more large corporations pursue net zero carbon targets within shortening time frames, the pressure on suppliers to play their part in reducing corporate emissions will intensify. At the same time, any operator who is already adopting an EV strategy is clearly in the frame for new corporate partnerships or an expansion of business.
There are other significant ‘push’ factors at play and keeping an eye on the regulatory landscape will be essential as undoubtedly governments, whether national or local, will ratchet up their demands for logistics operators to reduce emissions, which might in the very long run leave no choice but to be electric as fossil-fuelled vehicles are made extinct.
As an innovator in the real estate and investment management space, with deep expertise in various fields such as logistics, supply chain management, (renewable) energy systems, and net zero carbon pathways, JLL has recognised this challenge and opportunity and recently formed a new EV solutions business within the sustainability consultancy team to support its clients with both fleet electrification system design and business strategy decision-making. Its experts have experience with mapping and implementing carbon reduction pathways for a range of logistic services operators and customers to deliver both carbon and cost-reduction opportunities.
Article originally featured in The SCM Startups Handbook 2022.
For further information on how EV can contribute to low carbon supply chains visit here.