Why electrifying transport is transformational, not just transitional

Fleets will supercharge the rollout of electric vehicles. But it’s not as simple as swapping old petrol cars for new battery equivalents.

In October 2021, US car rental giant Hertz announced ambitious plans to electrify its fleet. It ordered 100,000 Tesla Model 3 electric vehicles to be delivered over 14 months to US and European locations. On news of this multi-billion-dollar deal – the single largest-ever purchase of electric vehicles – Tesla’s market value soared above the US$1 trillion mark. Beyond the headline numbers, the deal further emphasises that the rapid transition to electric vehicles is on a serious upward trajectory.

Fleet very much leads the way in the eMobility journey. In the heavy-duty vehicle category, we acknowledge that hydrogen-powered vehicles could be a big part of the zero-emissions solution. But, for the purposes of this article, our focus is on battery electric vehicles (BEVs) as alternatives to internal combustion engines (ICE). That said, it isn’t as simple as persuading organisations and consumers to swap one for the other.

The transition depends on a complex, interconnected global web, comprising auto manufacturer production and vehicle model availability, charging infrastructure installation and operation, availability of core materials, adjustments to the electricity network, operational changes to corporate fleet, social acceptance and government policy. Each of these components must come together. And they must be supported, not impeded by regulatory interventions, if they are to enable the future of eMobility. 

While the transition presents organisations with a volatile and uncertain environment, it also represents a once-in-a-generation chance to reimagine fleet management and value propositions, reframe energy networks and retailing, and enable smart manufacturing collaborations, supply chains and jobs for the future.

Undoubtedly, complexity will arise, which will see players in the eco system, including power and utilities providers, seek to recognise and manage the implications of rising BEV usage and energy demand. Businesses and governments need to understand the end point, and then plan how to get there. It’s no good just ‘letting it happen’. 

Everyone At The Starting Line

While it is clear that momentum is building, there’s no doubt that Australia is a global laggard in the uptake of BEVs. Less than 2% of vehicles purchased in Australia in 2021 were electric vehicles, both BEVs and plug-in hybrids (phEVs). That compares with a global average of 4.2%, while nearly 25% of vehicles sold in the EU in August 2021 were electric. However, we now have the chance to take some positives from our back-of-the-pack status by analysing and learning from global experiences to chart a more efficient BEV transition in Australia.

We can look to Europe, where EY has launched its newest report, Power sector accelerating e-mobility: can utilities turn EVs into a grid asset?, with European energy industry body Eurelectric. It finds that increasingly stringent carbon-dioxide (CO₂) emission standards for passenger cars and light commercial vehicles are accelerating the switch in powertrains. They are accompanied by government incentives, bonus payments, premiums and tax benefits to sweeten the transition and accelerate EV adoption. Corporates are setting their own environmental, social and corporate governance (ESG) goals too. Meanwhile, EY’s conversations with utility companies, automakers, city planners, fleet managers and charge point operators in Europe provide an overwhelming sense of confidence that EVs will go the distance and players will converge around making the transition happen.

On the supply side, we see how European policy is incentivising BEV uptake to capture the low-hanging fruit in the drive towards electrified transport. Norway is one of the most progressive adopters, with coordinated incentives and infrastructure rollouts since the 1990s. In 2021, 86% of new vehicles sold in Norway were plug-in electric vehicles (whether phEV or BEV).

Australian policy changes are more recent. All Australian state and territory governments have Net Zero targets, and most have now set out BEV policies to incentivise uptake. They tend to be a mix of subsidies, cheaper vehicle registrations and stamp duty relief, in conjunction with state government funding, sometimes co-funded by the private sector, for the installation of charging infrastructure. In October 2021, the Federal Government released its plans for Net Zero 2050. It has ruled out subsidies, tax incentives or minimum fuel standards for BEVs, banking instead on partnering with charging infrastructure providers to accelerate EV uptake.

Net Zero targets have also prompted fleet operators, both passenger and light commercial vehicles and bus and heavy vehicle fleets, to think about switching to electric, to meet their own targets and to kick-start the broader shift. Meanwhile, the second-hand market, which is traditionally a healthy recipient of vehicles that start life within a fleet, will be dependent on early BEV uptake and onward disposal by fleet operators.

The Hertz order is almost three times the total number of EVs (including the very small number of hydrogen-powered vehicles) ever sold in Australia. However, local sales of EVs are arguably responding to recent policy shifts and heightened environmental awareness. In 2021, almost 21,000 EVs were sold in Australia. That’s more than triple the sales achieved in 2020.

This uptick is confirmed by the latest EY Mobility Consumer Index report, which finds that almost one in five (18%) Australian car buyers are considering a hybrid-EV, battery-EV or hydrogen vehicle. More than two-thirds of these respondents are likely to make a purchase within the next 12 months. By comparison, however, more than four in ten (42%) respondents globally are looking to buy an EV, hybrid or hydrogen vehicle, with some countries showing even greater appetite for clean powertrains. In Italy, for instance, it is as high as 63%. Total cost of ownership and concerns about charging infrastructure are cited as the main reasons why people may be dissuaded from purchasing an EV, hybrid or hydrogen vehicle.

Though the numbers are still small, increasing consumer demand and policy interventions make this the time to properly plan for a world that is embracing EVs and clean technology transport. It’s a world that will require an entirely new operational and ownership model that must be rolled out in conjunction with a suite of infrastructure assets and shifts in consumer perceptions.

A Fleeting Chance

As much as changing consumer habits are driving demand for BEVs, fleets are the key to supercharging the shift to an electrified transport sector. As EY teams have noted in the UK, EVs now closely match ICE-powered models on total cost of ownership (TCO), driving experience and performance, which make them highly suited to fleet purposes. Meanwhile, in Australia, new sourcing and ownership models are bringing the TCO for EV fleets close to parity with ICE alternatives.

However, despite the availability of suitable fleet models, few automakers are bringing them into Australia so far, which is deterring, or at least deferring transition strategies. And although emissions targets set by governments and businesses’ own ESG goals are helping to fuel the shift, low incentives are leading to low demand. Shifting fleets to BEVs, especially government fleets, is one of the ways in which governments can help to break this cycle.

The speed of change may be slow, but one thing is certain: change is coming. Fleet operators need to plan for a future where they no longer simply ship updated ICE models into the depot and hand out keys and fuel cards to drivers. Fleet operators will have to grapple with a host of challenges that they might not have fully anticipated.

Operators must understand which vehicle models are available both now and soon, what they’ll be used for, how far they can go without being recharged and where they will recharge. On top come more detailed and emerging considerations, such as if or when the depot might become a virtual power plant by knitting together energy generation and storage assets and connecting to the grid. This would entail a closer tie-in with facilities management, route planning and optimisation, and emerging sourcing and ownership models. 

“Also, not to be missed in the list of issues for fleet operators and their organisations, are driver experiences and considerations of employee value,” says Glenn Maris, Advanced Manufacturing & Mobility Leader, EY Australia. “There is an increasing trend of employees wanting to work for organisations that have a purpose and to be engaged in roles that are environmentally sustainable. It begs the question: At what point does an EV fleet start to become a significant market differentiator when looking to attract talent?”

The S-curve below illustrates the complexity of transition and the steps that will confront the fleet operator. 

Charged With Change

Along with model availability and usage, operators must grapple with charging requirements. If vehicles return to a depot, for instance, the solution isn’t simply about wiring more sockets into an existing wall. Chargers need floor space. Then there are questions such as how many and what type of chargers are needed. And what is the lead time for installation and does the existing location meet physical space, safety and network considerations?

Many fleet operators will need to design strategies to deal with a mix of charging at a central location, at employees’ homes and at public charging stations. Additionally, they must consider who pays for the charging and how. According to Grattan, over two-thirds of Australian households will “find it easy to charge electric vehicles at home”, based on access to easily installed at-home charging infrastructure. Though it’s a hefty proportion of the population, it obviously leaves a sizeable number of potential fleet users in need of alternative creative solutions.

It is a similar story in Europe. Our EY report authors estimate that 130 million EVs will hit the road in Europe by 2035, necessitating 65 million chargers. They also calculate that 85% of chargers will be residential, 6% in the workplace, 4% on public highway corridors and 5% at destinations, such as shopping malls.

Home charging for fleet vehicles brings new considerations, such as modifications to an employee’s property, and the inevitable question of what happens when an employee leaves their position.

The Federal Government’s recent 2021 update to its Low Emissions Technology Statement goes someway to recognising this. It introduces a new technology category: “enabling infrastructure, [which is] critical for enabling commercial deployment of low emissions technology”. The priority is “battery charging and hydrogen refuelling stations to support consumer choice in electric vehicles” along with digital energy grid enhancements.

The updated policy is an acknowledgment that BEVs and, to a lesser extent, Fuel Cell Electric Vehicles (FCEVs), can prosper in a broadly mature ecosystem that allows all parties to thrive. While governments don’t need to do all the heavy lifting on investment and infrastructure costs, fostering a broad electrified transport ecosystem will give policy certainty to foundational investments for long-term business plans.

“It's quite a complex puzzle when all the issues are considered,” says Damien Smith, Partner, EY Australia. “We see it less as a transition and more as a transformation. Some of the changes to EVs might be more straightforward. You come back into the depot when you're finished, plug the car in, the fleet manager gets all the data on the charge levels overnight and the cars are meted out according to their specific task. But the remaining portion of the fleet is likely to require sophisticated planning and strategy.”

Power Plays

When addressing where and how BEVs will charge, consideration must also be given to the capacity of local energy networks to cope with multiple EV chargers installed at a single location. The networks will need to make sense of how a broader shift to EVs being charged at decentralised locations, such as the home or on the street, will impact grid stability and the need for potential network upgrades.

In Europe, EV penetration will see energy demand growth accelerate by 11% per year. EY’s study with Eurelectric finds that the grid will cope, by and large, with increased demand, but it will be the unpredictable nature of simultaneous EV charging that could potentially destabilise and disrupt its operations. The problem will be exacerbated once electric trucks get the go-ahead, making the need for smart managed charging solutions paramount.

Down the track, as vehicle-to-grid (V2G) capabilities come online, power and utilities operators will factor in BEVs less as vehicles and more as linked mobile batteries. If smart grid systems are deployed, as they have been elsewhere in the world, there is potential to offset large transmission upgrades through intelligent use of linked-up batteries to stabilise the electricity network.

Furthermore, as emissions targets rely heavily on the use of renewably sourced electricity or hydrogen, power purchasing will become a key consideration. 

A Winding Road

No fleet transition will be smooth. Strategies will require detailed and iterative approaches, alongside an understanding of the unique needs of individual fleets. Timing may be everything. The business case at each point must be carefully understood. In parallel, challenges in providing and operating charging infrastructure, managing grid impacts, bringing new vehicle models to market and mapping the user experience will activate multi-industry, cross-sector solutions.

These challenges can be met by asking the right questions and taking a financial and data-led approach to resolution. Drawing on data, insights and analysis gleaned from over 40 global eMobility projects, EY has designed a proprietary solution, MobilityWave, to simplify the transition of ICE fleets to BEVs.

This once-in-a-generation shift in road transport is, we believe, transformational not just transitional. Consider transformation less as an incremental relay race, where the baton is passed from technological development to infrastructure upgrade and so on, and more as a united and concerted effort by public and private sector organisations to gather together and hasten the pursuit of a common eMobility goal.