8 minute read 12 May 2021
Aerial view of winding road in high mountain

Why all UK fleets need an electric vehicle transition plan

Authors
Maria Bengtsson

EY UK&I Electric Vehicle Lead

Dedicated to providing advice to clients around strategy and transactions in the energy sector, enabling them to find opportunities and manage risks in the energy transition.

David Borland

EY UK&I Automotive Leader

Passionate about the automotive industry and delivering innovative solutions for clients. Outside of work, focused on family and community. Enjoys sports.

8 minute read 12 May 2021

Fleet owners need to plan for electrification today to support a successful transition to electric vehicle fleets by 2030.

In brief
  • Fleet operators need to act now to meet the demands of transitioning their vehicle fleets by 2030.
  • Investment in infrastructure is vital to support the adoption of electric vehicles by both consumers and fleet operators alike.
  • The changing nature of requirements, across national and regional levels, will create additional challenges for UK fleet operators.

Historically, the only electric vehicles (EVs) companies bought were milk floats and forklift trucks. They were impractical for travelling long distances, or at high speed, because of their heavy powertrain, low battery capacity and long charging times.

Now, EVs are mainstream and their widespread adoption in developed countries is inevitable. Many European governments want to end the sale of vehicles with tailpipe emissions and targets are increasingly ambitious: 2050 once seemed fanciful; 2040 is now a widespread aspiration; the UK and others, such as Norway, are targeting 2030 and sooner.

Government targets represent challenges for fleet owners

To meet government goals in the next decade, the share of zero emission sales in the UK must rise tenfold. This is not unrealistic; whilst it took 10 years to sell the first 100,000 all-electric cars in the UK, it took just 1 year for the next 100,000 . EVs now closely match internal combustion engine (ICE) powered models on total cost of ownership, driving experience and performance.

Yet challenges to widespread adoption remain. Although there are implications for all customer groups, fleet operators must think more carefully than private owners. They are expected to take the lead. Road transport accounts for slightly less than one-quarter of Europe’s total emissions, and fleets are responsible for a disproportionate amount of this. Fleets view ICE vehicles as commodities with easily comparable cost of ownership. EVs have a different cost equation, and technology and taxation are still evolving. Changing the entire vehicle population will probably take a long time: with approximately 34 million cars in the UK, it will take almost 10 years to replenish half that number, and a quarter of a century to replace 99%, unless there is a significant rise in scrap rates.  

UK businesses must study the detailed consequences of the government’s goals  for fleet transition and, in the absence of established precedent, provide robust decision support to increase the chances of success. This will take time, and missteps may still be made, but companies will be rewarded with improved outcomes in the long term .

The fleet ecosystem is changing

EVs will affect current operating assumptions across five domains:

  • Infrastructure and grid

    Charging capability is needed at the fleet base and whilst on the move.  Resolving anxieties about charging speeds, cost and access requires solutions that span physical infrastructure, utility providers, vehicle capability and accessories. New business models and payment methods are emerging, with fleet operators seeking to be seamlessly billed a standard electricity rate, regardless of where charging takes place. There is also technology advancement: when plugged in, newer EVs can  collectively act as a giant power reserve for grids aka vehicle-to-grid  (V2G).  Participating fleets could reduce running costs and burnish environmental credentials.

  • Customer and fleet

    Fleets know which ICE vehicles match their needs, but EVs often bring a different balance. They invariably cost more upfront and, compared with commercial vehicles, often have shorter headline ranges. Almost all EVs now have enough range for a full day’s travel but drivers and managers must overcome long standing assumptions about what they need just in case, especially where user choice is involved. The average length of a UK car trip, 8.4 miles, hasn’t changed between 2002 and 2019 (National Travel Survey: England 2019).

  • Finance and capital

    Special sources of funding are available for fleet operators in areas where environmental benefits can be demonstrated (e.g.,  green bonds). New digital players  are enabling institutional investors and fleets seeking funding for electrification to connect more readily. Specialist EV leasing and rental providers are challenging incumbents through lower prices or increased flexibility. Business models are still evolving, and fractional ownership of both the vehicle and battery could become more common.

  • Products and supply chain

    Fleets may have trouble aligning their preferred transition timing with vehicle availability; there are many underserved segments. For commercial vehicles, the range of ICE products available today will be unmatched by EVs until the late 2020s, driving fleets to unfamiliar brands, and possibly higher prices.

  • Sustainability and regulation

    Despite clarity on government targets, many questions remain. How will access to cities change? What are the implications for vehicles already in service? How will consumer reaction and government policy influence corporate sustainability objectives? How will the decline in fuel duty be managed? In 2030, what will be the difference between operating an all-electric fleet versus a last-of-the-line ICE fleet?

As early adopters, UK fleet operators have an opportunity to influence the kinds of EVs Europe will use, and pick winners from the start-ups hoping to lead the change.

Investment in infrastructure is needed to support adoption of EVs 

EVs operate in a different paradigm compared with ICE models. They have the advantage of being chargeable whenever stationary, but the replenishing range away from base is challenging. Most owners plug in each night but fully recharging depleted batteries in that time requires special facilities beyond a household plug. At the lower end, the charging units themselves are inexpensive but may carry significant installation costs, especially if groundworks are required. It may even be necessary to overcome local grid limitations by upgrading sub-stations or creating battery storage. Neither option is cheap, and most companies have no existing budget for either acquisition or maintenance of charging infrastructure. A clear understanding of the likely evolution in charging requirements over time will materially save on capital expenditure and avoid expensive reconfiguration and upgrades. 

Vehicles kept overnight at the home of the primary user need charging points. However, it’s estimated that around a third of the UK’s 27 million households don’t have off-street parking, so many EV owners will need to use public charging points. This raises awkward questions for fleet operators   around how a modification to an employee’s property should be controlled, and what happens if, and when, it is no longer required. Concerns in this regard include the complexities of reimbursement to the employee for electricity used . HMRC guidance on alternative fuel rates doesn’t match the efficiency of a fuel card. Software platforms that can manage the time at which vehicles charge and the tariffs paid, and provide revenue from V2G applications, will become increasingly important.

Fleets can influence product design

It takes around four to five years to create a new van or passenger car. Models set to go on sale in 2025 are being designed today. Fleet operators must engage with designers now to ensure that their product needs are known, and they may have to make advance commitments to guarantee those needs are met . As early adopters, UK fleet operators have an opportunity to influence the kinds of EVs Europe will use, and pick winners from the start-ups hoping to lead the change.  

EVs demonstrate a strong commitment to sustainability

Electrification is often discussed in the context of a regulatory end date, but many companies will move more quickly. Major automotive manufacturers are committing to carbon neutrality — covering manufacturing and in-service emissions — during the 2030s. Can companies with lighter industrial footprints, such as delivery firms, be viewed as good environmental custodians if they transition more slowly? Widespread usage of EVs demonstrates a commitment to sustainability and that change is underway. 

Sustainability will be measured broadly: what is the whole life energy usage of a company’s assets, and were materials ethically sourced? There will likely also be a market for repurposing of batteries for a second life — where the cells no longer hold enough range to efficiently power a vehicle but still have years of useful life in less demanding settings. Finding applications that maximise operational life before recycling could bring organisations financial and environmental benefits. Large fleet operators may find that, as extensive users, they can take an active role in battery re-use to protect corporate sustainability promises.

Regional disparities will drive EV fleet distribution

Environmental regulation has moved from national to regional as cities create low emissions zones. Several regions plan strict entry criteria, with only zero emission vehicles being allowed beyond certain dates. And often even  newer ICE models will be excluded. Some regions are looking to introduce high entry charges for anything with tailpipe emissions. Others prefer to concentrate on only the worst polluting models or apply no rules at all. A business based in Bristol or Oxford may find the cost of fleet ownership becomes unbearable without EVs. Larger, national operators need to optimise fleet capability. Some will move older vehicles to more permissive territories and employ EVs only where they are needed; others may opt for a fleetwide EV upgrade, improving bargaining power with manufacturers and simplifying operations.

Transition to EVs presents a unique set of challenges

Within a decade, even fleets with the slowest rate of change will switch to buying entirely different vehicles with entirely different infrastructure needs. More ambitious operators will change even sooner. Whilst committing to immature technologies and business models, they will hope to maintain cost discipline. To manage these risks, detailed planning should already be underway alongside engagement with the wider ecosystem of potential partners. Many of these suppliers are still developing their own relationships with new associates; so interoperability is not assured.

EY’s recent report Accelerating fleet electrification in Europe showcases a range of organisations making firm EV transition plans. It highlights the challenges for fleets, governments and energy providers in dealing with the operational and cost differences between EVs and ICE vehicles.

What questions should fleet operators ask themselves?  

  • How will national and regional regulations and corporate sustainability objectives affect our vehicle fleet?
  • What is our fleet’s real-world usage? Where is performance essential, what cost-saving compromises exist?
  • What infrastructure and energy supply do we need? Where do we need it?
  • What are our ideal EVs? Do they currently exist? What do they cost? Are they from brands we currently operate? 
  • What support and resources do I need from the wider organisation?

Summary

UK fleet operators will be among the first in the world to transition to electric vehicles, and may switch earlier than retail customers. All the ingredients required for change exist; but companies must consider the implications early to meet ambitious government targets. With sales of new cars intended to be zero emission only from 2030 onwards, UK fleets may find the pace of change uncomfortably quick.

About this article

Authors
Maria Bengtsson

EY UK&I Electric Vehicle Lead

Dedicated to providing advice to clients around strategy and transactions in the energy sector, enabling them to find opportunities and manage risks in the energy transition.

David Borland

EY UK&I Automotive Leader

Passionate about the automotive industry and delivering innovative solutions for clients. Outside of work, focused on family and community. Enjoys sports.