YOU MAY think that if you splashed out $100,000 for a vehicle you would usually take delivery of something pretty flash—a Porsche, say. In fact, many buyers of wheels at that price care less about the badge on the bonnet and more about how much the thing costs to drive and how much weight it can carry. For this is also the price of a large lorry. These commercial vehicles, together with smaller trucks and vans, keep supply chains humming and deliveries moving.
They also make lots of money for their makers. In 2023 vans accounted for a third of revenues of €190bn ($207bn) at Stellantis (whose largest shareholder, Exor, part-owns The Economist’s parent company). Ford Pro, the American car giant’s commercial-vehicle arm, made a net profit of $7.2bn on sales of 1.4m units, compared with $7.5bn at Ford Blue, its car division, which sold twice as many vehicles. Daimler Truck, the world’s biggest manufacturer of medium-sized and large lorries, earned revenues of €56bn last year. Lorries made by Volvo and Daimler rake in margins typical of an upmarket carmaker.
Given both the already high upfront cost and the attention buyers pay to operating expenses, you might expect commercial vehicles to be ripe for electrification—not least because they are also disproportionately heavy emitters, with lorries and buses contributing over a quarter of the carbon spewed by road transport in the EU. Business buyers value this total cost of ownership more than individual motorists, who may be willing to pay a premium to salve their green conscience. The problem is that for many commercial vehicles, the calculation continues to favour petrol and diesel. Can that change?
China, where volts have made the biggest impact, accounted for 85% of global sales of electric heavy-duty lorries (the largest sort) in 2023. Yet that corresponds to just one in 25 such vehicles sold in China; by comparison, one in three new passenger cars there is electric. In Europe the figure is one in 70, and one in seven for passenger cars. When an eu ban on sale of cars with internal combustion engines comes into force in 2035 only three-quarters of lorries could be electric, according to bcg, a consultancy. idTechEx, another consultancy, forecasts that zero-emission lorries will make up 13% of sales in America by 2030, far short of President Joe Biden’s goal for 50% of car sales.
Over the next six years electrification is likeliest for smaller vehicles operating over shorter distances, such as last-mile delivery services, reckons Alexander Krug of Arthur D. Little, one more consulting firm. The economics of running smaller electric vans can be compelling. Uwe Hochgeschurtz of Stellantis notes that going electric can both save money and comply with increasingly strict emissions rules in cities. Electric vans that travel relatively short distances over the course of a day but cover lots of miles over a year could have a 10% cost advantage over conventional ones, calculate consultants at McKinsey. Lars Stenqvist, technology chief at Volvo, sees no reason why all cities in Europe should not run electric bin lorries.
Batteries can be smaller and vehicles can be recharged overnight at depots. Even where they are not yet cheaper, going electric allows large delivery companies such as FedEx and DHL to help merchants they cater to meet carbon-cutting commitments which many shoppers demand. FedEx has set a target for half its parcel-delivery vehicles to be electric by 2025. dhl wants the same for 60% of its last-mile vehicles by 2030. Amazon has 10,000 electric vans on American roads and hopes to have 100,000 by 2030.
The economics are a heavier lift for lorries. Optimists point out that plenty of routes are well within current vehicles’ range. America’s Department of Transportation reckons that the distance travelled by three-quarters of all goods ferried by road in the country in 2023 was less than 250 miles (400km). Volvo calculates that 45% of goods in Europe today travel less than 300km. Marco Liccardo, Mr Stenqvist’s opposite number at Iveco, an Italian commercial-vehicle firm (also part-owned by Exor), expects electric cars to reach total-cost parity with conventional lorries in 200km runs between logistics hubs.
Regulators are trying to speed things along. In America, the Environmental Protection Agency has proposed requiring that half of sales of new buses and a quarter of new heavy-duty lorries be all-electric by 2032. Buyers of such clean vehicles can also count on tax credits. The eu is requiring cuts of 15% to the average carbon-dioxide emissions of carmakers’ fleets by 2025 from 2019 levels, and of 43% by 2030.
So far this is having little effect. Only a few electric models are on sale. The large and bulky batteries they require drive up the purchase cost. Electric trucks set businesses back between two and three times as much as a diesel one does, and offer limited range. The largest trucks, of which 2m or so were sold worldwide in 2023, are also the most likely to stick with internal combustion. Volvo shifted 6,000 electric ones last year, just 2% of its total.
And even if the cost disadvantage can be overcome, that leaves the problem of infrastructure. Van fleets can recharge overnight at depots. Bigger lorries on shorter-haul routes can be charged at either end, while they are loaded or unloaded or drivers rest. Longer-haul routes will require public charging stations. But dedicated fast chargers for lorries require far more power than for cars, plus lots of parking space. The fastest chargers that can top up cars in a few minutes would take around 90 minutes for a lorry. A handful of “megawatt chargers”, which are ten times faster, are already in operation in Germany and the Netherlands.
But a Europe-wide charging network would require investments of as much as €36bn, estimates PwC, a consultancy. One to refuel lorries with hydrogen—a zero-emissions alternative to batteries—would not come cheap either. Cash-strapped governments are unlikely to want to foot the bill. On March 12th the Biden administration unveiled a strategy to speed up the building of public infrastructure for freight lorries. But even if it is successful, it will not be built overnight.
Another problem stems from the carmakers themselves. Moving more swiftly to an all-electric world would “write off seven or eight years of profit”, says Robert Falck, boss of Einride, a Swedish commercial-vehicle startup. Whereas legacy carmakers were forced into electrification first by Tesla and more recently by cheap but decent Chinese models, the lorry business has so far faced less disruption.
Tesla itself has moved more slowly. It unveiled the Semi, its electric lorry, in 2017 but started shipping it only in late 2022. Tesla says it has a fleet of around 100 on the road, many of which are operated by PepsiCo. The carmaker’s plans to produce 50,000 a year by the end of 2024 look wildly optimistic. Nikola, which launched in 2014 and to great fanfare struck a joint venture with Iveco in 2019 to develop zero-emission lorries, has also struggled. Its founder was jailed in 2023 for misleading investors. Since then its market value has crashed from nearly $29bn in 2020 to around $900m today. Last year it sold just 35 hydrogen-fuel-cell vehicles. It has also paused production of its battery lorries. Its joint venture with Iveco was disbanded in 2023.
Startups eyeing last-mile delivery vans have had similarly mixed fortunes. As for the upstart EV-makers taking on Tesla, ramping up production and raising capital is proving tough. Lordstown, an American firm, and Volta Trucks of Sweden, have gone bust. Arrival, a British one, is teetering on the brink, despite an order of 10,000 vans from ups, another parcel-delivery giant. Rivian, an American firm which in 2019 signed a deal for 100,000 vans with Amazon, and Canoo, a rival which counts Walmart among its customers, are struggling to make vehicles at scale and are burning cash. Other manufacturers, such as REE and Tevva, which make battery-powered vans and lorries in Britain, or Harbinger and Workhorse, both of which make medium-sized trucks in America, are hopeful but have even further to go.
The threat to legacy lorrymakers from China is also far less acute than in the market for passenger cars. As with electric cars, China has stolen a march on everyone else in commercial EVs, thanks to its world-beating battery industry (and strong government incentives). Maxus, a British brand acquired by saic, a Chinese carmaker, is selling vans across Europe; one model was Britain’s best-selling electric van in December. byd, China’s biggest electric-car maker, has exported a handful of large battery-powered lorries to America.
But Chinese lorrymakers will find it harder to conquer foreign markets even than Chinese carmakers, which are viewed with suspicion by many Western governments. Europe is more protected against Chinese lorries. One car executive calls its strict regulations for lorries “the equivalent of tariffs”, adding that this makes Chinese commercial EVs uncompetitive on the continent.
Mr Falck hopes to shake up the market with a new business model, which he calls “Uber for freight”. Volvo and Iveco are trying to increase the appeal of their electric lorries with a financing deal that sidesteps high upfront costs in favour of customers paying by use. Einride goes a step further, owning its own fleet of vehicles (built by partners and financed by investors) and providing the lugging of goods as a service. The company already operates fleets for Maersk, a shipping giant, ab InBev, a brewer, and Lidl, a supermarket chain. That is an interesting path to electric freight. But it, too, looks long and winding. ■
Source: Business - economist.com
