Fred Crawley looks into
the viability of leasing electric cars and vans, and asks whether
the fleet industry is about to undergo an electric epiphany.
As the Society of Motor Manufacturers
and Traders welcomes electric car manufacturer Tesla Motors into
its fold, the automotive world seems to have taken yet another
small step towards incorporating zero emissions vehicles into its
basic fabric.
Go deeper with GlobalData
Yet in a subject obscured by so much smoke and
mirrors on the part of companies and political entities keen to
foster an image of corporate social responsibility, it can be hard
to get a realistic idea of exactly how advanced the rise of the
electric vehicle is – or, indeed, whether it is happening at
all.
Nowhere is this question more crucial than in the
fleet sector, where wholesale adoption of an electric vehicle
offering for business customers would be a strong suggestion that
this technology is finally coming of age.
After all, in a business climate where few lessees
– and even fewer lessors, it would seem – have cash to spare on
unproven or non-critical assets, a serious attempt by fleets to
support electric products must signal that they are either a
financially sound proposition now, or will be soon.
Proving ground
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataCertainly, fleets have been identified by
manufacturers as a useful testing ground for electric vehicles on a
functional basis. Mercedes-Benz was one of the earliest
experimenters in the UK market, initiating a fleet trial involving
100 of their Smart Fortwo vehicles back in December 2007.
Participants included energy providers EDF and e-on, the
Metropolitan Police, and Westminster City Council which, with 14
street charging points under its jurisdiction, currently operates
the most developed car charging infrastructure in the UK.
Mercedes-Benz UK managing director Dermot Kelly
said of the trials: “The feedback has been overwhelmingly positive,
and this has been instrumental in our decision to put the car into
small series production and bring another 100 cars to the UK early
in 2010.”
Interestingly, as well as testing the practical
operability of the vehicles, the scheme also evaluated the
vehicles’ viability as a leasable product, with participants in the
trial paying £375 pcm for vehicles over the four years of the
trial.
However, there is no doubt that this viability has
been weighted by government incentives – the Smart Fortwo trial has
been aided with £2.5 million from the Department for Business,
Innovation and Skills-funded Technology Strategy Board, which in
conjunction with the Department for Transport is putting forward
more than £100 million to promote development of low emissions
vehicle programmes nationwide
“We’re delighted that Smart has been awarded this
funding,” commented Kelly. “It means we can offer electric Smarts
at affordable monthly lease rates to participants.”
But aside from such government-targeted programmes
as the Fortwo scheme, how many fleet companies have taken the
initiative and trialled electrics for themselves?
Industry wariness
In the opinion of fleet industry
consultant Colin Tourick: “Few lessors or fleet managers have had
much involvement with electric vehicles. Other than in some
specialist sectors they have yet to take off for most fleets – and
that is why the government is trying to get fleets involved in
their new trials.”
Indeed for many large fleet companies, uncertainty
seems to be the defining feature of electric vehicle policy. A
spokesperson for Alphabet said that the company had little
experience with electrics, and would prefer not to comment on the
matter since parent company BMW produces no electric vehicles of
its own.
Likewise, and perhaps more encouragingly, a
representative of Volkswagen joint venture LeasePlan said the
company was in the middle of reviewing its electric vehicle policy,
and was disinclined to make a public statement on the matter until
it had “a better idea of where it stands”.
Meanwhile, asked about ING Car Lease’s policy on
electrics, a spokesman said: “The technology is not quite there yet
to provide a mainstream alternative to carbon-fuelled cars. There
is demand; however, there is a very limited source of vehicles
which can currently meet this demand.”
Going on to explain the shortcomings of the current
market offering for lessors, the spokesman continued: “In the
current market, electric vehicles are still seen as a bit of an
oddity. This is largely due to the fact they are not mainstream
enough in appearance or function. Once electric vehicles look like
‘normal’ cars and can perform like ‘normal’ cars, then this will
disappear.”
Residual problems
The problem for ING (and for other
lessors) is not necessarily one of image per se, but a practical
concern about resale.
“The concern for a leasing company when
deciding how and what to put on its books, is whether technology
will have made the vehicle in question obsolete when it needs to be
sold after three years,” the ING spokesman said. “Obviously this
causes a certain amount of caution when pricing these vehicles, and
until a clear single winner in the race to replace carbon-fuelled
cars emerges, we cannot see this changing.”
Even BNP Paribas’ fleet subsidiary Arval, which has
recently been reported to be in talks with Renault over how best to
implement a strategy for leasing electric vehicles (EVs) to
corporate clients, had its reservations about the options currently
on the market, as well as raising concerns about the suitability of
current infrastructure.
“As a leasing company our priority is to provide
the vehicles that our customers need and want,” said Arval’s UK
market insight director Mike Waters. “While there is some interest
in electric vehicles, in most cases they are not yet practical for
business drivers. Until the charging infrastructure improves – as
well as the vehicle range – the majority of fleets are unwilling to
make the commitment when more mainstream vehicles are more suitable
and often cheaper.”
Waters also commented, as did ING’s spokesperson,
that public sector clients might provide a more realistic customer
base for leasing EVs, given the emphasis for the public sector on
hitting government emissions targets, but added the caveat that
“the primary consideration across both public and private sector
organisations should always be whether vehicles are fit for
purpose.”
In Tourick’s opinion, the fleets where this will be
the case will likely be “those whose fleets don’t stray far from
home base or a recharging point, such as local councils and
delivery companies”.
This strikes true, indeed, with Arval: the company
runs a Smart EV for its own staff, with daily tasks such as the
post run and local journeys for employees from head office in
Swindon.
Speaking at Drive Electric 2008, an event run by
fleet provider Venson Automotive Solutions in October last year,
South Yorkshire Police fleet manager Steve Anderson, who is in
charge of around 700 vehicles, spoke of police fleet opportunities
for EVs used by, for example, scenes of crime officers and as
delivery and service vehicles.
Anderson said: “Reducing our carbon footprint and
saving money, while delivering an efficient service, are core
objectives of the force and it is up to me to find the best way to
achieve those aims. In 12 months’ time I can see one or two
electric vehicles on the fleet in specialised roles.”
Carillion Fleet Management, a smaller fleet
operator well known for its enthusiasm for green policy, currently
leases five electric vehicles – three to a landscaping company
working with Poole Borough Council, and two to a London-based
delivery company called Office2Office – matching the customer
profile that Tourick specifies.
Not just a token presence
However, there is a widespread worry that
EVs will never make it past the stage of ‘token’ uptake as an
eco-friendly PR move, unless they can be shown to be genuinely
competitive with carbon-fuelled vehicle on a level economic playing
field.
Despite higher upfront costs, lower residual values
and therefore higher monthly rental costs, Venson Automotive
Solutions claimed that over four years or 60,000 miles, these
higher costs would offset by huge savings in service, maintenance
and repair costs and fuel bills.
Venson gave the example of a small diesel van,
costing around £16,435 to operate over four years/60,000 miles, a
figure it calculated to be £2,915 – or 17 percent – more than the
equivalent cost for a small electric van. Obviously on longer lease
terms, these figures become more favourable yet.
Notably, the Carillion contracts mentioned above
are all for light commercial vehicles (LCVs): two 3.5-tonne
tippers, two 5.4-tonne Beavertails and a 5.4-tonne LWB highroof
van. At the time of writing, Venson itself had just signed a
sizeable EV lease contract, again for the supply of several
electric LCVs, although the lessee could not yet be named.
Yet another provider, Grosvenor Contracts, also
reported a number of electric vans on order for clients.
“These will be used in a city where power link-up
points are conveniently located and where the vehicles are not
travelling too far,” said Nichola Johnson, customer services
director.
It seems from the way fleets have acted so far,
that electric vehicle leasing will become widespread in the LCV
market before it does so in the passenger car industry. Even ING
Car Lease, despite holding the opinion that viable electric car
leasing was a way off yet, acknowledged that some electric vans
were already fit for purpose.
“Modec offers good electric vehicles for light
commercial use for cities like London with congestion charging and
short daily distances travelled; the product ‘works’ there,” the
spokesperson said.
Commercial strengths
The uptake of commercial vehicles before
cars on the electric scene is a trend supported outside the leasing
industry.
Supermarkets Sainsbury’s and Tesco, and delivery
and logistics company Fedex are known to use CVs manufactured by
Modec and Smith Electric Vehicles, while 7.5-tonne and 12-tonne
HGVs made by the latter manufacturer are in use with delivery giant
TNT.
It is understood these vehicles are not on lease
terms, however – at present, it seems the cost difference between
carbon-fuelled and electric vehicles becomes great enough past the
5-tonne range to negate the type of lifecycle savings quoted above
by Venson.
It is worth bearing in mind, however, that the
advantage that electric LCVs can be shown to have over petrol or
diesel vehicles may well diminish as conventional auto
manufacturers strive to increase fuel efficiency. Given the
colossal R&D resources behind the international motor industry
and the comparatively small amount of investment into developing
EVs, this is somewhat of a David and Goliath situation.
Waters commented: “There is still greater
efficiency to come from petrol and diesel vehicles, as the major
manufacturers make great strides in improving both MPG performance
and carbon emissions. This looks to be a trend set to continue in
the future, as the manufacturers are focused by strict European
targets which will improve fleet efficiency and drive down carbon
emissions.”
Don’t discount hybrids
With the question of EV cost efficiency
hanging so precariously in the balance, the success story of the
immediate future may be hybrid vehicles, which Waters says
“currently provide a more practical alternative for fleets than
fully electric vehicles because they can operate to the same level
as a standard petrol or diesel vehicle.”
Colin Tourick agrees, adding that aside from more
favourable operating cost comparisons, hybrids were freed from the
mileage limitations of pure EVs, as well as providing a viable
back-up plan in the case of an empty or faulty battery.
There is no doubt that government support is there
for any business willing to get involved in reducing overall carbon
emissions. Also certain is that this support, and the
infrastructure to make it practical, is due to grow over the next
few years. Elektromotive, for example, the company behind London’s
100 EV charging bays, has just announced that it is installing its
first systems in Amsterdam.
However, being an early adopter is always a gamble,
and never more so than in the grip of a recession that looks like
it will be stretching P&L sheets to breaking point well into
2010. Fleet providers that turn their backs on electric vehicles
will certainly be missing out on a lot of opportunities, but those
who embrace them wholesale will be gambling on an extremely
unpredictable price war.
Research by Arval’s Corporate Vehicle Observatory
shows that UK fleet clients are keen to embrace alternative-fuel
vehicles – especially larger fleets, with 43 percent of companies
with over 1,000 employees saying they expect to add EVs to their
fleets in the next three years, and with 61 percent saying they
will add hybrids (see chart below).
For companies looking to capitalise on whatever
progress the green movement may make while still staying profitable
in a tough market, hybrids may present what American statesman
Henry Clay drily called the “perfect compromise” – that is, one
where both parties come away dissatisfied.
A question of volume: the future of
electric commercial vehicle leasing
Grahame Neagus heads the
specialist commercial vehicles unit at Lloyds TSB Autolease, the
company which has recently integrated with fleet company Lex to
form what will be by far the UK’s largest fleet lessor. Here he
gives his thoughts on the future of electric CV
leasing.
“Currently, between us, we have around 20 electric
vehicles operating with customers, but in the last two years we
have seen the volumes of serious enquiries per month increase
dramatically, as large corporates looking to include electric LCVs
in their fleets.
“The peak of corporate interest was August 2008,
when crude oil was $147 per barrel; for the first time, there was
cost parity on the lease of electric 3.5-tonne panel vans against
their fossil-fuelled counterparts over a five-year term, for
operators expecting around 20,000 miles per annum from vehicles on
an urban application.
“Since then the price of oil has dropped, however,
and the parity has dissolved to some extent, although there are
several developments in the pipeline that could make the electric
option more favourable again.
“One thing to do is to suggest six to seven-year
rentals rather than five-year terms to offset the higher cost of
EVs, which for low-mileage urban applications is realistic,
especially when you consider the historical life span of electric
milk floats.
“However, these longer terms necessitate a mid-life
battery change. Although few operators of EVs have had them long
enough to have comprehensive experience of battery life, the
estimated lifespan is around 5,000 charges, which works out at
around 3.8 years. If longer life batteries are developed, this will
remove a significant cost, which for a CV can be up to £30,000,
from the lease term due to replacement batteries being
required.
“Another significant development for batteries will
be the ability to hold more charge, and give a greater range than
the roughly 100 miles per day that is standard at present. When
this figure reaches 350-400 miles, it will bring electric CVs to
the attention of a much wider LCV audience.
“Range is a much more important factor than speed
in terms of CV functionality – after all, there is a 56mph limit
for heavy commercials in the UK, and many operators of
fossil-fuelled LCVs now insist on speed limiters on their vehicles
to improve fuel efficiency.
“Ultimately, within the next 10 years, we can
expect batteries which are flatter and mouldable into different
shapes, which could then be worked into a vehicle’s chassis and
remove the obligatory central engine block from vehicle design,
giving a vast range of options for both car and CV design and
specification. For these R&D developments to take shape
however, the EV industry will need the sort of volume sales that
have funded rapid battery development in the mobile phone and
laptop industries, and at present this is somewhat of a Catch-22
situation, as the fall in oil prices means that EVs are once again
more expensive to lease than conventionally fuelled vehicles.
“If the government wants to start this cycle of
volume sales and technological development, a good place to start
would be to keep funding the development of a nationwide EV
charging infrastructure, and to think about ways of supporting or
protecting residual values on fleet vehicles.”
