California Ushers In An Electrifying New Era In Trucks

Today, the California Air Resources Board (CARB) voted to approve the first-ever mandate for electric commercial trucks. Between 2024 and 2035, the Advanced Clean Trucks Program will transition 75% of delivery trucks and vans, 55% of smaller trucks like the Ford F250, and 40% of the larger, semi tractors sold in the state to zero emission trucks.

California is the nation’s largest auto market, meaning the mandate will reduce a substantial amount of the toxic pollution and greenhouse gases emitted on its roads. But the state’s world-leading air pollution rules also have a track record of cleaning up the environment far beyond its borders.

For example, in the mid 1990’s California was the first to introduce zero emissions vehicle (ZEV) mandates to address severe air pollution. The rules targeted light-duty vehicles—passenger cars and trucks—and encouraged the development of electric vehicles. Today, 11 other U.S. states have adopted the programs and the world’s two other largest auto markets, China and the EU, have subsequently modeled their electric vehicle regulatory policies after California’s programs.

Today’s historic action will have similar broad impacts. Already, seven states and Washington, D.C. have announced that they will adopt California’s new clean truck standards, and others will likely follow. In fact, the new era ushered in by California’s new mandates can lead to an even more profound and rapid adoption of electric trucks than with electric passenger vehicles.

Air Pollution and Climate Change Policy Is Shifting To Trucks

The massive damage diesel engines have caused to public health and the environment will fuel this more rapid transition. Trucks represent only 10% of all vehicles on the road, but are responsible for 45% of nitrogen oxide (NOx) emissions, 57% of PM 2.5 emissions which cause respiratory illness and premature death. They also account for 23% of total U.S. transportation greenhouse gas emissions, a contributor to climate change.

The transition from diesel to electric trucks will be a key strategic component not just of the U.S.’s future strategy to address air pollution and climate change, but also the strategies of many other countries, especially those trying to conform with the Paris accords. For example, both the EU and China have set national NOX, PM, and carbon dioxide (CO2) standards for trucks. As they work towards plans to improve their existing standards – China by 2021 and EU by 2022 – we can expect the California clean truck standard will be the model they follow.

Electric Vehicles Also Offer Economic Dividends

Electric vehicles may currently carry a price premium in the showroom, largely because of high battery costs, but those costs have decreased 87% since 2010 and are expected to drop another 50% by 2024. However, their operating cost is much lower than internal combustion vehicles. It costs about half as much to drive on electricity than diesel or gasoline—the more miles you drive, the more you save.

And, trucks are typically driven more than cars. UPS’ 92,000 trucks average around 27,000 miles per year, double that of an average personal vehicle. According to California’s estimates, their zero emission (ZE) truck program will provide major net benefits at $5.9 billion, mostly in fuel savings by 2040. Recent research by Energy Innovation and Environmental Defense Fund finds the clean trucks rule could save up to $12 billion by 2040 if electric truck battery costs decline as fast as those of electric cars.

Electric trucks also require less maintenance because they have a fraction of the moving parts of a diesel truck, which means lower maintenance costs. A tractor trailer scale Class 6-8 electric truck has about 8,000 moving parts, compared with 30,000 for diesels.

During the next decade, total cost of ownership (TCO) of light duty and medium duty electric truck segments will begin to be at par with diesel across China, the EU, and the U.S.. Heavy-duty, long-haul segments in the U.S. will reach parity towards the end of the next decade. The adoption of and investment in electric trucks will accelerate because distribution businesses think long term. Unlike passenger cars—which may be purchased for style, comfort or low sticker price—commercial trucking companies buy based on TCO.

Electric trucks also create additional benefits of beyond cost savings. Electric trucks are quiet to drive, which can help reduce driver fatigue. As a 22-year veteran truck driver recently put it, “It’s beautiful, you don’t go home with your ears ringing every night.”

Industry Is Investing and Wall Street is Taking Notice

Even before the ZE truck mandate, existing major manufacturers like BYD, Daimler, and Volvo have made significant recent investments [SM1] in electric trucks; companies like Tesla
TSLA
and start-ups like Nicola and Rivian have also made significant investments. This investment has expanded the U.S. electric vehicle marketplace to at least 70 models of electric trucks and buses made by 27 different companies, with more to be announced later this year.

Today most of this activity is concentrated in medium-duty segment, which has been targeted by corporate giants like Amazon AMZN, FedEx FDX, IKEA, and UPS. Amazon recently placed an order for 100,000 electric vans from Rivian, a Michigan start-up that has received a $500 million investment from Ford. UPS has commissioned 10,000 mid-size electric vans from British startup Arrival, which is backed by Korea’s Hyundai Motor Co. And the combined value of the Amazon and UPS contracts with Rivian and Arrival is estimated at $4 billion or more.

Ford and GM, major players in the medium-duty segment, have also announced plans for electric trucks. Recently, Ford also announced a partnership with VW which could add as many as 600,000 electric commercial vans to Europe’s roads by 2023.

The larger, long-haul class 8 tractor trailer segment has two competing technologies – all electric trucks and fuel cell-electric hybrid trucks. Tesla claims it has over 2,000 orders for its class 8 all-electric semi-tractor from Pepsi, UPS, Walmart
WMT
and others. Daimler Trucks is making deliveries in 20 of its preproduction eCascadias to two partner companies, Penske Truck Leasing and NFI, while Volvo Trucks is planning to test its VNR battery-electric heavy-duty trucks in the Ports of Los Angeles and Long Beach.

The main advantage of fuel cells in trucks is the range and ease of powering the vehicle. However, infrastructure is expensive for producing clean hydrogen from renewable energy. Volvo and Daimler are teaming up to also place bets on fuel cell powered heavy-duty trucks. Nikola, a start-up developing both electric and fuel cell powertrains, is claiming to have over $10 billion in pre-orders from commercial clients including brewer Anheuser-Busch InBev SA.

Bigger markets, bigger value

As the electric truck market continues growing in size, electric automakers are growing in value. Tesla, in large part due to the global success of the Tesla 3, is now the most valuable automotive company in the world. Shares of Nikola have more than doubled and its market value exceeds that of GM or Ford.

It’s still a long road to electrify the truck fleets of the world, but California’s leadership once again will set the course for the future. Its mandate, which sets a model for other states and the world, will encourage further growth in the EV truck industry and speed us toward an electrifying new era in trucks.