Zero emission commercial electric vehicles are here, and more are on the way with market share gains coming faster and higher than you would expect. According to a recent report titled “Charging Forward” by ACT Research, electric powered vehicles could represent 25% or more of all medium and heavy-duty vehicles sold by 2030, and may rise to 50% by 2035.

Is the equipment finance industry ready for this coming wave of Zero Emission Vehicles?

In short, not right now, but smart equipment lessors and finance companies are educating themselves and beginning to explore the opportunities now.

Visit any transportation industry-related event or trade show today and one of the hottest topics is the emergence of zero emission vehicles and the impact they will have on current business models. It doesn’t matter if the business model is manufacturing, distribution, service, rental, moving people, moving goods or equipment finance and leasing ─ zero emission vehicles will impact the way companies do business in the future.

Using electricity to power transportation isn’t a new concept. Electricity has been powering transportation since the invention of the electric trolley back in the late 1800’s. That basic technology is still in operation today in cities across the world. Most of us have ridden on a subway, light rail car or airport tram at one point or another, but few of us have ever thought to consider that electricity, not fossil fuel, is behind the propulsion.

Looking Ahead

Today, passenger transportation is leading the way in electric vehicles. The major difference is now the usage is not contained to fixed lines or tracks. Electric powered passenger cars are widely accepted as a viable option for a large percentage of the population. While not yet what most people would consider common, electric school and transit buses are already in service around the world today. Their adoption is expected to accelerate, and in less than ten years’ time, it is likely that commuters and students arrive at their destination courtesy of an electric bus rather than a diesel-powered vehicle. According to that same report by ACT Research, electric school buses and transit buses may command as much as 52% and 70% of their respective markets by 2030 and rising to 93% and 100% by 2035.

The movement of products and goods is not far behind. Traditional truck manufacturers, drivetrain producers and even internal combustion engine manufacturers are all developing their own products. There are well-capitalized new entities developing whole vehicles or specific components including high-capacity batteries and hydrogen fuel cells. In the next few years, battery capacities will increase while costs will decrease, making adoption more viable for a wider range of companies. Hydrogen fuel cell technology could make the challenge of range a non-issue in the long-haul transportation industry.

Early zero emission vehicle adapters will be those companies capable of investing in their own facilities. Their adoption model will be based on shorter-range hauls where the vehicle will return to a known, fixed location every day. Some companies may even use excess battery capacity in their vehicles to power their buildings or put electricity back on the grid at peak hours, then charge back up when the cost per kilowatt-hour is cheaper.

Like any emerging technology, there are challenges associated with using electricity for the movement of products and goods. Battery electric vehicles require a regular charging interval and current charging infrastructure is lacking in the United States. Fuel cells require the production and storage of hydrogen, neither of which is widely available. For either battery electric or hydrogen fuel cell, the wide-scale build of the required infrastructure will take time and significant investment.

Benefits and Other Considerations

There are many reasons why the adoption of zero emission vehicles is occurring, the most obvious being the reduction in carbon emissions. Many companies and communities have strong stated goals around supporting this global initiative.

Additionally, there are reduced maintenance costs due to fewer parts that wear, including hoses, brakes, etc. As costs come down, the total cost of ownership for electric vehicles may be less than that of internal combustion engines depending on the application. Fleets will be able to model and compare vehicle acquisitions cost, expected fuel vs. electricity, maintenance, repair and replacement costs side by side to determine which is cheaper. Often overlooked ─ but important in a very tight labor market ─ will be the improvement in driver experience. Operating a vehicle with less vibration, noise, and no emissions will be a better environment to work long hours. The ability to drive a commercial electric vehicle will be a recruiting advantage to those companies who have them in their fleet.

From the equipment finance and leasing perspective, new equipment with higher initial costs and little or no known resale history can feel daunting – and it is. Traditional underwriting standards, collateral curves and end of term options are not applicable. It will be easy for companies in the equipment finance and leasing industry to wait it out while others develop programs and systems to finance this type of equipment.  Many companies will adopt this strategy. Those who do will miss the opportunity to strategically partner with industry leaders and help shape future financial product offerings. The leaders and innovators in the industry will see this as a way to get involved early and help clients navigate the process. These early adoption companies will be in a much stronger position when zero emission vehicles transition from simply an emerging technology to an industry standard.

Zero emission vehicles are here and more are on the way. The time is now to start thinking about how you can support your customers through this transition. After all, as we recognize Earth Day on April 22 with the theme “Investing in our Planet,” we can count on the transportation industry to continue to drive the same type of innovation we’ve witnessed over the last 150 years, and invest in the shared goal of advancing a lower-carbon economy. I am excited for what’s to come and confident that the next several years will reshape the transportation industry as we know it today.

ABOUT THE AUTHOR: John Crum is the national sales manager of Wells Fargo Equipment Finance’s commercial vehicle group. He has more than 30 years of equipment finance and leasing experience with leadership positions in credit, portfolio and sales management in both the United States and Canada. He is responsible for managing all loan and lease originations in the commercial vehicle market including trucks, trailers, buses, specialty vehicles and zero emission vehicles. Crum can be reached at [email protected].