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Driving electric: tackling the true cost of sustainability

With increasing pressure to ‘go green’, can subsidies to retrofit diesel van fleets with electric help CFOs address the dual issues of cost and sustainability?

Businesses know they need to go green. The ‘E’ in Environment, Social and Governance (ESG) has moved from a ‘nice to have’ to an intrinsic part of business life, increasing stakeholder value.

The challenge to the CFO is cost, and this is especially evident when it comes to the cost of transitioning existing petrol or diesel fleets to electric vehicles (EVs). And while most of the EV conversation tends to focus on cars, the real challenge is in relation to vans.

The UK’s large van fleet comprises something in the region of 750,000 vehicles and, according to the Arval Mobility Observatory Barometer published in the summer, a third of businesses expect their fleet sizes to grow rather than fall over the next three years. The challenge and the cost in replacing those vans, which are predominantly diesel, is therefore going to get bigger, rather than reduce.

The numbers are quite alarming. Replacing an existing large diesel van with a new electric will cost a business an average of £55,000 per vehicle. It is not just the cost of the vehicle itself, however, that needs to be considered. According to BEDEO research, businesses also spend an average of £7,500 per vehicle on a fit-out (refrigeration units, racking etc), taking the average cost per new electric van to £62,500.

In simple terms, if all businesses were to replace all of their diesel vans with electric vans, they’d have to find almost £47bn to do so. Now of course, it’s not quite as simple as that, as there are residual values and other factors to take into account, but the point is still made; even if it were half that amount, it’s going to be expensive. And it’s making CFOs and senior leadership delay.

Operational, practical and financial concerns

When 200 operators of large van fleets were questioned in our survey last month, many cited operational and practical concerns as delaying their decision to buy electric.

Two out of five (40%), however, said that the deadline after which ICE vehicles would no longer be produced ‘was still a long way off’, causing concern that some would understandably use this as a reason to kick the decision down the road, while the same number said that electric vans were simply ‘too expensive’.

One of the options is not to replace the vehicle, especially when it still has many miles of life left on the clock, but rather to convert them. This means they would have both electric and diesel; diesel for the long, motorway miles; electric for ‘last mile’ journeys in town.

A fifth of major fleet operators would choose to retrofit their existing diesel vans, which again makes for some interesting hypothesizing: Replacing 150,000 vehicles with new electric ones (i.e one fifth of a total large van vehicle parc of 750,000 units) would therefore cost businesses £9.38 billion.

By comparison, converting each vehicle at a cost of £25,000 would require a total investment of £3.75 billion – saving businesses £5.5 billion. Even if a residual value of £15,000 for each vehicle sold on was taken into account (£47,500 x 150,000 = c£7.13 billion), CFOs would still be saving c50% of the total cost of ownership by converting rather than buying new.

The concept of retrofitting as a solution to the CFO’s challenge of controlling costs whilst also being seen to be decarbonising is not as fanciful as it perhaps first sounds. The French, for example, are already ahead of the game.

The French Government provides businesses with a €9,000 subsidy to convert fleets in the short-term to help the transition to fully electric. With other local and regional subsidies also in play, CFOs in France are able to receive almost half of the cost of conversion through national and local government support. In the UK, however, no such subsidies or grants exist.

Part of the issue is, of course, awareness. More CFOs would undoubtedly consider alternatives to buying new electric vans if those alternatives were better championed by Government, as they are on the other side of the Channel. In doing so, they would not only save significant sums of money, but also overcome their understandable concerns regarding range, affordability and protecting the environment.

 

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