Electrifying the future: Investment imperatives in UK’s commercial fleet revolution
The UK’s transport sector accounts for an astonishing 34% of our carbon emissions, and the need for change has never been clearer.
Electric vehicles (EVs) undoubtedly are essential to the solution: price parity with ICE vehicles is expected by 2026¹, density of chargers in the UK is progressing toward the goal of 300,000 by 2030², and rising annual EV adoption in the UK suggests that they are to stay³. Consequently, we are seeing a surge of investment across the value chain from OEMS, CPOs, and to newly established business that address the emergent challenges and needs of the EV revolution.
However, the task of electrifying commercial fleets – constituting over half of UK car sales⁴ – remains a considerable challenge to the UK’s journey toward transport decarbonisation. Its operational complexity and specific charging considerations require extensive planning and substantial financing capabilities. In addition, commercial fleets are often integral to day-to-day business operations – an inefficient, ineffective, or overly disruptive transition can be detrimental to a business’ bottom line.
Despite these challenges, UK businesses have already invested over £8.2bn⁵ in EV adoption and major fleets are committing to electrification through initiatives like the ‘EV100’. The sector ultimately stands poised for high growth and offers an enticing prospect for investors. To fully realise the immense potential this sector offers, investors must first consider their role to enable successful fleet electrification.
Seizing commercial fleet electrification
Navigating the barriers to entry
The complexity and financial considerations of commercial fleet electrification results in a series of initial barriers for investors considering entry into this high growth sector. Substantial financial capabilities, for example, are a requisite due to high capital demands. This involves allocating resources to vehicles, batteries, depots, or charging infrastructure.
Another barrier for investors to navigate concerns the firm grasp required of the end user dynamics and challenges. Fleets’ operational usage and vehicle composition exhibit considerable variance, not only between individual businesses but also across entire sectors; the operational requirements for a delivery logistics fleet are markedly different from bus operators, for example. Therefore, for investors looking to ensure a seamless and successful transition, a comprehensive understanding of this end user segment is imperative.
Lastly, ensuring that they have access to a breadth of subject matter expertise across various different business segments – for example ranging from change management to technical services – is also essential. Commercial fleet electrification involves multiple parts of an organisation, so expertise across these areas is critical to ensure an effective and efficient transition to avoid any costly disruption to operations. Collaboration with industry experts is a viable approach to gain access to this breadth of expertise.
Embracing business model flexibility
Another consideration for investors is the wide range of business models emerging within the sector. Specific business models are required to accommodate fleet operators’ distinct operational, financial, and vehicle profiles. Investors could, for example, consider utilising payment models based on vehicle mileage or daily usage to ease the upfront costs for fleet operators. Another way investors can embrace flexible business models concerns leasing. Investors who are able to utilise leasing arrangements for charging infrastructure or vehicles, can provide the necessary infrastructure for a successful commercial fleet electrification initiative without passing on the full ownership costs.
Investors can also consider using batteries as serviced assets to lower the up-front capital costs, and total costs of ownership for the fleet operator. This can mitigate financial risks and reduce the costs associated with maintenance responsibilities – making fleet electrification more logistically and financially viable for fleet operators.
Focusing on offering end-to-end (E2E) solutions:
An E2E solution plays a pivotal role in ensuring a successful fleet electrification. One of these crucial elements concerns the consistent and seamless coordination throughout every stage of the electrification process. Investors that can ensure an E2E solution is offered will benefit from a more attractive offering.
Not only does being able to support each stage of the electrification process enhance the convenience and coordination of the process, but it also reduces the risk of disruptions, or underutilised assets that may occur with an incomplete approach – lowering the overall risk for fleet operators.
Investors should also consider the opportunity to collaborate with potential partners along the value chain. Not only can investors benefit from partnerships that increase their presence along the EV value chain and help establish an E2E solution, they can benefit from long-term partnerships that are also aligned with their wider strategic ambitions such as market expansion or value chain verticalisation.
A complex terrain but ripe potential
The commercial fleet electrification landscape ultimately remains a diverse and complex terrain. Fleets can vary considerably by vehicle and usage and they become more complicated when it comes to non-passenger vehicles such as trucks and buses. Non-passenger fleets such as emergency services, local transport providers, or freight solutions, for example, all display distinct operational profiles that require their own specific financing and infrastructure considerations. Furthermore, EV truck and bus technology and supply chains are less mature and are expected to reach cost parity later than passenger vehicles – demanding a greater need for financing for vehicles, charging infrastructure, or charging services.
However, amidst these difficulties there remains a set of attractive characteristics for a significant investment opportunity. Government-backed targets, hard assets such as chargers or vehicles, and the need for sophisticated, technology-enabled business are all key indicators of a sector that is ripe for investment. Investors seeking to take advantage of this high-growth area may face initial uncertainties, but those who manage to bring targeted subject matter expertise, flexible financing capabilities, and a collaborative approach to establish an E2E offering can certainly position themselves for considerable success.
³ EV and AFG Car Registrations, Society of Motor Manufacturers and Traders
⁴ Fleet and business registrations drive new car market, Fleet News