The Keyframe Commercial Vehicle Electrification Series
Hey there, welcome to this installment of the Keyframe Commercial Vehicle Electrification Series. We're going to be diving into one of the biggest indicators of near-term, commercial fleet adoption of electric vehicles – the rapidly improving total cost of ownership economics driven by battery price decreases and lower refueling costs.
In 2010, lithium-ion battery packs cost ~$1,100/kWh. In 2020, these battery packs cost on average $137/kWh, with some production quotes being lower than $100/kWh (Source 1). Let that sink in. That’s an almost 90% reduction in battery pack prices in 10 years.
Not only has this battery pack price reduction enabled the market viability of passenger electric vehicles, but it also has improved the total cost of ownership (TCO) economics for larger electric vehicles (specifically Classes 6-8 trucks).
Beyond the battery pack price, there are several factors that impact TCO of electric vs. diesel semis (e.g., fewer parts and lower maintenance costs for electric trucks). However, in this post, we are going to isolate just the battery and fuel costs as the only upfront and ongoing cost differences between electric and diesel trucks, and answer a simplified TCO question – how many miles must an electric Class 8 truck travel before it has reached cost parity with a diesel truck?
With 2020’s battery pack price of $137/kWh adding an estimated $115,000 in upfront costs, and ongoing savings of $0.15/mi, driven by energy savings of refueling with electricity vs. diesel, a Class 8 truck with a 500-mile range would need to have a useful life of ~740,000 miles to breakeven with a diesel vehicle (Figure 1). This 740k mile lifespan is close to the current average of 750k for a Class 8 truck (Source 2), implying that these vehicles have reached cost parity on fuel economics today.
So, if the economics work already and are continuing to improve, then why aren’t all new Class 8 commercial vehicle purchases electric? There are a few reasons for this including:
The $137/kWh battery pack price is an average and may not reflect the prices that the OEMs of these larger commercial vehicles are able to currently access. For instance, the $100/kWh price seen in 2020 was for Chinese e-bus batteries (Source 3) – a market segment that already has large-scale production.
OEMs are still developing and/or testing Class 8 vehicles and technology. Tesla plans to begin deliveries of its Semis by the end of this year and Daimler has announced that it will start production of the Freightliner eCascadia in late 2022 (Sources 4, 5). While the economics are close, vehicle development, testing, and scaling manufacturing of a new vehicle program takes time. As evident from the timelines announced by Tesla and Freightliner, these investments are happening today, meaning volume vehicle availability is not far behind.
OEMs have also delayed the production of Class 8 electric trucks because the global battery supply chain is still in the process of scaling up. Tesla’s CEO, Elon Musk, tweeted in March that, “Demand is no problem, but near-term cell supply makes it hard to scale Semi. This limitation will be less onerous next year” (Source 6). Musk has also previously mentioned the trade-off created by battery cell supply between production of passenger EVs and the Tesla Semi. During Tesla’s Q4 2020 earnings call, Musk said that the “… Semi would use typically five times the number of cells that a car would use, but it would not sell for five times what a car would sell for. So, it would not make sense for us to do the Semi right now, but it will absolutely make sense for us to do it as soon as we can address the cell production constraint” (Source 7).
Fleet purchases of electric vehicles will require considerable infrastructure planning and execution vs. continuing with the status quo. And as a side note, this is where TeraWatt Infrastructure comes in!
Figure 1 (Sources 1, 8, 9, 10, 11, 12)
All of these challenges, however, are surmountable and being worked on by OEMs, the battery supply chain, infrastructure providers, and other market participants as we speak. And the market will only feel the pull toward EVs more strongly as the economics continue to improve – battery pack prices are expected to reach ~$100/kWh by 2023 (Source 1). We expect that the impact of battery prices and refueling costs on TCO for EVs will lead to a step change adoption of electric Class 8 vehicles over the next decade.
Want to learn more about how TeraWatt is solving the charging infrastructure challenge for commercial fleets? Check out the latest news and job postings here (link to the general blog post for the series).
Want to discuss commercial fleet electrification trends? Feel free to reach out to me at gk@keyframecapital.com and be sure to check back for the next installment of this series!
Sources:
BloombergNEF, “Battery Park Prices Cited Below $100/kWh for the First Time n 2020, While Market Average Sits at $137/kWh”: https://about.bnef.com/blog/battery-pack-prices-cited-below-100-kwh-for-the-first-time-in-2020-while-market-average-sits-at-137-kwh/
Rechtien, “How Many Miles Do Semi Trucks Last?”: https://www.rechtien.com/semi-truck-life/
BloombergNEF, “Batteries For Electric Cars Speed Toward a Tipping Point”: https://www.bloomberg.com/news/articles/2020-12-16/electric-cars-are-about-to-be-as-cheap-as-gas-powered-models
Electrek, “15 Tesla Semi electric trucks are expected to be delivered to PepsiCo this year”: https://electrek.co/2021/03/25/15-tesla-semi-electric-trucks-delivered-pepsico-2021/
Daimler, “Daimler Trucks North America Opens Order Books for Industry-Leading All-Electric Freightliner eCascadia and eM2”: https://daimler-trucksnorthamerica.com/PressDetail/daimler-trucks-north-america-opens-order-2021-04-06
InsideEVs, “Electric Car Demand Surges, Global Battery Supply Chain Struggles”: https://insideevs.com/news/498656/electric-car-demand-battery-shortage/
Tesla Q4 2020 Earnings Call Transcript: https://www.fool.com/earnings/call-transcripts/2021/01/27/tesla-tsla-q4-2020-earnings-call-transcript/
Transport Topics, “NACFE: Fuel Efficiency Up 15% From 2009 to 2018”: https://www.ttnews.com/articles/nacfe-fuel-efficiency-15-2009-2018
Electrek, “Elon Musk reveals surprisingly small battery pack in Tesla Semi electric truck”: https://electrek.co/2021/02/12/elon-musk-reveals-tesla-semi-battery-pack-electric-truck/
Freightliner, “eCascadia”: https://freightliner.com/trucks/ecascadia/specifications/
Energy Information Administration, “Electric Power Monthly”: https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_5_6_a
Energy Information Administration, “Gasoline and Fuel Update”: https://www.eia.gov/petroleum/gasdiesel/
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