The COVID-19 pandemic is changing many aspects of American life and the U.S. economy. With respect to transportation, the transition to electric vehicles (EVs) may be slowed by plunging fuel costs and economic belt-tightening, which means that consumers, research and development teams, manufacturers and others may not have as many resources to invest into EVs as before.
But while the EV industry faces these challenges, EVs themselves continue to be a strong investment even in the current period of low fuel prices — a credit to how resilient the case for EVs really is. Despite the pandemic, recent predictions from Boston Consulting Group anticipate that total EV sales worldwide will account for a third of global vehicle sales by 2025 and 51% EVs by 2030.
How can policymakers keep this momentum behind EVs going even in the face of the current challenges? The answer lies in a strategy that uses data to find the most efficient usage of EVs, resulting in savings for fleets from lower fuel costs.
Michigan, with its strong automotive culture but relatively low level of EV adoption compared to other states, is a good case study in how fleet electrification can still happen in a budget-strained, post-COVID world. The Michigan state government has over 13,500 vehicles in its fleet across various agencies, nearly as many vehicles as the 18,000 total EVs estimated to be on Michigan roads. The state government, therefore, has the purchasing power to create demand for EVs. The state also can use fleet electrification to help achieve Gov. Gretchen Whitmer’s climate objectives.
At the end of 2019, the Institute for Energy Innovation, the research institute affiliated with the Michigan Energy Innovation Business Council, published a report about how the state of Michigan can use pre-existing funds from the Volkswagen settlement to help transition vehicles, such as school buses and public transit buses, to all-electric models. The report’s second recommendation was for the governor to set an EV procurement goal to increase electrification of the state fleet. Specifically, it called for ambitious investments in electric vehicle charging infrastructure and EV procurement targets of 50% of all newly purchased or leased light-duty vehicles in the state’s fleet by 2023 and 100% of all newly purchased or leased light-duty vehicles by 2025, with important exceptions for specific vehicle uses that aren’t suited for electrification yet.
However, given current budget shortfalls, these EV fleet purchasing targets are a tougher sell. Though their costs are rapidly declining, EVs often have a higher upfront cost than many internal combustion engine vehicles. That makes a target to purchase or lease 50% new light-duty vehicles by 2023 and 100% by 2025 a challenging proposition under the current budget shortfalls.
The economic case for EVs, however, isn’t that simple. Taking full advantage of the economic and emissions benefits of a partially electrified fleet requires a new paradigm for how vehicles are used and deployed.
While the state of Michigan should still set a clear purchasing target, the state should also take an approach that maximizes EV miles traveled as it grows its fleet of EVs. This will result in the prioritization of EVs within fleet operations, improving the economics of each purchase. And for the EV industry, this change in paradigm will allow for EV sales in the short-term until the state emerges from a budget deficit and until EV costs decline.
Here’s an example of how this could work: When a state employee needs a vehicle, they can go to the state motor pool and select a vehicle. Tracked usage data may reveal that an EV can complete that trip within the car’s battery range. In order to realize lower fuel costs, the EV can then be pushed up to first in line as the priority choice for those appropriate trips.
The good news is that the technology exists to take this new approach.
Strategies to optimize utilization of EVs, as appropriate, have a proven track record in other states like Colorado, especially with the help of the latest telematics technology that can track data such as emissions, dwell time, maximum trip length, proximity to charging infrastructure, and where charging infrastructure would be needed to serve vehicle usage patterns. These data — much of which are only valuable in the context of an electrifying fleet and hence may not have been gathered previously — can unlock immediate cost savings, benefiting the state budget.
Once an EV is in a state fleet — because the marginal fuel cost of that electric vehicle is significantly lower than that of an internal combustion engine vehicle — the economic case for the EV improves the more it is used. Every mile an EV can be driven instead of a gas-burning vehicle is money saved, because the fuel costs of the EV are essentially zero.
The state regularly must make choices to procure vehicles in some cases and downsize the fleet in other cases to meet the state’s needs. This is particularly true in the context of increased remote work. Coronavirus is changing vehicle usage patterns and reducing the number of vehicles needed in the state fleet. In this context, by using data from a detailed fleet electrification analysis, the state has an opportunity to focus on procuring EV models that fit the best use-cases identified within the fleet.
This approach, which leverages data to provide higher prioritization of EV miles traveled, can result in short-term purchasing decisions that allow the state to make progress toward fleet electrification. As the state rethinks how vehicles are used and managed in a pandemic context, there is no better time to evaluate the most cost-effective places for fleet electrification. By doing so, the state can work toward ambitious EV purchasing targets in the short-term, even while the state faces budget shortfalls.
By purchasing and leasing more EVs every year, the state can send a message to the industry that Michigan is a strong market for opportunities in automotive electrification and technological innovation. This new paradigm can position Michigan to become a leader in the race for the next era of mobility.