Auto Emissions Warranty

Market for Electric Delivery Trucks

Modec commenced delivery of limited volumes of its zero emission urban delivery vans to customers in the UK during 2007. Customer reaction to date has been universally positive. In this paper, the authors discuss their experience, review the scope of the market for pure electric commercial vehicles and how they compete with conventionally powered alternatives, hybrids and alternative fueled vehicles. They conclude by offering their views as to how the market will develop in the future.

The Market for High Performance Zero Emission Delivery Vehicles

Trevor Power

Group Strategy Director, Modec

William Doelle

Business Development Director, Modec

Abstract

Modec commenced delivery of limited volumes of its zero emission urban delivery vans to customers in the UK during 2007. Customer reaction to date has been universally positive. In this paper, the authors discuss their experience, review the scope of the market for pure electric commercial vehicles and how they compete with conventionally powered alternatives, hybrids and alternative fueled vehicles. They conclude by offering their views as to how the market will develop in the future.

Keywords:

Market Development, Pure Electric Vehicle, Commercial Vehicle, Urban Duty Cycle, EV/ZEV/BEV.

1. Background to Modec

We recognize that our views are inevitably conditioned by our viewpoint. Both authors have been involved with Modec through the development of the company to date. Background to both the company and its products is provided for context.

1. London Taxis and Electric Mercury

Although it bears little relationship to the finished product, what is now Modec started out as a development project at London Taxis International (LTI) in 2002 called Electric Mercury. The project brief was to develop a vehicle with a 2-tonne payload, optimized for urban delivery duties and drawing on the company's expertise in urban stop-start duty cycles (taxi duties are widely recognized as being among the toughest in the world - an average London taxi has a useful lifespan of between 600, 000 and one million miles).

Figure 1: TX1 London Taxi

1. The Electric Mercury Project

The eMercury project resulted in the construction of 3 prototype vehicles, which were presented to interested parties in 2004:

• Lead Acid Battery
• High Energy Battery
• Hybrid (turbo diesel + NiMH battery pack)

All models featured a heavy duty chassis, modern styling and a drivetrain developed with assistance from Azure Dynamics.

Although the lead acid and hybrid versions performed adequately, it was felt that there was not much to set them apart from other products that either already existed, or were thought likely to be introduced in the foreseeable future. The exception was the high energy battery vehicle, which offered a package of benefits that appealed to the potential users it was demonstrated to, and (importantly for a small company seeking to carve out a niche for itself) was both distinct from hybrids and difficult to replicate in a converted vehicle.

Figure 2 - eMercury prototype van, 2004

1. Formation of Modec, Refinement of design

Despite the success of the project and the warm reaction to the demonstrators, London Taxis decided it wished to re-focus its efforts on its existing taxi model and the apparent potential to market this product in China. A deal was struck to sell the project to Jamie Borwick, London Taxi's former Chairman and largest shareholder, and original sponsor of the eMercury project.

The IP acquired in the project was incorporated into Modec, a new, independent company.

Following a complete project review, a decision was taken to focus on the high energy battery version. A review of the battery market concluded that, although Lithium Ion was likely to predominate in future, the only suitable large format batteries available in production at that time were MES-DEA's Zebra' Sodium Nickel Chloride batteries.

The vehicle was therefore designed to be battery agnostic', having a defined battery interface and a large removable battery cassette.

Figure 3 - Modec chassis showing removable battery cassette

Prototype and early production vehicles were specified with an 86 kWh pack containing two Zebra Z12 batteries. The cassettes were designed to be plug and play' and take less than 15 minutes to swap over.

The Modec development team then completed a further round of customer clinics, from which emerged a number of insights into user requirements. These led to restyling and reconfiguration of the vehicle as a modular chassis cab, enabling different box/back arrangements to be fitted.

Direct feedback from a focus group of potential users was the key to defining Modec's focus on developing a flexible platform that could be adapted to address a range of customer requirements and leveraging existing skills of commercial body builders. Responsibility for the drivetrain was moved from Azure to Zytek.

Contact with potential customers demonstrated that the appeal of the high energy battery powered van came from a wide range of industries. These interested parties were self-selected early adopters, in that they had attended events promoting clean or electric vehicles. It also became apparent that any manufacturer of electric powered commercial vehicles had a few challenges to overcome:

• Although existing users of traditional EVs loved them, EVs were viewed as quirky and had a terrible image. They were viewed with suspicion by mainstream fleet managers, who associated them with milk floats, golf carts and Sinclair C5s, rather than serious commercial vehicles.
• Many of the existing commercial duty' vehicles were not designed for highway use, nor designed or homologated to international automotive standards. Most lack the refinement of mainstream highway duty vehicles.
• Although whole life costs on a cent-per-mile basis were likely to be competitive with conventional vehicles, the sticker price was going to be significantly higher, largely due to the cost of batteries
• The battery market was in a state of flux, with significant technical risk (especially as regards lifetime) from which neophyte EV customers could and should expect to be insulated.

Hence it was clear that the company would have to

• convert potential customers by demonstrating an effective product in service
• crystallize its whole life cost proposition by offering attractive lease deals for vehicles
• defray the high purchase cost of batteries by renting them to customers

1. Product range

After evaluating the needs of the most likely early customers, the Modec range at launch included a standard cab optimized for intensive stop/start duties, featuring rear entry though a sliding door behind the driver. The chassis was available in a number of lengths, which could be fitted with a range of backs, including box, tipper and pickup/flat bed options.

One battery option (86 kWh Zebra) was offered, giving a range of 100+ miles.

Figure 4 - Pickup and box van versions

A number of variations were announced for introduction in late 2007/early 2008, including a smaller (52kWh) Lithium pack and an extended cab with a crew cab option.

2. Market analysis

The market for highway performance commercial ZEVs exists only as latent demand at this point in time, making it difficult to accurately forecast market potential. In addition, many potentially competing technologies exist only as concepts or prototypes, rather than production vehicles. It is difficult to evaluate their relative acceptability to the market until they enter production

In the UK the Society of Motor Manufacturers and Traders (SMMT) publishes product segment data, which shows that the following volumes of Light Commercial Vehicles are sold in the UK each year:

Figure 5: UK Van Sales - source SMMT, data to August 2007

Modec's own analysis, confirmed by anecdotal comment in industry journals, is that around 20% of such vehicles are deployed in urban back-to-base applications. Although our GVW is 5.5 tonnes, the compact size of our vehicle, its maneuverability and its payload means that it competes at the higher end of the 3.5 tonne segment, giving an addressable UK market of around 40, 000 units per annum

By comparison, we expect the US market to be roughly 6-7 times this size and the aggregate for Europe to be around 10 times this size. Clearly there's plenty to go around, but the market isn't going to suddenly shift to a new technology overnight.

In any given national market we expect adoption to follow a curve, as with the adoption of any new technology:

• Innovators 2.5%
• Early adopters 13.5%
• Early majority 34%
• Late majority 34%
• Laggards 16%

Figure 6: Generic new technology adoption model

Which is why, if only a sixth of our addressable market are innovators or early adopters, we're very keen to search them out. Our approach has been to engage with this group as far as we can identify them, as well as to engage with large fleet owners and to consider how their requirements might compare and contrast with the those of the mainstream market when it emerges.

The sectors where we have had the most positive response to date have been:

• Home delivery (including supermarkets)
• Facilities management (including airports)
• Trade deliveries (mix of smaller companies)
• Councils/contractors
• Construction
• Utilities
• Couriers/post
• Lease/rental

These are not necessarily the sectors we originally targeted and across the sectors there are differences in purchasing dynamics between sectors as well as between individual companies. Through the early months of production we have been capacity constrained by component supplies, most notably of batteries, and hence we have had to prioritize sales to higher profile customers. As this constraint falls away and we work through our order backlog, we will get a better feel for which segments and classes of company respond most readily to our offer.

At this point there seems to be no clear pattern of adoption relating to size of organization or perceived sophistication of buyer. We have had orders from both ends of the spectrum: very large and sophisticated organizations, which are capable of analyzing whole life costs in considerable detail, through to mom and pop'operations who generally adopt rigorous approach.

We find adoption to be driven by the following dynamics:

• The expected difference in cost of operation (on a whole life cost basis)

This breaks down into the differences in:

• Fuel cost (vs electricity cost + battery rental cost)
• Battery rental cost is in turn driven by battery size, cost per kWh and the cost of capital
• Maintenance cost
• Congestion charge savings

• The value of Operational savings (due to improved productivity)
• Perceived value of being green & being seen to be green

Other factors include

• The personal receptiveness of the fleet manager and the drivers
• The receptiveness/responsiveness of the company and its senior managers

Also:

• The coordination between marketing and operating budgets

This last point applies when the value of promotional gains accrue in marketing budgets, while additional up-front costs accrue in a fleet operation budgets

Although this might be expected to be more of a problem in large companies, our lead customer Tesco has had no problems reconciling these issues. As the UK's largest retailer, accounting for 32% of UK grocery sales and fully double that of its nearest rival, Tesco is renowned for the depth of its management.

Modec has worked closely with Tesco to maximize the media value of the deploying Modec vans as part of its 1400+ home delivery fleet.

Figure 7: Modec van outside Tesco headquarters building

Modec vans are designed to match conventional vehicles in performance for urban driving applications, without compromise on range, load or acceleration. In the UK we have a policy of governing their maximum speed to 50mph (a policy that we will review in the US). This inevitably translates into a requirement for a large battery pack - in our case 86 kWh, or the equivalent of 66 Prius batteries.

The fuel-equivalent cost of operating a modern electric vehicle is dominated by the battery (about 80-85% battery cost, 15-20% electricity). In Modec's case, the rental cost is a function of the cost of the battery ($/kWh), its size (kWh) its useful life (in cycles or calendar terms) and the cost of capital. In the UK we roll this up into a rental charge that is calculated on an expected mileage basis. A fairly typical battery rental agreement would come out at $800 per month for 18, 000 miles per year, or a fraction over 53 per mile. This is similar to the fuel cost of running a loaded diesel van on an equivalent duty cycle at European fuel prices (equating to 12-16 miles per gallon).

Operational savings can be significant. They are a function of the Modec vehicle's maneuverability, ergonomics and ease of access/egress - but are difficult to evaluate meaningfully other than by conducting back to back comparisons on actual delivery routes.

Maintenance savings can run to several thousand dollars per year, crystallized for the customer by offering a low cost routine maintenance contract.

Congestion charges are a further source of savings. In London, the charge is $16 per day, so a van regularly accessing the congestion charge zone can rack up in excess of $4000 in charges per year.

At the time of writing NYC propose future congestion charging for commercial vehicles of $ 21 per day, equating to up to $5460 per year.

Being seen to be green carries a value, best illustrated by a distinctive vehicle being seen in operation. Establishing a firm value is hard, but the nearest equivalent is most probably taxi advertising. In London to put a livery on a cab costs $8, 000-9, 000 per year. In the US, rates range from $2700 per cab per year in San Francisco, to $3900 in New York [1]. Clearly some interpretation is required to derive a comparative value for a high impact green vehicle, but the potential is clear.

Note - In the urban duties for which they are designed, our vehicles easily achieve around 1.2 to 1.3 miles per kWh., translating into 100+ miles range. This is a real world figure, derived from actual operating data from loaded vehicles on customer routes. The relationship of achieved range to theoretical range is analogous to real gas mileage compared to official government test figures. We feel that coming up short on range is more serious than achieving a lower gas mileage than quoted, so we stick to 100+ miles, which customers should easily achieve in practice.

3. Alternative technologies and approaches

Many new technologies seem to go through a cycle of hype that fosters unrealistic expectations, followed by an inevitable backlash as their limitations become apparent. This seems to be especially true of what are perceived to be radical new approaches. In the automotive field hydrogen/fuel cells, hybrids (particularly PHEVs) and bio-fuels seem to be following the cycle, which is often fuelled by consumer (and often commentator) ignorance. H. G. Frankfurt has documented the wider move towards communications driven by the desire to elicit a reaction in the audience, with little or no regard to the veracity of the statements made [2]. Other observers have noted that environmental issues are particularly prone to a related phenomenon, which has been labeled Greenwash'[3] .

Anyone who has been around the electric and alternative fuels industry for any length of time will be familiar with claims that certain plug-in hybrids can achieve 125mpg+ (no account taken of differences in state of charge at beginning and end of the test period), that hydrogen fuel is produced in nuclear fusion reactors or that biofuels offer low pollution and zero net carbon.

If anything, Natural Gas Vehicles and Battery Electric Vehicles have the opposite problem - contempt bred of familiarity.

Figure 8: Generic hype/backlash curve

3.1 Bio Fuels

Despite being intuitively appealing, it has been clear for some time that biofuels are not a panacea for meeting transport needs in a sustainable way. More arable land than is currently in production would be required to meet the demand just for liquid transport fuels.

A study by reported in Science [4] concluded that the carbon sequestered by restoring forests is greater than the emissions avoided by the use of the liquid biofuels, while an OECD report in September 2007 found that "the current push to expand the use of biofuels is creating unsustainable tensions that will disrupt markets without generating significant environmental benefits", going on to say that biofuels would cut energy-related emissions by 3% at most [5].

So biofuels appear to be ploughing into the backlash phase of the curve. It seems inevitable that manufacturers will adapt their engines to accept fossil/biofuel blends and these will be promoted with an emphasis on the biofuel content. This will queer the pitch for pure biofuel conversions, which will remain a minority sport. Partial bio-fuel capable vehicles will become the norm and will retain their flexibility to use 100% fossil fuels and city authorities will continue to refuse to offer them congestion charging breaks. Everyone will be a bit greener, but the impact on Pure EVs will be minimal.

3.2 Natural Gas Vehicles (NGVs)

UK interest in NGVs has waxed and waned with the availability of grant funding. Some NGVs are dedicated models, others are converted from conventional diesel vehicles, either as dedicated (i.e. gas only) Bi-Fuel (either gas or diesel) or Dual Fuel (diesel to start, switch over to gas when running). NGVs often suffer in comparison with conventional diesel vans due to:

• the bulk of their gas cylinders
• reduced range
• lack of recharging infrastructure
• extended recharging times
• cost of conversion

They seem mostly to be viewed as practical, if un-exciting, offering (somewhat) green credentials and potential savings for operators on both fuel duty and congestion charging.

NGVs will compete with Pure EVs where natural gas is popular. However, it will always lack the appeal of the various electric drivetrain technologies (fuel cell, hybrid, battery) and is likely to be limited to municipal style vehicles in urban centres where congestion charge breaks make it attractive on economic grounds.

3.3 Hydrogen / Fuel Cells

An uncharitable view is that economically viable fuel cells for transport use are still 20 years away

and always will be. It would certainly seem that after years of hype the backlash has set in as attention has transferred to PHEVs. It is too early to completely write off the hydrogen dream, particularly given the amount of capital (financial and political) invested, but it is definitely true to say that it isn't going to emerge any time soon and is unlikely to look anything like the pundits suggested if it does.

3.4 Conventional' Hybrids

There is no question that hybrids lead the pack in terms of image, with 60% of respondents naming it as the leading technology', in a recent Synovate Motoresearch study [6], well ahead of fuel cell, flex fuel and battery EVs and even ahead of grid connected HEVs. The delay in other OEMs following Toyota's lead probably illustrates a mix of caution and complacency, skepticism over the real environmental benefits (especially in Europe, where high efficiency diesels have a significant market share) and the difficulty of engineering a cost effective and reliable drivetrain.

Modec's view of hybrids is that they're a good way to eke more out of a gallon of fuel and ultimately their appeal rests on their ability to deliver an acceptable ROI on that basis. If you draw a box around a conventional' hybrid and consider what goes in (gasoline) and what comes out (motion, CO2, other pollutants) it is clear that they're a step in the right direction, but not a complete solution. This might be brought more closely into focus by comparison with PHEVs, which will boost the prospects of pure EVs.

As far as the commercial vehicle space is concerned, our view is that once pure EVs have been demonstrated to be capable of meeting typical urban delivery duty cycles, then their simplicity, availability, improving image and the ease of segmenting out suitable applications means that they will have the edge for urban duties, with hybrids competing more directly with conventional IC engine vehicles for wider-ranging duties.

3.5 Plug-in Hybrids

Sometimes positioned as an EV with a safety net' PHEVs are receiving a huge amount of media attention at the moment. When they finally appear in the commercial vehicle market they will offer many of the benefits of pure EVs with additional flexibility, but at the cost of additional complexity, a diluted environmental message and a financial penalty.

At some point the issue of how to account for the additional battery capacity, the use of grid electricity and the cost of both will have to be addressed. To draw an analogy , a 125mpg' Prius will offer fundamentally the same gas mileage as a regular (50mph) Prius. The extra 75 miles simply comes from the boost from the grid. Taking advantage of that entails additional cost - mainly in the necessity for a larger battery pack. That is either going to add a big lump to the purchase price, or will have to be funded by a rental charge.

The development of PHEVs will open up a debate that is likely to reflect favorably on pure EVs. When they are finally launched, their success relative to pure EVs will depend on the extent to which customers value the additional flexibility and to what extent their environmental credentials are perceived to be compromised relative to pure EVs.

3.6 Electric conversions

At this point a small number of companies appear to be active in the pure electric commercial vehicle market, both in the US and in Europe. Most seem to be content converting existing vans, not necessarily with the full cooperation and endorsement of the OEM.

The principle advantages of converting an existing vehicle are that it is cheaper to engineer and build. The principle disadvantages are:

• Lacks distinct appearance, hence compromised ability to carry the green message home
• Difficult to package adequate battery capacity, hence forced to compromise range/speed/load
• Invites unfavorable comparisons with donor vehicle (particularly purchase price, range, maximum speed)
• Potential for brand conflicts with OEM
• Potential for product strategy conflicts with OEM (especially if cutting across their hybrid program)
• Potential legal issues, including safety liability and warranty

From a competitive point of view, an OEM can always have a third party convert its own vehicles (for example the Ford Ranger and Chevrolet S-10 projects), which are likely to be better integrated into its range and have better access to marketing and distribution support than an independent converter.

3.7 In summary

It appears that pure EVs will lead hybrids, or at least enter concurrently, into the 2 tonne payload commercial vehicle market for urban delivery applications. They will compete in the immediate term with NGVs and biofuel vehicles, against which they have a strong story to tell. Although the current hype surrounding PHEVs diverts attention from pure EVs, it also creates opportunities to join the debate in areas that reflect well on EVs. If and when PHEV Commercial Vehicles enter the market, the value that customers place on flexibility will come into sharp relief. In cases where urban duty cycles can be segmented away from inter-city duties, pure EVs will have a strong case to make.

4. Brand and positioning

Manufacturers of pure electric vehicles need to emphasize the benefits of the zero emission performance that sets them aside from other technologies. They need to ensure that they maintain their own environmental credentials so that they can in turn support customers in projecting theirs. They need to encourage their customers to walk the walk' as well as talk the talk' by, for example, encouraging them to use electricity from renewable sources to power their vehicles.

Building a brand to deliver these messages is an essential part of the mix, facilitated in Modec's case by class leading ergonomics and styling.

The economics of EVs are driven by the cost of batteries. To meet the performance expectations of modern drivers requires large, high energy battery packs. These are expensive and so customers end up paying, in effect, for capability. Modec's view is that we should always seek to deliver the required performance and find a way of financing the pack, rather than cut corners by specifying a sub-optimal battery pack. Our proposition for urban delivery applications is:

• Zero emissions
• Zero compromise

To win over innovators and early adopters doesn't need ZEVs to be cheaper than conventional vehicles per se - the package of benefits the ZEV offers has to be better value than the alternatives, which is not the same.

For ZEVs, low carbon emissions are not the only story - local air quality is and will remain a significant issue into the foreseeable future. In the UK 3 times the number of people die each year from the effects of air pollution than from road traffic accidents [7].

5. Future development

It is likely that pure electric commercial vehicles will migrate to lithium ion battery packs, which will be offered in a range of sizes to suit different customer requirements. For reasons of safety and lifetime, Lithium Iron Phosphate chemistries will be preferred. Everyone will give a sigh of relief (even the protagonists) when the incessant IP battles have finally drawn to a conclusion.

Iron Phosphate cells suffer from lower energy density than Cobalt, Manganese or NCM (1/3, 1/3, 1/3 or tri-element') chemistries. Constant pressure will gradually drive typical densities from around 70-90 Wh/Kg to 100-120 Wh/Kg, a long way short of Cobalt's 180 Wh/Kg (at a cell level) over the next 5 years.

A question mark will remain hanging over the lifetime of all battery chemistries in service until real life experience catches up with the promises that are being made. Some companies will insulate their customers from this uncertainty by renting battery packs, others will load the risk onto their customers by selling them. There will be a continuing battle between higher cost nano engineered and doped cells promising longer life, but at higher cost and lower cost generic phosphate cells. Vehicle customers will not be well placed to make these choices and vehicle manufacturer's reputations will be made or lost on how their battery choices play out. A process of incremental improvement, similar to that that has been observed in the earlier generation of Lithium cells will mean that costs will continue to trend down as energy densities and lifetimes continue to trend up. Maybe there will be a breakthrough in extracting energy from the vacuum, maybe someone like Eestor will deliver a novel energy storage system. If not, then in 2012 we'll still be sitting with our battery suppliers joking about how there's liars, damn liars and battery chemists. Only by then we'll all be a lot older and wiser and we'll have the experience of several thousand pure electric delivery vehicles in operation around the World to draw on.

6. References

[1] Clear Channel Commnications Inc, TaxiMedia rate card

[2] On Bullshit', H. G Frankfurt, Princeton University Press, 2005) ISBN-10: 0691122946

[3] A Brief History of Greenwash, Joshua Karliner, CorpWatch, March 2001, http://www.corpwatch.org/article.php?id=243

[4] Science 17 August 2007: Vol. 317. no. 5840, p. 902, Renton Righelato of the World Land Trust and Dominick Spracklen of the University of Leeds

[5] as reported in the Financial Times, September 11, 2007.

[6] Synovate Motoresearch Advanced Propulsion & Fuels Syndicated Study, AABC proceedings, May 2007

[7] UK DfT 2005, UK DETR 2000 - 3, 200 RTA deaths vs 24, 000 air pollution deaths per year

7. Authors

Trevor Power holds a Bachelor's degree in Engineering from Imperial College, London and an MBA from Warwick Business School. He was formerly Business Development Director for London Taxis International. In 2004 he advised on the purchase of the project that became Modec from his former employer, subsequently joining the newly formed company, where he is responsible for developing business strategy.

William Doelle holds both a BFA and MFA in Design from the University of Michigan, along with post-graduate diplomas in Design History from the University of Reading, England, and Design Strategy and Innovation from Brunel University, England. He was formerly London Taxi's International Vice President of Product Development and Marketing. His current role at Modec is to head up the company's program to evaluate and tailor its products for the US market.