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Evaluating the Profitability of Your Fleet

Many companies are considering electrifying their vehicle fleets. PHOTO Stockvault

Concerned about the environmental footprint of their equipment, more and more companies are planning to electrify their vehicle fleet.

Before starting this transition, it is important to evaluate the automotive forces at work, as several factors influence the profitability of the project.

Targeting the needs

Many companies that are aware of greenhouse gas (GHG) emissions are waking up to the prospect of electrifying their vehicle fleet. If the process is an end in itself, there is nothing to prevent it from being done gradually in light of a fair evaluation, suggests Simon Therrien, President of NAFA Quebec.

“To justify the use of fleet vehicles, you must first target the needs of the business and understand its mission. Currently, EVs are focused on light freight or passenger transport. Not yet fully cost-effective, the larger EV will be used more later.”

The manager wishing to evaluate the profitability of an electric vehicle will consider its total cost of ownership over its life cycle. This includes acquisition, operation, maintenance and fuel costs. Then the resale value will come into play. In the meantime, the EV, depending on its purpose, must be used properly.

“To be profitable and provide a quick return on investment, the EV must be driven frequently and over short distances,” says NAFA’s president.

Carbon tax and maintenance

As for gas vehicles, the price of fuel plays an important role. To this end, Therrien points out that there is an annual increase of nearly four cents ($0.04) per litre in terms of the carbon tax. Added to this are market fluctuations, inflation and other taxes.

“When it comes to energy costs, the ratio is ten to one. However, for more economical EV charging, one should rely on the private source first and rely on public infrastructure as a last resort.”

On the maintenance side, the more complex components of the gasoline vehicle make it more expensive to maintain. On the other hand, some parts of the EV, which are used more in urban areas, are more stressed, such as the tires and the suspension.

“For this point, speculations are leaning towards the EV,” summarizes Therrien.

Finally, before starting the transition, our speaker talks about awareness to promote acceptability and better understand the change process.

“Several elements, including the climate, the highway and daytime charging, create stress related to the use of EVs. The more information we provide upfront, the more we can promote acceptance.”

Incentives and technology

Geoff Seely, Vice President and General Manager of ARI Canada, adds another element to the total cost of ownership (TCO) analysis for evaluating the profitability of an EV.

“You should start by negotiating the lowest initial cost, minus rebates and incentives. These incentives vary from province to province, but when applicable, they help offset the initial acquisition cost, creating a business case for EVs.”

In addition, Seely recommends that recharge management be integrated into the transition plan to optimize the process. Indeed, depending on the location of the fleet, the charging infrastructure may be inaccessible, requiring an additional investment from the company. An amount will also be set aside for internal skills training.

“To accompany the change, it will be important to include a development budget to understand the regulations and government incentives that support EV deployment.”

In addition, Seely mentions that a company can seek the expertise and services of a fleet management company to obtain valuable tools.

“A comprehensive technology solution and integrated driver app will provide a seamless experience for locating charging points and repair network providers.”

A pilot project?

Glenn Provan, Analyst, Reports & Consulting, Foss National Leasing, says that a total cost of ownership model is an excellent analytical tool for the manager. Thus, the latter can examine different scenarios of vehicle use. Second, to help provide clarity, Provan suggests an approach of launching a pilot program in the next order cycle.

“By purchasing a small number of electric vehicles, two or three, the manager can monitor their cost and performance under real-world conditions. By gathering feedback from his drivers, he will understand the challenges of the project and determine how to introduce more EVs later in his fleet.”

Continuing, Provan advises going back to the source before making a complete fleet overhaul.

“The company needs to make sure it understands in detail how it uses each element of its fleet. If it’s not sure, it should work with its fleet partners as a priority to collect the relevant information for this purpose.”

Food for thought

In closing, Glenn Provan lists a few things that need to be factored into the equation, such as geographic location, vehicle-accessible infrastructure and related costs, route optimization, and the prevailing climate in the service territory. Then he submits some ideas to be discussed at the next administrative meeting over a good coffee…

“Are battery electric vehicles more suitable, or for its mission should the company use plug-in hybrid electric vehicles instead? Should it still employ internal combustion engine vehicles for certain business applications until a suitable electric vehicle is introduced by an OEM?”

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