Three Reasons Why The Best Use For Electrification Has Been The Slowest

Two types of vehicles – the passenger cars and the long-haul trucks – suffer from some of the same trepidation for switching to electric vehicles. For example, the starting point, end point and duration of any trip can vary significantly with the extreme use case being a cross-country sojourn with preferably few stops. In this case, the length and convenience of any given segment or refueling might be dictated by inadequate charging or dispersed infrastructure. Additionally, for households to switch from traditional powertrains, the business case must be obvious prior to plunking down significantly more upfront.

Hence, the obvious, best use case for electrification has always been work trucks since they are used 8-12 hours per day in city driving, return to the same customer-owned parking lot, and have adequate time to recharge before the next usage.

Yet, despite these clear advantages, medium-duty, electrified work trucks have been slower to transform the market than passenger vehicles for three reasons: the niche’s effort, investor patience and the ideal cost.

The Niche’s Effort

According to Statistica, the passenger vehicle market is projected to reach $1.935 trillion USD in 2023, and follow a compound annual growth rate (CAGR) of 1.72% for the next four years (2027). Similarly, Grand View Research reports the commercial vehicle market will rise to $1.4 trillion USD in 2023 with a 3.7% CAGR through 2030. Both markets warrant significant design, engineering and quality efforts, but the business case to overhaul the powertrain for low-volume, niche vehicles (e.g., the Sprinter Van shown in the title picture) typically do not make sense. This is especially true for trucks carrying heavy loads through pothole-infested cities. “Medium duty vehicles are expected to have extremely high durability, so when you try to reuse passenger vehicle technology it doesn’t meet the customers’ needs,” states John Harris, founder and CEO of Harbinger Motors. “When we look at the typical medium-duty vehicle, it has a 20-year operating life or longer, with upwards of 450,000 miles of deliveries in a severe, urban, low-speed environment.” Harris explains that understanding the use cases, the failure modes, the resulting system requirements to overcome those failures, plus the extensive validation testing required, is an effort that the mainstream manufacturer cannot justify for such a niche market.

Investor Patience

The capitalist market normally follows the following path for unmet needs: startups seek investor backing, use the collected capital to engineer a profitable solution and then either survive on the profits or get acquired by a larger corporation.

This assumes, however, that multiple bad actors have not already secured funds from investors under false pretenses and made industry investors nervous. An excellent example: almost exactly one month ago Lordstown Motors filed for Chapter 11 bankruptcy. Three years prior to that, Lordstown was the EV darling with CEO, Steve Burns, at its helm. During that gap insider sell-offs totaled $95 million USD with Burns enjoying a whopping $66.8 million of those sales. His abrupt resignation in 2021 was coincident with the company’s admission that the EV Endurance preorders were overstated and then slapped with an SEC inquiry.

Nikola Corporation, another zero-emission truck start-up, has fared far better and just received a $42M grant from the state of California. But it also made investors weary via a marketing scheme involving a filmed, inoperative truck rolling downhill as if fully operational. Its founder, Trevor Milton, was described within an indictment as a “serial entrepreneur with no formal background in engineering” after Hindenburg Research released a report entitled “Nikola: How to Parlay An Ocean of Lies Into a Partnership With The Largest OEM in America.”

And so when investors discover that market segments are not profitable, they generally take their dollars elsewhere. Those that remain, must be patient enough to await the hard work described earlier. “High profile failures of previous EV companies involving bad actors have damaged the credibility of the EV industry as a whole,” states Harris. “For those of us that are slowly and methodically building technology and products that customers need, that poses a big challenge. A lot of people have been burned by fraud. So everything we do has to be black and white.”

The Ideal Cost

Using words like ideal, best or right assumes some uniformly understood truth. If a start-up designed a vehicle towards the ideal cost that simultaneously met the usage expectations, it would deliver to the market a winning product.

The problem: customers don’t do the math. They don’t calculate the 95th percentile mileage for the work trucks. They don’t calculate the net present value of the operating costs of different vehicles to understand the 10-year business case. And they certainly don’t evaluate the tradeoffs between those two computations to determine the correctly sized battery to meet their needs. “These are vehicles that are doing 40-60 miles a day, not 300 miles a day,” states Harris. “Some medium duty customers need 150 miles of range, but even then there’s a big difference in cost between 150 and 300 miles of range, with 300 miles being what most people are looking for in an EV passenger car. By building vehicles with 125-150 miles of range to meet actual customer needs in this segment, it becomes possible to offer an EV for the same price as a combustion vehicle, which we consider to be the ideal price point.”

Knowing the math, knowing the needs and knowing the tradeoffs can result in a more affordable solution. Not a quick, back-of-the-napkin investigation.

But overcoming these hurdles will assuredly spark the medium-duty EV market since it’s the best business case for electrification.

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