- Hybrid Electric Vehicles
- General Motors
Commercial Vehicle Electrification Can Have an Outsized Impact
In 2007, General Motors (GM) launched versions of its full-size pickup trucks and SUVs powered by a two-mode hybrid system. While the system was a technical success, it was a commercial failure. The logic behind hybridizing its thirstiest vehicles seemed perfectly reasonable but the timing was terrible and the market showed little interest in the system. Vehicle electrification now, however, is experiencing commercial interest. The recent announcement that Amazon will purchase 100,000 electric delivery vans from Rivian shows that timing and application are right for electrifying high consumption delivery vans.
GM Built It, They Didn’t Come
GM’s 2007 rationale was that applying hybrid electric power to its trucks would actually have a significantly larger environmental effect than doing the same to smaller vehicles as Toyota and Ford did. In 2007, the second-generation Toyota Prius reached its popularity peak the same time as gas prices spiked to $4/gallon, just ahead of the financial crisis of 2008.
GM recognized a paradoxical problem; as fuel efficiency increases each incremental mile per gallon (mpg) has an incrementally smaller reduction in fuel consumption. As after exceeding 35-40 mpg, the fuel consumption curve flattens precipitously making it hard to recover the cost premium in fuel savings. That is why the payback between a $23,000 Kia Niro at 50 mpg and $39,000 Kia Niro EV at 112 mpg equivalent with no gas is on the order of 30 years—even after accounting for tax incentives. The Kia Niro Hybrid consumes about 300 gallons over the typical 15,000 miles range of annual driving versus about 4,500 kWh for the Kia Niro EV.
Adding the hybrid feature to a vehicle like the Chevrolet Tahoe or Silverado, which was rated at 16 mpg, boosted the rating to 21 mpg savings or about 220 gallons annually. Unfortunately for GM, the hybrid system was costly. By the time the hybrids hit the market, big truck sales were declining before going into free fall during the financial crisis of 2008.
Electrification Is Taking Off in the Commercial Market
A lot has changed since 2008 as electric propulsion and batteries are maturing. For buyers of smaller mainstream cars, the economics are still challenging, but when you look at larger commercial vehicles the picture changes. Commercial vehicles like the medium duty package delivery vans operated by companies like Amazon, UPS, and FedEx typically get about 10 mpg and may travel up to 50,000 to 100,000 miles per year. Each of those vans consumes 5,000 to 10,000 gallons of diesel and spews about 44 to 88 tons of CO2 compared to just 2.66 tons for that Kia Niro Hybrid.
The reduction in operating costs from an electric delivery van is substantial and the potential return on the upfront cost premium is much faster than for a typical car. Each of those vans will have a carbon environmental impact equivalent to replacing as many as 33 Kia Niro Hybrids, plus the elimination of particulate and NOx emissions.
Convincing average consumers to buy EVs remains a challenge for many reasons, as highlighted in Guidehouse Insights’ Market Data: EV Market Forecasts report. The technical lessons that GM figured out all those years ago are truer than ever when applied to the right market segment, namely commercial delivery vehicles.