PASADENA, Calif. – Financiers and financial products are not keeping pace with the rapid growth of the zero-emission commercial vehicle (ZECV) segment according to a new analysis from CALSTART’s Global Commercial Vehicle Drive to ZeroTM (Drive to Zero) program and campaign. The report, Taking Commercial Fleet Electrification to Scale: Financing Barriers and Solutions, finds that uncertainty over the residual value of these new technologies – or how much they will be worth in the years to come – is the leading reason financiers are holding back.
“Financiers express strong interest in the ZECV segment because it’s a growing market with an increasingly positive business case and future. But despite this interest, key barriers are holding back the power of traditional financing products to fully support this segment,” said Bill Van Amburg, Executive Vice President of CALSTART. “This results in smaller and slower ZECV investment than we need to meet global climate and air quality goals.”
“This report identifies policies and programs to significantly decrease risk to financiers and unleash the needed capital to drive commercialization of this advanced clean technology segment,” said Robert O. Gurman, Managing Consultant of Proenergy Consulting, LLC, author of the report. “Each policy or action creates greater confidence among investors by mitigating their risk – or perceived risk.”
Proposed policies and other actions include:
- Creating federal or state support for commercial products that address residual value risk through a novel application of the “first loss protection” instrument. First loss protection financial products lower risks for financiers by insuring them against a pre-determined amount of potential financial loss, in this case by synthetically establishing the residual value of a ZECV transaction.
- Providing clear market direction for manufacturers through regional and federal-level policies like California’s groundbreaking Advanced Clean Trucks rule (ACT) and the corresponding fleet regulations to require zero-emission purchases now in development in California. ACT – the first such policy globally – calls on truck manufacturers to sell increasing percentages of zero-emission trucks beginning in 2024.
- Creating and/or expanding direct, multi-year purchase incentive programs at the state and federal level to accelerate ZECV adoption in the near term and ensure those dollars explicitly support small-to-medium sized businesses and disadvantaged communities.
- Reinforcing ZECV deployment conditions with infrastructure and innovation grants.
- Monetizing the environmental attributes of trucks and buses. Doing so would allow fleets to borrow against future earnings collected from a low-carbon fuel standard or other policies that generate revenues.
”There are no known state or federal policies, or commercially available financial products, that address the biggest risk identified by financiers of zero-emission commercial vehicles – residual value risk,” said Dr. Cristiano Façanha, Global Director of CALSTART’s Drive to Zero program and campaign. ”Fleets like DHL, IKEA, Ryder, FedEx, UPS, Anheuser-Busch, Amazon and the cities of Los Angeles and New York and many others are recognized for taking early action to drive commercialization of zero-emission commercial vehicles. Imagine what they and other fleets could do with more and better financing tools.”
Taking Commercial Fleet Electrification to Scale: Financing Barriers and Solutions is the result of more than 80 confidential interviews with finance professionals, as well as commercial vehicle and infrastructure stakeholders. The report was made public soon after the Biden Administration announced its ‘American Jobs’ plan, a proposed infrastructure plan that includes $174 billion in investments in the U.S. EV market. The plan proposes a number of market-driving measures including point-of-sale rebates and tax incentives to buy American-made EVs as well as grant and incentive programs to build a national network of 500,000 EV chargers by the year 2030. (As of this writing, it is unclear how much of this proposed funding would be directed to support light- versus medium- and heavy-duty vehicles.)
“Over a lifetime of use, ZECVs present a strong business case due to low fueling and maintenance costs. However, higher upfront costs and infrastructure challenges are barriers for fleets and financiers,” said Ben Mandel, CALSTART’s Northeast Regional Director. “Point-of-sale purchasing incentives – like the New York Truck Voucher Incentive Program (NYTVIP) and California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP) – as well as programs to build up our charging infrastructure can help drive down sticker prices, lower anxieties around charging and break down adoption barriers faster.”
Another barrier-buster for EVs in the Biden plan is the replacement of 50,000 diesel transit vehicles and the electrification of at least 20 percent of school buses across the nation.
“Policy measures to ease acquisition of ZECVs, strengthened by innovative financing techniques, send a clear signal to manufacturers, investors and fleets that electric vehicles and their components will have a strong and growing market in the United States for many years to come,” said Mandel.
This new push at the federal level for zero-emission vehicles and infrastructure comes as key global manufacturers and fleets are expressing growing commitments to ZECVs, battery costs are dropping rapidly, and technology performance is enhancing.
“At IKEA Retail, we find ourselves stepping out of the traditional role of a purchaser of transport services. We are focusing on different financial models to make the transition to zero emission last mile happen, and engaging with new partners that will help us enable our transport service providers to go electric. Several different ways to support the transition are being evaluated and deployed at the moment, and most probably all of them will be parts of the puzzle. What’s available on the market today obviously isn’t enough, and we need to do our part to accelerate the speed of the transition before it’s too late,” said Angela Hultberg, Head of Sustainable Mobility IKEA Retail (Ingka Group).
CALSTART’s Drive to Zero program and campaign aims to drive market viability for zero-emission commercial vehicles in key vehicle segments in urban communities by 2025 and achieve full market penetration by 2040. The program and campaign enjoys the support of more than 100 government, city, industry, fleet and utility partners including the nations of Canada, China, Chile, Finland, Germany, Japan, Netherlands, Norway and Sweden as well as BYD, New Flyer Industries, ARRIVAL, IKEA Retail (Ingka Group), Ryder, Black and Veatch, Siemens, the California Air Resources Board, the cities of New York, Los Angeles, Oslo, Vancouver and many others.
CALSTART | Changing transportation for good
A national nonprofit consortium with offices in New York, Michigan, Colorado and California and partners world-wide, CALSTART works with 270+ member company and agency innovators to build a prosperous, efficient and clean high-tech transportation industry. We knock out barriers to modernization and the adoption of clean vehicles. CALSTART is changing transportation for good.
Contact: Roxanna Smith | 510-326-0390 | Roxanna.Smith@GlobalDriveToZero.org