ELECTRIFICATION OF CONSTRUCTION EQUIPMENT Navigating the Shift to the

Vehicle electrification remains a hot topic. In his annual letter to stakeholders, BlackRock’s CEO Larry Fink asserted, “The next 1,000 unicorns won’t be search engines or social media companies. They’ll be sustainable, scalable innovators who help the world decarbonize and make the energy transition affordable.”

Off-highway electric vehicles (EVs) are witnessing high adoption across industries globally as governments aim to reduce carbon emissions and offer rebates and tax incentives to deploy these types of vehicles on jobsites

They are reaping some of its benefits: fewer fumes, noise, emissions, and decreased energy costs and operating costs. While electrification in construction equipment is expected to grow globally, barriers remain.

Many incumbent vehicle manufacturers and component suppliers are grappling with how they can best respond to an increased demand for EVs in the construction industry, disrupting their traditional product offers and business models in the pursuit of maintaining market share in this market shift.

While the path forward is necessarily different for every company, construction equipment manufacturers that focus on these three key areas — customer value creation, product and technology planning and development, and financial performance and potential— will do the best at speaking to a growing segment of contractors looking to electrify jobsites.

Develop End-to-End Solutions

Many fleets have made bold sustainability commitments and goals—and at the same time remain committed to improving total cost of ownership, end-customer satisfaction, and their own employees’ satisfaction. To deliver against all these goals, much will have to change.

No one player has “cracked the case” on an end-to-end electrification solution—but those who focus on first becoming experts in their customers’ end-to-end production processes are the likely winners.

Partnering with customers to understand priorities and to define jointly how their processes can evolve for electrified vehicles will be key to achieving market adoption. For example: How will electricity be generated and transmitted (for example, at the depot or the jobsite)? How will EV drivetrains impact vehicle uptime and duty-cycle performance, and what compromises may need to be made?

This range of issues spanning customers’ processes and how manufacturers and suppliers will address these needs can be tackled with a master plan that clarifies a wide range of issues. Distinct vocations with disparate dutycycle requirements—for example, mining and construction equipment—necessitate offering a portfolio of solutions to address customer segment needs.

Communicate Strategy & Timelines

Investors recognize the imperative to shift to electrified vehicles and are also beginning to recognize what manufacturers and suppliers have known for years: there is no one-toone conversion of profit pools.

Take, for example, aftermarket parts sales, a high-margin annuity that many manufacturers and suppliers rely on to drive earnings performance. Battery electric drivetrains require fewer parts and have far less frequent maintenance and repair needs (no oil and filter changes!) as compared to conventional internal combustion drivetrains. To offset this decline, a whole new portfolio of services can both strengthen endcustomer relationships, complement EV products in the construction industry, and deliver new profitable growth annuities — for example battery leasing programs, charging infrastructure financing and installation services, maintenance and repair outsourcing services or technician upskilling programs, and more.

The journey to mass-market EV adoption in the construction industry is still long and far from over. While it comes with many challenges, companies that act quickly to rethink how they can position themselves to deliver customer value will be rewarded favorably.

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