EY: How to Prepare for the Rise of EVs

Building the fleets of the future: how to prepare for the rise of EVs

In some shape or form, you’ve likely heard the following statement as it relates to environmental sustainability: “Electric vehicles are the future!” Indeed, with the recent uptick of electric vehicle (EV) pioneers and an increasing focus on electrification from legacy manufacturers, there are now two million EVs in the US — with EY estimates forecasting that in the US, annual sales of EVs are expected to surpass other powertrains by 2036 and there could be as many as 165 million EVs in operation by 2050.

Continued proliferation of EV adoption, no doubt, will be significant, especially with the adoption of electrified fleets expected to ramp up faster than personal EVs. To date, much of the conversation on EVs has centered around personal use. However, the pandemic has spotlighted the tremendous opportunity in transitioning professional fleet vehicles to renewable energy — and executives are beginning to take notice. For many suppliers, they also beg the question: what kind of EVs are being or will be purchased? What purpose do they serve now and later, and, perhaps most importantly, who’s buying?

Fleets are ideally suited for transition to EVs

u Largely predictable journeys u Known daily mileages u Ease of smart charging

u Penalties for ICE vehicles

entering low-emission zones

u Favorable taxation u Bulk purchasing power u High daily mileages =

operational cost savings

By: Branson Smith,

Senior Manager, Ernst & Young LLP branson.smith@ey.com

With nearly 15 million EVs expected to be part of corporate fleets in the US by 2040, it’s clear that EVs will soon become table stakes for companies looking to increase efficiency, lower operational costs, meet ESG targets and generally reduce their environmental impact. EV fleets will transform the automobile industry completely, and suppliers must be ready to maintain growth in today’s current environment, yet also capitalize on these growing trends via a distinct aftermarket and service strategy to help companies build and service their “fleet of the future.”

As demand increases, suppliers must change their product development cycle

Since the dawn of EVs, suppliers have traditionally based their product development cycle on the sales rate. This will need to change. In the wake of exponential increases in EV demand around the world, suppliers can no longer take a reactionary view to production and still be sustainable. As demand for traditional products is forecasted to wind down, and demand for EV products and services ramps up, suppliers must embrace a clear, multipronged product development strategy. It will be imperative to take a proactive approach to rapidly evolving EV requirements while still actively managing legacy service businesses.

With EV fleet sales quadrupling from 2014 to 2018 alone, it’s time for suppliers to proactively prepare for the heightened interest in this critical area — building their inventory to not just meet but rather outpace current demand.

That said, in parallel with an aging conventional (non-EV) vehicle pool, special attention needs to be brought to manage the profitable service business of the legacy vehicles for many years to come.

With the rise of e-commerce, delivery systems will change

According to the Institute of Transportation Studies at the University of California, Davis, today, the average EV can only travel 250 miles1, which somewhat limits their capacity for long-distance transportation. However, EVs have shown great promise for companies conducting “last-mile deliveries,” as these vehicles are typically used on a standard route and stored at a depot overnight,

both of which are ideal for EVs. Our current estimate is that as many as 38% of all EVs are already classified as last-mile delivery fleets — with many more anticipated in the coming years.

For suppliers today, understanding “how” an EV fleet will be used can be as important as “when” and even “why” the transition is occurring in the first place. Just consider that for many companies, electrifying last-mile deliveries isn’t just a moral imperative or corporate ESG commitment, it’s a legal one, too. Across Europe, almost 300 low-emission zones now ban polluting vehicles, forcing many companies to either switch to EVs or pay a penalty to reach urban customers. Equipped with this knowledge, EV suppliers can know where exactly to anticipate demand and adapt accordingly. In the race to electrification, one thing is clear: you don’t want to be left behind.

Even more so, the door opens for suppliers to play an active role in helping large fleets manage the transition and secure themselves long-service contracts and, to some extent, possibly stepping into a role with direct customer interaction.

Suppliers will see a decrease in the importance of certain automobile parts and an increase in other items

At first glance, EVs and traditional vehicles may look similar; however, they are operationally quite different. While EVs and conventional vehicles share component parts, there are a large number of new systems used for EVs — from batteries, to charging stations — that aren’t compatible with traditional vehicles. Automobile manufacturers should carefully develop strategies to address the shifting balance of legacy and EV components, re-evaluate maintenance and diagnostic systems, and rationalize talent needs for future success. By developing pragmatic corporate strategies and evaluating current and future revenue streams, they can get ahead of the curve and prepare for bulk orders from companies looking to completely transform their current infrastructure. With global EV sales expected to outstrip all other engine sales by 2035, it’s safe to assume this transition is happening sooner rather than later.

Closing thoughts

In today’s fast-paced and ever-changing world, we are experiencing profound transformations that extend to all aspects of our daily lives. As demand for EVs continues to proliferate around the world, it’s more important than ever that suppliers prepare for a heightened focus at both a personal and a company level.

Manufacturers Electricitynetwork operators El ect ri ci ty reta i l ers

Vehicle lessors

Financiers Charge point operators

Fleet managers

With a keen eye toward the future, suppliers can quickly take a “boots to the ground” approach to: • Determine that necessary new parts (production, service and diagnostics) reach those that need them most • Play an active role to help customers and fleet owners through this critical transition and build their EV fleets of the future • Remember that, with an effectively managed service parts business that encompasses both rapidly evolving EV parts and legacy components, revenue will exist for many years to come

The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.

1 Frequently Asked Questions, Institute of Transportation Studies at the University of California, Davis accessed May 2021 via https://phev.ucdavis.edu/about/faqphev/#:~:text=Most%20early%20electric%20vehicles%20(about,350%20miles%20on%20a%20charge. 2 EY data model: 24x more fleet electric vehicles by 2030, Electrive.com accessed May 2021 via https://www.electrive.com/2021/02/03/ey-data-model-suggests-73mn-fleetelectric-vehicles-by-2030/

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