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How Leasing May Smooth the Electric Transition

Written by David Cullen on . Posted in .

It may be too early in the game for fleet operators to factor in the impact of battery-electric trucks on maintenance costs and resale values.

Some experts hold that the cost of maintenance may be lower thanks to fewer moving parts on electric vehicles, yet it may be higher for other aspects, such as future battery replacements. But they also contend that the savings generated from not consuming diesel fuel may make maintenance costs a wash initially, and then they will improve in favor of battery-electric vehicles as rising demand brings down acquisition costs. Another factor to consider is fear over accurately predicting future resale values for battery-electric trucks.

Will all that in mind, a utility fleet may want to consider leasing versus buying their first batches of medium- to heavy-duty electric vehicles, such as bucket trucks and Class 8 on-highway haulers.

Of course, then there are the costs around engineering and installing the correct type and number of charging stations for these trucks as well as perhaps those for outside customers. The charging requirements of battery-electric trucks are lessened by the power of regenerative braking, which refers to the electric motor acting as a generator to convert much of the kinetic energy lost when decelerating into energy stored in the vehicle battery. It helps, but it won’t be enough to avoid installing charging infrastructure by a long shot.

A Numbers Game
Leasing versus buying trucks is always a numbers game. And when electric drive is thrown into the mix, more players are involved – truck makers, body upfitters, perhaps separate electric-drive suppliers, and engineers/installers of on-site charging infrastructure. As a result, the number-crunching becomes more complicated.

What’s more, in the medium- to heavy-duty vocational truck segment, the specialized nature of several types of utility company vocational trucks has historically made some leasing companies hesitant to enter this niche market.

However, the handwriting is on the wall for utility fleets to stand out among early adopters of electric trucks. In turn, that movement may compel more vehicle lessors to quote on battery-electric trucks for utilities.

There is also the strong possibility that some providers of truck-charging infrastructure may offer to lease such installations to truck fleets, which would enable scaling up (or down) without needing to seek out new financing.

And if a fleet buys electric trucks instead of leasing them, there are still other companies that will separately lease the replacement of onboard batteries as trucks age in the fleet.

Finally, there is the multifaceted role that a full-service truck lessor may play. They could offer packages that roll in the leasing of charging stations as well as battery replacements with the vehicle lease and complete maintenance services in a one-and-done deal.

Such packaging is getting very creative in the electric arena. For example, on the light-duty truck end, electric vehicle maker Lordstown Motors announced in March an expanded alliance with ARI, Holman Enterprises’ leasing and fleet management division, and an upfit services agreement with Auto Truck Group, Holman’s vehicle fabrication and upfitting division. The aim of the overall deal is to more easily integrate the Lordstown Endurance all-electric commercial pickup truck into the vocational fleet operations of ARI customers, including utilities. According to the two partners, the vehicle procurement agreement addresses terms for the order and delivery of a set number of Endurance trucks over a three-year term.

Resale Value Fears
One of the major factors holding back the electric truck market is fear over future resale values. That’s not because there are expected to be unknown flaws exposed on these trucks down the road; it is simply caution being expressed over how much they might rise or fall in value due to market forces.

This happens with all transformational technology that comes to trucking and is often a major selling point for selecting leasing over buying, especially for a fleet’s initial foray with new alternative vehicle power choices.

To further ease the minds of customers, most leasing companies offer a choice of open-end or closed-end leases to take much of the guesswork out of factoring in resale values at the end of the lease, which may be five or more years in the future.

Here’s how it works, edited from information issued by ARI: With an open-end lease, the fleet assumes the risk of where a vehicle’s future resale value may land. If it is worth less than book value upon termination of the lease, the fleet pays the lessor the difference. If the vehicle is worth more, the lessor remits the difference to the lessee as a depreciation adjustment.

By contrast, with a closed-end lease, the lessor assigns a guaranteed resale value to the vehicle before the lease is initiated. This is based on the lease term plus allowable mileage. If at the end of the lease the vehicle is worth less than the guaranteed resale value, the lessor loses the difference. If the vehicle is worth more, the lessor keeps the difference.

A November 2020 report co-developed by the Environmental Defense Fund on financing the electrification of truck and bus fleets makes the point that the medium- and heavy-duty vehicle market is “on the cusp of an electric transformation” that will “deliver massive societal and economic benefits… [including] achieving a zero-emissions future by 2050.”

To get there, the Environmental Defense Fund states that there must be nothing less than “a new level of collaboration among all stakeholders including policymakers, fleet owners, utilities, financiers, vehicle manufacturers and communities overburdened by air pollution.”

Yet the electric truck market is already jumping, including for bucket trucks. Case in point: Earlier this year, Con Edison announced it is working with vehicle maker Lion Electric and its partner Posi-Plus to develop the country’s first all-electric bucket truck on a Class 8 Lion8 all-electric chassis with aerial equipment drive.

“Medium- and heavy-duty trucks are more challenging to electrify than cars, but the purchase of our first all-electric bucket truck shows the market is real today and it will only accelerate from here,” said Con Edison CEO Tim Cawley in a statement.

About the Author: David Cullen is an award-winning journalist who specializes in covering the trucking industry. Based in Connecticut, he writes for several business publications.