Businesses and Local Governments: It’s Never Been a Better Time to Electrify Your Vehicle Fleet

Technological advancements and Inflation Reduction Act incentives make fleet electrification economically attractive for businesses and governments, resulting in 9 percent cost savings.

There’s never been a better time for fleet electrification, new RMI analysis finds. Across a range of scenarios, it’s cheaper to own and operate light- and medium-duty electric vehicles than gas-powered vehicles, making a strong business case that now is the time for private and government-owned fleets to make the switch.

Battery electric vehicle (EV) costs have been declining for years, and incentives from the federal Inflation Reduction Act provide additional support, reducing upfront vehicle and charging installation costs for millions of vehicles and bringing total cost of ownership into cost parity or better. This is a boon for the nearly 12 million vehicles in the United States that belong to a public or private fleet: state and local governments have a powerful economic case to lead by example and reduce their climate and air pollution, and private fleet owners can take advantage of generous subsidies to upgrade their fleets.

RMI analyzed data using the Dashboard for Rapid Vehicle Electrification (or DRVE, a tool developed by Atlas Public Policy and the Electrification Coalition) across a range of scenarios. The result? Electric vehicles have a 9 percent lower total cost of ownership than equivalent fossil fuel vehicles, even when the cost of charging infrastructure is included. Notably, this analysis only incorporates the federal tax incentive for buying a new commercial EV, but dozens of states have established additional vehicle and charging subsidies that can stack on federal incentives, making EVs an even more cost-effective choice.

In addition, switching to electric vehicles eliminates 100 percent of tailpipe emissions and over 75 percent of climate pollution from vehicles when including the upstream emissions of electricity generation. Nitrogen oxide and particulate matter pollution also decrease by 90 percent (NOx) and 50 percent (PM 2.5) per vehicle.

The bottom line: governments and businesses with fleets can start saving money and reducing pollution now by switching to electric vehicles.

Comparing vehicles across scenarios

Fleet operators consider several factors in deciding which new vehicles to procure, particularly Total Cost of Ownership (TCO). A TCO calculation includes vehicle purchase price, financing, depreciation, and expected fuel and maintenance costs. We compared the total cost of ownership for electric vehicles to equivalent fossil fuel vehicles in five different use case scenarios: private security, patrol cars, construction contractors, paratransit, and a large delivery company. Each comparison is between a fossil fuel vehicle commonly used in that scenario (e.g., Ford F-150 truck for construction contractors) to its nearest possible electric equivalent (Ford F-150 Lightning truck) for the same amount of annual mileage and expected years of use.

The DRVE tool allowed us to adjust various factors in each of our five scenarios, including different electricity, gasoline, and diesel fuel costs, whether the installation and maintenance of charging stations would be included in the TCO, and if public DCFC stations were used in lieu of level 2 depot charging.

The chart above shows that in most scenarios, EVs are less expensive or on par with fossil fuel vehicles. Especially if your fleet operates in an area where fuel prices are consistently higher than the national average, now is the time to begin transitioning to EVs. Even in places where fuel prices are close to the national average, converting to electric vehicles is still a smart business decision in most scenarios.

More key findings from the analysis:

• Fuel price matters: At the national average fuel price of $3.50/gallon or higher, all scenarios found EV savings or cost parity presuming no charging infrastructure installation costs, and all scenarios except delivery vehicles found EV savings or cost parity including the cost of installing Level 2 depot charging. Even at the lowest gas price of $2.75, most vehicle scenarios were at cost parity or better with no or depot-only charging installation costs.
• Vehicle Miles Traveled or rate of vehicle turnover matters: Given EVs’ historically higher upfront cost but lower fuel and maintenance costs, the number of miles put on a fleet vehicle before retirement impacts the cost parity between EV and fossil fuel vehicles. For example, patrol cars drive more per year than construction contractors (20,000 miles per year vs. 12,000 miles per year in our scenarios) and so patrol cars switching to EVs tend to be more cost effective in more situations compared to switching construction contractors to EVs.
• Infrastructure matters: Our analysis found that relying on public direct current fast charging (DCFC) was cost prohibitive in nearly all cases examined due to the higher cost per kilowatt-hour of electricity and “on-the-clock” time wasted while parked at a public DCFC. It’s usually more economical for fleet owners to invest in Level 2 depot charging infrastructure, which may also qualify for IRA subsidies.

Once upstream electricity emissions are included, EVs produce less than one-quarter of the climate pollution of equivalent fossil fuel vehicles. For other air pollutants, transitioning to electric vehicles will also help fleets reduce local air pollutants like PM 2.5 and nitrogen oxides by approximately 50 percent and 90 percent compared to fossil fuel vehicles.

Incentives for fleet operators

Fleet operators can take advantage of the 45W Tax Credit for Qualified Commercial Clean Vehicles from the Inflation Reduction Act when purchasing a vehicle to bring down the upfront cost difference between an EV and fossil fuel vehicle. They can also look into the 30C Alternative Fuel Vehicle Refueling Property Credit when installing charging infrastructure if in a qualifying census tract. For public fleets it will be necessary to budget in upfront costs for installing chargers, and to take full advantage of the elective pay features of the 45W and 30C tax credits.

In some places, state and local incentives can be worth thousands of dollars as well. Attractive financing may also be secured through a Green Bank or State Energy Financing Institution.

How state and local governments can support private and non-profit fleet operators

As noted above, the economics for transitioning to EVs work for most cases, especially light- and medium-duty vehicles operating in states with fuel prices at or above the national average. However, in states that have particularly low fuel prices, the fleet conversion to electric vehicles would be accelerated by the addition of state-level incentives for Level 2 depot charger installations that are less restrictive than the siting requirements for the federal 30C tax credit. Incentives for Level 2 depot chargers could also have beneficial spill-over effects if some of the chargers are available for public use.

In addition, at least for the foreseeable future, upfront costs for larger fleet vehicles (like the Kenworth K270 electric used in our delivery business scenario) can be prohibitive even after including the 45W tax credits. Accelerating large medium-duty and heavy-duty electrification at the state level will likely require purchase incentives in addition to charger installation incentives.

As well as providing state incentives or subsidies to increase electric vehicle demand, state governments may also consider increasing electric vehicle supply. States can adopt the Advanced Clean Cars II regulations (for light-duty vehicles) and Advanced Clean Trucks regulations (for medium- and heavy-duty models), which would encourage automakers to offer more competitive prices for electric models sold in their respective states. Finally, state governments and electric utilities could also help accelerate private fleet electrification by employing “navigators” to provide technical assistance and economic analysis to fleet operators looking to go electric.

Leading by example

Electric vehicle technology and supporting policy have advanced rapidly to the point that now it makes economic and environmental sense to choose electric vehicles over fossil fuel vehicles in a wide variety of fleet use cases--and for personal vehicles as well. Lowering the total cost of ownership for vehicles puts more money back into communities, and adopting electric vehicles improves local air pollution and contributes to reducing climate emissions. Additional state policies and incentives would make electric vehicles an even more attractive option for all vehicle drivers, and fleet owners in particular.

In the Priority Climate Action Plans submitted to EPA this year, 23 states identified electrification of their public fleets as a priority measure. If 80 percent of state and local government light duty vehicles were electrified over the next five years it would result in a cumulative climate pollution reduction of 37.4 million metric tons by 2050 – equivalent to 4.8 million homes’ energy use for one year. Sustained executive leadership at the state level will be important for prioritizing electric vehicles for fleet replacements, and targeted awareness campaigns to local governments and private fleet operators could help as well.

State and local governments can seize upon this unique opportunity to upgrade their own fleets and support their local businesses to invest in their companies, and private fleet owners now have a strong business case to transition their fleets as well. By supporting the transition to electric vehicles, public and private fleet operators can lead the way to an electric future.