Over the past few weeks I’ve been crunching some numbers on how alternative fuel vehicles compare on lifetime ownership costs. I am doing this not because I am a masochist, but for an upcoming Pike Research report on Total Cost of Ownership (TCO) estimates for fleet operators. The initial results demonstrate yet again the basic advantage of going small for fleets that want to save on fuel costs – but they also reveal that small isn’t the only way.
My analysis dovetails nicely with a recent report by Automotive Fleet on the top five concerns facing commercial fleet operators. According to the survey, three of the top five issues that fleet operators expect to grapple with in 2012 are:
- Fuel price volatility
- Implementing green fleet initiatives
As Pike’s past analysis on the potential market for hybrid electric vehicles in fleet operations makes clear, fleet operators have been struggling with these issues for several years. Fleet operators are increasingly looking to reduce their fleets’ environmental footprint, either as part of their own “green ethos” or due to legislative or regulatory requirements. At the same time they need to keep an eye on costs, since their primary responsibility is the bottom line. So, are these priorities in conflict or can they work together? The simple answer is , a bit of both.
Fuel costs are one of the biggest, if not the biggest, items in fleet operators’ annual budgets. So, if going green also means lower fuel costs, fleet operators win on both counts. The preliminary results from my analysis confirm that if fleets want to go green and keep costs down, their best bet is to stay small. This analysis looked at vehicle cost, maintenance, fuel costs, and available tax incentives – in order to keep the comparison focused on the trade-offs in switching fuels and propulsion technologies. Two of the lowest cost options were the small hybrid cars (sized like the Honda Civic, for example) and the compact gas car. Even at today’s low gas prices, the small hybrid managed to best a comparably-sized gas car in total ownership costs over a 120,000-mile life, and if gas prices rise, as they almost certainly will, this benefit will increase. Some of the other very low TCO options were the compact CNG (compressed natural gas) sedan and the small to mid-sized battery EV with its $7500 federal tax credit.
But it wasn’t just the small cars that could help fleet operators reduce fuel costs while operating cleaner. At the mid-sized sedan level, the hybrid option still showed lower lifetime costs than a comparable gas car. And this is without the benefit of a tax credit, as these have expired for conventional hybrids. Hybrids will, of course, pay back their price premium even more quickly with higher fuel prices – making hybrid adoption a strategy for hedging against future increases in the price of gas, and addressing fleet operators’ third major challenge, fuel volatility.
The final note here is that, while operating costs and total lifecycle costs may be lower with hybrids and other alternative fuel options, the fleet operators still face a challenge in fronting the initial higher vehicle costs. This is where the desire to go green and watch the bottom line come into conflict. And why fleets look for grants that can offset the initial price premium and help them make the business case for buying hybrids. What my analysis shows so far is, hybrids can pay off the investment for fleets that keep their vehicles for a long time.
Tags: Alternative Fuel Vehicles, Clean Transportation, Electric Vehicles, Smart Transportation Practice
| 2 Comments »