Recapturing the commercial EV opportunity with batteries and data

Much of the focus on electric vehicles (EVs) is on cars. Yet commercial EVs represent a significant sector of the market. With businesses and their fleets more likely to buy or lease new vehicles than consumers, OEMs can generate new revenue streams beyond simply selling commercial EVs.

The market for commercial vehicles is stalling. Light commercial vehicle (LCV) sales dropped 15%. With governments and regulations often targeting the polluting fuels that many commercial vehicles use, accelerating the electrical transition makes sense for original equipment manufacturers (OEMs).

No wonder the EV part of the market is growing: electric LCV sales worldwide increased by over 90% in 2022 to more than 310,000 vehicles.

The opportunity is certainly there: in the UK alone, demand for new battery electric vans shot up 94.6% year-on-year in July 2023.

Legacy players struggle to keep up

Yet, in many instances, traditional OEMs have been slow to take advantage of demand.

However, buyers won’t wait for legacy manufacturers to catch up. After all, commercial vehicles are a critical part of their business, and companies will look elsewhere if one supplier doesn’t meet demand.

According to one report, brands like Maxus, from Chinese OEM SAIC Motor Corp, have stolen a march on established European rivals. The company had around 6% of Europe’s new ECV market in 2022, selling nearly 5,000 ECVs, more than Ford, Nissan or Fiat, and up 28% versus 2021.

The impact of Chinese OEMs should not be underestimated. One of the challenges that EV bus company Proterra faced was competing with the scale of Chinese competitors. While there were many factors in its recent bankruptcy, Proterra’s much smaller capacity meant it would always struggle against Chinese OEMs already serving much larger domestic markets.

The commercial EV challenges

Yet it is not just competitors racing ahead that present a challenge. The old obstacles of inconsistent charging infrastructure and the cost of batteries that impact the overall EV transition also apply to commercial vehicles. Yet, the situation is changing in both areas.

First, there’s the charging infrastructure: while there has been a massive boom in charging points globally (up 55% from 2021 to 2022), how much is suitable for commercial EV needs? The amount of time and the cost of charging much larger EVs is also a factor.

Second, there’s the cost of batteries. The average battery price has only dropped from more than $160 per kilowatt hour (kWh) in 2019 to $153 per kWh by the end of 2022. The direction has also not been wholly linear as the price of raw materials fluctuates. This has hampered EV production and margins. There is good news, however: one study estimates that by 2025, the price will be below $100 per kWh, falling to less than $80 per kWh. This is likely to have a significant accelerant effect on commercial EV manufacturing.

New business models emerge

As these challenges recede, those manufacturers that are ready to meet demand will be the ones that succeed.

But meeting demand isn’t just about having the manufacturing capacity. EVs offer new possibilities regarding business models, servicing and other aspects of connected vehicles.

When it comes to business models, leasing rather than ownership is already common. But usually, this focuses on the whole vehicle. What if the business hired the battery?

There is a reoccurring mismatch between the operational life of the power train and that of the vehicle itself, and this is just as true for EVs as it is for internal combustion engine vehicles. Currently, most commercial EV batteries have an expected life of five to ten years, while the vehicle will last significantly longer if properly maintained.

Battery subscription offers benefits for all

Some EV-native car OEMs have already started tackling this problem. NIO offers a battery-as-a-service (BaaS) model, where the customer pays a monthly subscription for the battery (on top of whatever financing they have chosen for the whole vehicle). In exchange, NIO fixes and swaps the battery in the case of faults or end of life.

Could this be applied to commercial EVs? It would certainly add complexity to any fleet deal, but with the option of offering financing per km/mile, kWh, or monthly, customers could tailor the agreement to suit their usage and needs.

From a fleet manager’s perspective, it simplifies certain challenges around the maintenance and servicing of batteries. The provider would handle all procurement, maintenance, replacement and disposal, and it can be structured in an OPEX rather than CAPEX manner. This means that the provider would bear many of the costs, giving them a vested interest in ensuring the battery operates at an optimum level for as long as possible.

For the OEM, BaaS offers a predictable, long-term income stream more aligned with the EV’s expected operational life. They may also leverage it to install charging infrastructure at customer sites, creating another potential revenue stream. In addition, controlling disposal could provide access to another source of income in the secondary battery market – for instance, where batteries no longer fit for EV use are installed as part of static charging infrastructure.

Maintaining relationships and deeper insights

The BaaS model also provides a new way of developing an ongoing relationship with commercial fleets that used to be in place through calendar servicing. That traditional relationship is currently under threat as EVs require different types of maintenance. With EVs naturally more connected and closer to software-on-wheels, much of the checks are done through over-the-air updates, but models such as BaaS provide another way of maintaining that connection for OEMs.

OEMs providing commercial EVs should also consider how they gather and share data with their customers. The connected nature of EVs means the information on vehicle performance and driver behavior is growing rapidly. These insights could help fleet managers make better decisions when procuring EVs, tailoring offers to employees, deploying work vans, managing drivers, improving total cost of ownership control and, ultimately, helping businesses optimize their assets.

An opportunity for OEMs ready to go

The commercial EV market is a massive opportunity for OEMs, but while traditional barriers are falling, they must be ready to strike. Customers want commercial EVs, but if OEMs are not prepared to meet demand, they will look elsewhere. OEMs also need to remember that demand doesn’t just mean having vehicles available; it means being able to build and offer the right services and packages that add real value to the companies looking to transition their fleets.

To learn more about the connected car, the energy transition and what it all means for automotive OEMs, take a look at our new connected car information hub.

Patrick Jeanbart
Patrick Jeanbart

Patrick is Head of Connected Car Vertical, Smart Mobility Services at Orange Business. He has 18 years of experience in the automotive industry, which has allowed him to specialize in management positions in the areas of customer relations, after-sales, financial services and connected services worldwide. His purpose is to enhance these domains thanks to the operational management of cross-cultural teams around the world.