How to keep trucking in a net zero world

Who is racing ahead in the EV transition? Passenger cars have got a head start, but trucks – responsible for 8% of global GHG emissions – are key drivers in the journey to net zero.

May 28, 2021

14 minutes

Who is racing ahead in the EV transition? Passenger cars have got a head start, but trucks – responsible for 8% of global GHG emissions – are key drivers in the journey to net zero.

How are winners emerging from the transition?

01
Riding electrification tailwinds
02
Policy catches up to the climate crisis
03
Going the distance: challenges facing the commercial EV transition
04
Is hydrogen the answer?
05
China leads the way in the electrification transition
06
Far reaching opportunities across the global universe
01

Riding electrification tailwinds

Intertwining highways
Collaboration is a key ingredient to success in the commercial EV transition.

As the world moves towards a decarbonised future, the spotlight has centred on the electric car transition as the tangible evolution that will touch our everyday lives. However, it is often overlooked that commercial vehicles constitute the largest or second largest source of transport sector emissions in every major economy globally, according to the US Department of Energy. Trucks have a huge part to play, contributing around 8% of global GHG emissions (Figure 1). This is perhaps reflected in that trucking remains the dominant form of freight distribution in both the US (67% of the total) and the EU (75%)1 .

Figure 1: Trucks represent 8% of global GHG emissions

Trucks represent 8% of global GHG emissions graph

Source: Bloomberg New Energy Finance, “Global Review of Vehicle Efficiency Standards”, 13th August 2019.

2020 marked a turning point for the industry, as the seven largest players in the European truck industry collaborated to announce that all new vehicle sales would be fossil-free by 2040. Broader adoption of battery-powered trucks is expected to become a reality in the near future, but other technologies are also being explored to achieve decarbonisation. Development of trucks powered by ‘green’ hydrogen – produced from renewables - is in its infancy, but it may provide a solution to decarbonise trucking before too long.

Looking at the nearer future, adoption of battery-powered electric vehicles is gathering pace. A recent survey of large commercial fleet owners in the US found that 81% were currently electrifying vehicles, while half of owners are pursuing explicit goals for EV adoption (Figure 2) . While individual order sizes remain small as customers adapt to the new technology, the next year or two could see significant progress towards mass production. Globally, multiple major OEMs (original equipment manufacturers) – such as Daimler, PACCAR and Volvo2 – have expanded their EV product lines and announced their intention to ramp up production of battery-run electric trucks through 2021 and 2022. Meanwhile, waiting in the wings are new entrants, such as Tesla and Hyliion, looking to grab market share from incumbents.

Figure 2: Fleet electrification goals and current EV adoption status

Fleet electrification goals and current EV adoption status graph

Note: Combined survey responses to the questions: “Does your organisation have an explicit goal for electrifying your fleet or reducing your fleet’s emissions?” and “Have you begun to transition any of your fleet vehicles to electric?”.
This graphic has been recreated by Ninety One.
Source: Lynn Daniels and Chris Nelder, “Steep Climb Ahead”, Rocky Mountain Institute, 2021.

However, disruption may not be a destructive force in the trucks industry. Rather than the margin-dilutive competition seen in the passenger auto sector, we believe that the trucking industry is adopting a collaborative approach to the EV transition. Participants are seeking a broad coalition (across both public and private sectors) to help spread the costs of the R&D and infrastructure build-out needed to accelerate adoption. Success in the commercial EV transition requires overcoming a different set of challenges from those facing passenger cars, such as customer acceptance, the creation of charging networks, servicing and so on. Collaboration between the biggest trucking participants makes overcoming such challenges more likely and importantly creates opportunities for investors in those companies that can race ahead in the EV transition.

 

1 Source: Eurostat, March 2020, Bureau of Transportation Statistics, 2019.
2 One of these stocks is held in 4Factor portfolios.
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Authored by

John Holmes
Analyst

All investments carry the risk of capital loss.

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