A cost-effective option to reduce total cost of vehicle ownership

To combat rising fuel costs – which pull down economic growth, zap profit margins and reduce capital budgets, fleets now have more alternative fuel and powertrain options to choose from than ever. However, most alt-fuel and rechargeable electric options require new fueling or charging infrastructure, which can significantly drive up the total cost of owning these vehicles and cause complexity in routing and operating them.

Where the fueling infrastructure exists or the government is paying for it, fleets are starting to make trial purchases. However, for most cities around the country, there is no natural gas fueling or electric charging infrastructure that suits fleet operations, but there is a cost-effective option to reduce total cost of ownership without waiting for government subsidies: hybrid electric vehicles (HEVs).

Hybrid electric technology has advanced over the past decade and there are many commercial models available across weight classes. Most importantly, costs have come down, making HEVs sound business investments in many cases, even without subsidies.

Businesses that purchase hybrids are seeing acceptable returns on investment and immediately reducing their operating costs.

How Hybrid Technology Works

In addition to an internal combustion engine and transmission, the basic powertrain components that enable fuel reduction in an HEV include an energy storage battery, a traction motor and a motor drive. The motor drive controls the power flow from the battery to the motor and subsequently the vehicle driveshaft during acceleration, and then controls power flow back to the battery during deceleration.

While there are a variety of different hybrid vehicle technologies, in the end, they all primarily help drive the wheels to reduce the energy required from the combustion engine.

The hybrid system uses energy stored in the battery pack, created by a process called regenerative braking, whereby the electric motor acts as a generator when the vehicle is slowing down and reduces the amount of friction brakes the driver needs to apply.

In contrast, full electric vehicles (EVs) do not have an internal combustion engine, and the battery pack must be sized large enough to hold energy to move the vehicle over a full day’s driving distance.

The other major difference is that HEVs charge themselves. EVs and plug-in hybrids (PHEVs) are charged primarily by plugging them into external electric sources.

Cost-Effective Electric Option

The key cost drivers of HEVs or any electric vehicle today are the battery pack and the traction motor. While motor technology has steadily improved, battery technology has advanced tremendously since the Toyota Prius – the first mass-produced hybrid vehicle – was released in 1997.

The amount of energy a battery pack holds for a given size and weight has gone up, meaning that batteries are smaller and lighter. But advanced battery packs are also very expensive as the manufacturers ramp from a low volume.

EVs and PHEVs are designed to have large battery packs that hold enough energy to move the vehicle long distances on electric energy alone, so their costs are significantly higher than hybrid electric vehicles, which use much smaller, higher power battery packs. This means that EVs and PHEVs use their larger electric energy storage to provide greater fuel savings than HEVs.

We can compare the relative amount of energy storage and price premium (over a conventional cargo van) versus the relative fuel savings for the three different types of hybrid and electric technology: HEVs, PHEVs and EVs.



Given that most of the payback will be primarily generated from fuel savings, this table shows that after the first kilowatt-hour (kWh) of energy storage, the battery pack generates diminishing returns. In other words, vehicle makers have to add larger and larger battery packs to get an incremental amount of fuel savings.

In the example, the EV costs 12 times the price of the HEV, but only provides five times the fuel savings. The batteries are just too expensive right now to generate an attractive return on EVs or PHEVs in a fleet setting without government subsidies.

Eventually, battery pack costs may fall and make the investment for PHEVs and EVs more attractive.

Incremental Fuel Economy Improvements Matter

There are a number of cost-effective ways to increase fuel economy, such as vehicle downsizing, reductions to driver idling and initial deployments of hybrid vehicles.

For example, replacing a 10-mpg vehicle with one that averages 12.5 mpg reduces fuel consumption by 20 percent. At first glance, it doesn’t look like a big increase, but aggregating incremental fuel economy gains can make a huge impact on the bottom line.

Reinvesting the savings to deploy more efficient vehicle alternatives is sound business strategy, and it creates a positive cycle of reducing fuel use, reducing fuel cost volatility and creating more savings.

Justin Ashton is the vice president of business development for XL Hybrids, a company that has developed a hybrid electric conversion technology for Class 1 through 3 commercial vans and trucks. www.xlhybrids.com.