This is Dana Perkins and you're listening to Switched on the podcast brought to you by BNF.

More than eighty five million medium and heavy duty trucks were on the road by the end of twenty twenty four, accounting for just under ten percent of global emissions.

By twenty fifty, the commercial vehicle fleet of vans, trucks, and buses is set to surpass three hundred and sixty million.

Growing.

This fleet will likely grow emissions unless zero missions vehicles account for a greater proportion.

About forty percent of global truck fleets today can be found on the roads of the US, China, and Europe.

But when it comes to zero missions vehicles, China is leading the way with sales of electric medium and heavy duty trucks soaring.

Meanwhile, in Europe, at the local level, we see some European cities introducing zero mission zones, which thereby pushes fleets to upgrade, creating a more lumpy regional adoption story.

Full battery electric models are the front runners, owing to lower operating costs and supportive policy.

This is in the face of otherwise high upfront costs, uneven charging infrastructure, and questions around whether these types of vehicles are really viable for.

Long haul trucking.

On today's show, I'm joined by BNF's Head of Commercial Transport, Nicholas Slopolos, alongside associate Mainy Yang, where they discuss some of their team's recent research notes, including zero emission commercial Vehicles, Accelerating the Transition and commercial vehicle decarbonization Monthly e Tractors.

B and EF clients can find these notes, along with other clean transport research by heading to BNF go on the Bloomberg Terminal or BNIF dot com.

If you'd like to learn more about how b and EF approaches strategy research on the energy transition, including developments and commodity markets, trends across different sectors, and cross cutting technologies shaping the future, you can find more information at b and EF dot com.

The BNF Summit in San Francisco, taking place at the end of January, will highlight some of the opportunities and challenges presented by the ties transport, energy and technology transitions.

To find out more about this event and other events taking place around the world, head to about dot bn EF dot com Forward Slash events.

Lastly, if you'd like to speak to a member of our team about becoming a client email US at Sales dot bn EF at Bloomberg dot net.

So let's explore the outlook for clean trucking and how this industry is driving its own low carbon transition.

NKO thanks for coming back on the show today.

Thank you, Dan, it's great to be here.

And Manie, great having you here.

Thanks Dana, I'm excited.

Let's start today's show with a discussion around how big of a deal the global trucking industry is.

And there's a few different ways we can look at it.

One of them is how important is it and how big is it in terms of global emissions.

So we're talking about maybe eight to ten percent of global emissions or thereabouts.

So the whole of transport, about a quarter road transport is three quarters of that.

Trucking is a little bit less than half of it, So we're rinding up at about eight nine percent of total emissions.

It depends on what we're talking about.

I mean, there's a huge variation behind that number where we're talking about what we call light duty commercial vehicles like delivery vents or heavier trucks, medium and heavy duty trucks and all that.

But we're talking about that range of global emissions.

As you said, it varies across countries.

The interesting part there is that that level of emissions is the result of a relatively small number of vehicles on the road, And we can go into some detail on that later on why that is and what the implications of that are in terms of reducing each emissions in terms of costs, and who is adopting and where these new cleaner power trains for trucks.

So definitionally speaking, you brought up light duty vehicles, heavy duty vehicles, tractors are going to be mixed in there.

Anything I've missed.

I think tractors are normally grouped under heavy duty vehicles, So I think maybe when we talk about trucks, it's mostly referring to medium and heavy duty vehicles.

So medium duty vehicles it's relatively small share of the medium and heavy duty segment.

Most of it is heavy duty, and also heavy duty includes tractors.

So here's where we can do kind of a heuristics bactbusting moment.

My perception of the global logistics fleet is that it is growing, and that is definitely based through my own experience in more things being delivered directly to my home, but surely they had to go to a shop at some point in time.

So maybe that's just me having more of an interaction with the global logistics fleet.

Is it going down, going up?

Flat?

What is changing in the I guess the trucking space in terms of its percentage represented within the total transportation pie.

It depends on where you are.

So in some countries more advanced economies, the total fleet the vehicles on the roads.

So those trucks on the road do not change in a huge way.

I mean it increases slightly according to GDP for example, but not in an dramatic way.

And what changes there is the mix of vehicles.

Yes, you do get a lot more of those delivery events run on the heavy trucks.

Operations become a little bit more efficient, so there are these balancing items there.

When you go to some other economies we're talking about, for example, India or China or place like that, or Southeast Asia or even in South America, there you do see a large increase of the fleet already, and we expect that to continue.

That has to do with the industrialization of the economies.

It has to do with more people requiring more stuff.

I mean you're moving away from transporting gravel for construction projects and you start to move machinery for example, or cars or packages or things like that, where you need more vehicles to turn over that volume of goods.

So it depends on where you are.

Someplace it grows, someplaces is more constant, and it grows only slightly.

I think also if we really want to dive deep into this with respect to the outlook of how the fleet will change, I think it will also depend on the development of more advanced technologies, like self driving technologies for trucks, because we are seeing more and more developments of robotrucks and robovans, even though a lot of these are still quite early stage.

So in Benof's electric vehicle outlook for passenger cars, for instance, we assume that the use of self driving technologies or autonomous vehicles will help make the mileage or the distance that vehicles travel everything more efficient, and it's very likely that for fleet vehicles that's a similar case.

Like a lot of the self driving truck technology companies, they're trying to advocate that their technology can basically cut waste mileage or empty miles, so that basically one truck can travel more efficiently.

But of course, since we don't really see many of these self driving trucks actually on the road like in full operation yet, it's more of a story for the future.

But go into that in a bit more detail, because why would self driving vehicles lend themselves to also being low emissions vehicles or even then arguably relying on electric and battery packs, because presumably you could have an internal combustion engine big diesel semi that has lots of sensors and is out there on the road and is self driving.

I think it's not just about the zero emission power train.

So even if a self driving truck is let's say, operating with an internal combustion engine, if they result in less like empty miles traveled on the vehicles, it will still result in less emissions or less wasted emissions in general for the vehicles.

So even if they are still using internal combustion engine, there is an argument that these technologies could potentially cut the emissions like beyond just using the drive train.

Of course, we are also seeing some companies like iron Ride developing like autonomous electric trucks, but I guess because both autonomous and electric technologies require like add on costs, so we are still waiting for the cost for these technologies to go down before it can be adopted on a mass scale.

So they're not intrinsically linked.

But the point that you're making is, if you're going to upgrade your fleet, why not do multiple upgrades in one go.

So from the perspective of the individual who's buying these, so let's go with the medium duty trucks and the things that are delivering you know, stuff to my home, stuff that I'm now picturing in my mind showing up in my doorstep.

If I'm the owner of the business who needs to get things in the logistics chain around the world, and I'm upgrading my vehicles, what are the reasons for and perhaps we can also do against, But what are the reasons for wanting some of these low emissions vehicles?

You already pointed out much better utilization.

So there's a number of reasons why someone would go and buy, for example, electric trucks.

One is efficiency games.

So you need a lot less energy to move an electric truck primarily because you use more of the energy that you have, So that results in a large extent in operational savings, and for fleet owners small and large fleet owners, the cost of fuel is a very high share of the total costs, so you do get that benefit and that results in real savings.

The second one that I see and we hear a lot has to do with different policies and regulations in either the national level or the local level.

Sometimes, especially now, you may have to buy a zero mission or at least as your tail by the mission van or truck.

Two, the research I think are the main ones why people are considering and buying primarily buttery electric vans, medium trucks, heavy trucks, tructors, and the rat savings for sure, I mean that works and that makes the perfect sense in trucking logistics.

And then it's a regulation.

Yeah, I agree.

I think policy really matters at the moment because it's still quite an early market, especially for zero mission heavy duty vehicles, because the cost savings will vary depending on the electricity prices or charging tariffs by each region.

For example, China tends to have cheaper charging tariffs compared with like average diesel prices, but that might not be the case for Europe.

So when these kind of cost differences vary, it's quite important to have incentives to support the early market, and also for smaller fleets, the high upfront cost of electric trucks is something that they really need to consider twice before the bio vehicle.

Even though in regions where charging tariffs are low, the lower overall operating costs can help even out that high upfront cost over the years, but for a small fleet, for perhaps without significant access to capital and financing, that high upfront cost is still very challenging for them, and for this reason, we're also seeing fleet management companies emerge on the market specifically focused on electric truck as a service for instance, which means that they rent out these trucks, but not just the trucks themselves, but they often bundle the trucks with charging costs in monthly subscription based models, so essentially they use the lower charging tariffs to offset that higher initial purchase costs for fleets, so that fleets can choose to like just use the subscription as opposed to having to pour a lot of money to invest in these trucks as assets.

Because another element of it would be the residual value risk of these vehicles.

Because for fleet operators that's another big thing because there aren't that many battery electric trucks on the road yet, so there isn't a very mature like secondhand market, and people don't have the full picture of what battery degradation would look like for these vehicles and how much value the vehicles can retain for the fleet owners.

So a lot of times third party like fleet management companies might be better positioned to take on that risk compared to like smaller fleets.

So the team that you both sit in, of course has to do with transportation, but the bigger kind of group that you're in is called sector transitions, and this is certainly a sector undergoing transition in a lot of different ways, because you're pointing out different technology advancements that are actively happening and being developed.

When it comes to self driving, you're talking about changes to the drive train which are really big and transformational potentially.

So let's talk about going back to my initial question, which most simply put is how big of a deal is this?

How fast is the transition to zero missions commercial vehicles actually happening?

And where in the world are we seeing it appen the fastest?

I think in terms of volume, it's definitely in China for electric trucks, because this year we've really been seeing electric medium and heavy duty truck sales skyrocketing in China in the first three quarters to almost one hundred and thirty five thousand vehicles in total, and that's up one hundred and sixty seven percent year on year, and the first half of the year sales have already surpassed like full year twenty twenty four sales in terms of the share of the market.

Actually, it's in some smaller European countries like Netherlands and Switzerland that have the highest uptick this year, and I think in all of these cases it's really the policy that's like driving the uptick at the moment.

In China, mainly from the middle of twenty twenty four onwards, the government introduced a series of scrapish subsidies aiming at boosting the economy as a whole.

But some of these subsidies were dedicated to like replacing old diesel trucks, and when fleet owners buy new electric models to replace the old trucks, they can get a higher level of subsidy as opposed to one day by a new diesel truck.

So I think that's what's driving the high sales in China end of last year and also this year and in the Netherlands and Switzerland.

I think it's a lot of the municipal policies that matter.

Because the Netherlands at the start of this year introduced zero mission zones among its cities, which means that in certain times of the day or in certain areas of the city, only zero mission vehicles may be allowed to enter.

So when you talk about low and zero missions tracks, they can come in lots of different technology battery or hybrid, fuel cells and hydrogen, which ones which technologies are winning out all that.

Front its batteries, there's no fuel cell trucks, I mean, the technical case makes sense, makes some sense, but the economic case doesn't for fuel cell trucks, and we've seen that in the sales in the market.

So the main place for fuel cell trucks that also be China.

For very specific reasons.

Fuel cell truck sales in China picked about two years ago and they have been declining since then.

So some of the subjecties, the policies were removed, I mean, the technologies it was okay, but still is at a very early stage.

So we see that both the technology and the economic case.

In particular, the economic case for battery trucks.

In fact, across all segments and most use cases will compare fuel cell and electric is in favor of the battery electric.

And now the big question there, of course, is of these buttery electrics in fact compare versius diesel, because that's what people think.

I mean, people do not think about butteries and fuel cells.

We see like gradual progress on that front as well, but on the technology and the new technology front, it's practically buttery electric.

I mean, we see some plugging hybrid advance in Europe and in China as well.

There are some newer companies that are building plugging hybrid or so called range extender heavy duty trucks.

Range extender meaning practically you have a small diesel engine whose only purposes to charge a battery, and then the battery is and an electric motor move the truck forward.

We see some models being at least developed there, but the majority of the models that we see coming online the market in all segments are buttery electric.

Yeah.

I think when people think about the power train choices, what they really think about is the range of the vehicle.

I think that's probably aside from costs, that's probably one of the first things that come to their minds.

In the initial days, the argument for fuel cell trucks was that they can have higher range.

But now that we're seeing constant improvements and technologies, some battery electric trucks can have let's say, a nameplate range of like eight hundred kilometers or something, and that's already on par with some of the fuel cell trucks.

So I think as the range of the battery electric trucks continue to improve, they might eat into some of the addressable markets of fuel cell trucks as well.

So we definitely see a continual dominance of batteries in the zero mission power trains, But as to how it compares to other drive trains like diesel or natural gas, the range is perhaps still to be improved because even though the theoretical range of some of these trucks are high, when they operate in real world conditions, they might be affected by cold weather or by the payload, so there is still some uncertainty as to how far can they get.

And also the charging infrastructure is another element, because obviously the refueling infrastructure for diesel and natural gas trucks.

It's already mature.

Warries for battery electric trucks, like truck charging infrastructures still scaling, so that will determine if these trucks can actually expand into regional and long haul use cases.

Currently, most of these electric trucks are deployed in short haul and closed loop settings where the range and the infrastructure requirements can be more easily met.

Yeah, I mean you're talking about ranges essentially code for how often I'm going to have to charge this vehicle and how much downtime you might have in between before you can get back on the road, presumably with a driver kind of waiting for it charge for them to keep going.

So when it comes to charging networks, and we've dedicated entire shows to charging networks for passenger vehicles, so this is not a small issue.

But you highlighted that the diesel refueling network, it already exists, it's been built up over time, and that is essentially what they're competing with.

So how good is the charging network and you know, where do you see this working?

Maybe paint a picture for us of those circumstances where how much time is this vehicle being used.

What is the downtime in recharging?

Are they able to charge it midway through the day, during a break and then get going again.

You know, what's the ideal scenario if you are someone that is operating one of these fleets.

Yeah, I think there's really a wide variety of scenarios.

It depends on the battery size and the charging power of the vehicle.

I guess in China, for example, we're seeing nine thousand stations that are already like in the pipeline, and most of them have been constructed that serve electric trucks.

But these sites, some of them serve a mix of trucks and passenger evis, So we don't have an exact breakdown of the utilization rate.

But in terms of the chargers, what's a very common charger power level is around like three one hundred and twenty kilowatts, and the speed of charging will correspond to the battery size.

So the higher size the battery is, the higher power it will need to charge in a given amount of time.

But for a battery size that roughly matches the level of the charger, we kind of see that some of these trucks can already charge within one hour to like fully powered, so I think that's doable for some instance.

And on the other hand, because the average range of electric trucks in China is already three hundred kilometers and more, and the range is constantly improving, and that's already enough to cover most of the driving distances of the trucks in that country, because I think the average driving distance of a truck per day is perhaps around one hundred to two hundred kilometers in China, so theoretically they could charge maybe once a day or once every two days.

To a large extent, yes, the industry is still trying to find each way.

The large variety of use cases also coupled with what the menu was talking about earlier, the rapid improvement in technology.

A few years ago, everyone was talking about megawatt level charging, so one charger a megawatt or more.

It seems that you may not need that many of those anymore, primarily because you can go further.

Perhaps it makes more sense to build slightly smaller charges and more of them around than a few very large ones.

And to an extent, I think, yes, the people are still trying to figure out the best overlap between the duty cycle the utilization case and what the charging environment there means.

I mean, when do you get a good rate?

I mean is it when you're parked or when you have to be in the delivering staff?

And that's what we see.

I mean, China is a lot more advanced.

In other place, there is funding from the European Union government funding as well.

There is a very interesting situation in the US where the market for electric trucks doesn't exist, but the market for truck charging stations is developing in a quite quite interesting wave in very innovative businesses building those charging stations.

So it's a very kind of HARKing with fertile ground for innovation business opportunities.

Fleets, I mean the way that we see it right now, they're still trying to understand what best works with the infrastructure they have and how to also adopt to the infrastructure that may be coming up.

And presumably then also communicating with one another and the owners of these fleets because they are pretty sensitive or thinking about when is the cheapest time for me to charge versus when can I deliver and trying to marry those up so not everyone is charging at the same time, Because are you seeing I guess overnight would be a good time to charge many of these, which is when otherwise the grid and those of us who are using energy domestically that amount has come down.

Are you seeing it filling into these kind of gaps from a load standpoint where it's not creating excess spikes on the grid Because one of my favorite charts actually is one where you look at during the World Cup and halfway through during the break and then in the UK everyone goes to turn their electric tea kettle on and this causes this massive bike in terms of energy demand.

Are we seeing a you know.

An evening spike in medium duty vehicles getting charged?

And is there are there any trends that you're able to ascertain?

I guess at this point while the industry's trying to figure itself out.

Yeah.

I think it depends on the use case because when we talk about charging for trucks, we kind of divide them into public charging and depot charging.

So for a lot of the current electric truck fleet, because they're operating in short haul or closed loop use cases like mines reports, they tend to use more depot charging, which and in that case they have more control over when the fleet is being charged, and they perhaps could do like more smart charging as we are seeing for like some of the electric bus fleets, but I think in terms of public charging it might not be so manageable because the trucks are just coming and going into the station.

And I guess another alternative that we're seeing for truck is battery swapping, even though we're only seeing in China predominantly.

Because battery swopping, it can basically swap in a fully charged battery for the trucks in around ten minutes or less, and that is significantly less time than it takes to charge a vehicle.

So there's definitely some potential in using that to improve the vehicle up time or even for potential regional and long haul use cases.

But the challenge in that is the high capital cost of establishing a battery swap station, and also the lack of standardization in terms of both the vehicle batteries and how they swap the batteries is another challenge.

So I think overall charging is still the more dominant solution that we're seeing for trucks, even though it does create grid challenges in some cases, especially along remote highways where the grid infrastructure is not there.

You've brought up long haul trucking and one of the issues there with batteries is they weigh so much, and long haul trucking is subject to different rules around weight.

You know, sometimes long haul trucking requires finding a different route that it avoids way skills.

We definitely don't want a fleet of vehicles that are avoiding way skills because these rules exist for a reason.

So how is that impeding adoption?

How are they dealing with it?

And you know, also just from the experience of being in passenger vehicles that are electric, that's stopping speed issue, which really fuels a lot of that discussion around the weight limits.

Has that changed with their different rules for electric vehicles and weight than in the long haul trucking space than for some of the diesel ones, because perhaps they can stop more quickly the way the electricity shuts off and the way that vehicle can kind of power down de accelerate more quickly.

There are in some regions for the world you do see that overloading and it is it is, you know, like the weight is, especially in a heavy duty long hole is an issue, I mean no doubt about it there and there are many ways to look at that.

First of all, we're not there yet in terms of replacing our diesel fleet that does or the industry replacing is digel flat that does heavy duty long houl with bettery electric trucks at least at the volume anytime soon.

I mean, we see that increasing, but it is a longer process.

And what the way I'm saying that is because during that time, I mean we're going back to the technology story that underlies all that.

Butters become better and better, and part of becoming better and better is that they become not only cheaper but lighter, and that gradually will eliminate a large part of that of that weight gap.

When we're looking then at the heavy duty segment, for sure, you want to load as much as you you know, to put as much cargo there as you can.

Most of the use cases practically they reach the limit of the volume of goods that they can put at the back of a truck.

Run on the weight, so in parlance industry partners, they volume out run on the way out.

So that means that you do have a penalty weight if you were to load that truck as its full weight, but a lot of the times you don't need to.

The final one is that I think the European Union you're about to get an allowance of I think a couple of tons in the total deco weight for bottery electric trucks in order to counterbalance that impact for the fleet.

It's a big impact.

It can switch the economics a lot if you are not able to carry that extra weight.

Maine.

Early on in the show, I brought up tractors, and you rightfully pointed out that they are a subset of the heavy duty vehicle space.

But part of it, I was so excited about what they represent in terms of adoption.

They're one of those standout parts of this kind of broader trucking umbrella that had been pretty aggressive adopters of low and zero emissions technologies.

So wire tractors a good use case.

Yeah, I think it's because of the use cases they correspond to.

Instance, a lot of the electric trucks we are seeing today in the heavy duty segment are port tractors, so imports specifically, like sometimes they have zero mission pilots in specific ports where in places like China or California, only like zero mission vehicles are allowed to enter the ports at certain times, so I think that encourages the adoption, and also if they're operating in like closed loop and short haul use cases kind of matches the range of the electric trucks as well.

In China, it's quite a significant level of sales because we've been seeing tractor sales take up around seventy percent of electric truck sales in China.

So to give some context, in the past couple of quarters, the electric heavy duty trucks sales in China have been around forty thousand, and it was fifty three thousand in the third quarter this year alone, and percent of that was tractors, which means electric tractor sales were thirty eight thousand in that period in China alone.

They also take up twenty five percent of the total tractor sales during the third quarter, so that's quite a high sales share.

So as we go through this, maybe you could each share what your fun fact is on this space that you're most excited about, because for me, I started the show being really excited about that fact that you just shared around tractors and how well they have adopted this additionally, so I'm going to pick two.

The second one is that in some parts of the world you end up seeing electrification in passenger vehicle fleets.

Yes, it is different by country, but it is particularly stark when you look at trucking and how much China has adopted this and how you see it in little more spotty in other parts of the world.

So when you look at charts and you see these kind of colors in certain parts of the world light up, it is a much clearer story where you have certain areas that are on board and other areas that maybe just haven't woken.

Up to this yet.

What are the things that are kind of that stand out most to you in the research pieces that we're talking about today and kind of nerd out for me for a moment.

I think being able to use batteries and trucks.

I am quite excited about the different business models that are emerging to support the decarbonization of the heavy duty segment, like how the economics could potentially work with more of these truck as a service or battery as a service models where the ownership of the battery is separate from the ownership of the vehicle in order to reduce the upfront cost.

It's like these different potential like financing solutions that are quite interesting.

And also the potential of using these trucks as an energy asset, even though it's quite early stage at the moment, and sort of to combine different like renewable energy sources to refuel the trucks, not just refuelling them recharging them through the regular grid, but using renewable power to recharge these vehicles, I think is very exciting.

And also how we're seeing some really big charging stations cropping up in places of course like China, like we recently saw a site that's planned to be one hundred megawatts for truck charging and half of that has already been brought online this year.

So mainly in NERNS out on business models and charging infrastructure, Mikael.

I'm mostly looking forward to see how the competitive landscape for manufacturers develops.

We have seen some very interesting things in China where manufacturers but not traditional truck manufacturers, account for a large share of the electric truck market.

In Europe and the US, who haven't seen a lot of those competitive dynamics developed yet, the contenders are not there the same way that they were for passenger cars.

Some of them tried to make it to work.

They didn't manage who had quite a few back groupies.

So I'm trying to see how the you know, like the different manufacturers will will enter the market, what their business stry are going to be, and whether any contender, any startup I mean maybe startup or existing company is going to come in and try to append the market in some way.

I mean, there are definitely opportunities there.

Thanks so much for sharing your insights today, guys, Nico many great having you here.

Thanks, Dana aut pleasure to join.

Great to be here, Dana.

Thanks.

Today's episode of Switched On was produced by Cam Gray with production assistance from Kamala Shelling.

Bloomberg NIF is a service provided by Bloomberg Finance LP and its affiliates.

This recording does not constitute, nor should it be construed as investment advice, investment recommendations, or a recommendation as to an investment or other strategy.

Bloomberg ANIF should not be considered as information sufficient upon which to base an investment decision.

Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed.