Pure electric vehicles (or EVs) are becoming the latest rage in the auto rental industry. It seems a week does not go by without another announcement of a new EV launch. If you have been to the Car Rental Show in the past few years, you may have seen and test drove EV models available through Eckhaus Fleet, including ZAPs, Zenns and the Mitsubishi i-MiEV.

The first wave of electric cars is just reaching the market, and Hertz and Enterprise have announced they are adding EVs to their rental fleets. But is this the right time to add electric vehicles to your fleet?

The first step is to understand the market through the answers to these questions:

 

Why would you want to be an early adopter?

The Benefits of Green

Incorporating EVs into your fleet shows your commitment to being environmentally responsible. Enterprise and Hertz realize being green is good business. Far from being "tree huggers," these companies are bringing in more customers at a higher price point.

Corporations with green mandates will want to try out the electric car. They will want to rent them for presentations and conferences to show their commitment to a cleaner environment. Cities and states are also under similar mandates and they will want to try out the new technology as well. If you rent EVs, your business will be exposed to customers you might not normally do business with.

Eckhaus Fleet recently put the Mitsubishi i-MiEV through its paces for two weeks near our offices in Fresno, Calif. During that time we had more than 30 city officials, fleet managers and interested individuals who wanted to drive our test model.

Free Publicity!

Because Eckhaus Fleet had tested the i-MiEV locally, our company was featured on two local television newscasts and in the business section of the Fresno Bee. One electric car might pay for itself in free advertising if you are first to the market. If you wait and end up the third or fourth rental company in your area with an electric car, you will not get the same response as the first.[PAGEBREAK]

The Novelty Factor

Initially, there will be a limited number of units available for both consumers and rental fleets, and this lack of supply will allow for higher rental rates.

When the (non-electric, but much hyped) smart car was first introduced, Eckhaus sold two units to a customer who was able to rent them out constantly at $99 a day with a two-day minimum. The customer sold them for a profit. The Nissan LEAF has a wait list of more than 20,000 buyers. A lot of people will want to rent an electric car to try it out. When you're ready to de-fleet, early adopters will be in line to buy your used units.

Incentives to Buy

Initially, there are several federal and state programs available to encourage early adoption. There is a federal tax credit of up to $7,500 for qualified electric vehicles. In California, there is an additional rebate from the state of up to $5,000. Some cities also have programs.

With these incentives, an electric car like the i-MiEV, with an estimated MSRP of $28,000, could cost as little as $16,500. The Nissan LEAF site has incentive information by state. (Visit www.nissanusa.com/leaf-electric-car and click on the "Price" button to view incentives.)

Reduced Maintenance

Electric cars require almost no maintenance. Many of the cars are direct drive so there is no transmission and there is no oil to change. Regenerative braking causes brakes to last longer. A once-a-year tune up is satisfactory to make sure the connections are tight.[PAGEBREAK]

Why would you avoid being an early adopter?

Battery Cost and Replacement

Until the cost of batteries goes down, electric cars will remain expensive compared to a similarly equipped gas-powered vehicle. Though built on a proprietary platform, the Nissan LEAF has an MSRP of $32,780 for the SV model and is similar in size and equipment to the Nissan Versa, which runs from about $10,000 to $17,000.

The first Tesla model was powered by 6,831 lithium-ion batteries, which are commonly used in laptops. The cost to wire and manage all those batteries added substantially to the cost of the car. Electric cars coming to market now have larger format batteries that cost less and are easier to manage. These batteries are expected to last five to seven years.

Battery costs are expected to drop with the application of new technologies and economies of scale. In 2009, a replacement battery pack for the Tesla cost $36,000, but Tesla estimates the cost will drop to $12,000 in seven years.

Uncertain Value

There is no established residual value for this car class. However, the market did quickly establish a residual value for hybrids such as the Toyota Prius.

Similar to hybrids, electric vehicles' residual values will vary with the cost of gasoline. In 2008, when gasoline went up to $4 a gallon, used hybrids were selling for more than new ones. With oil prices expected to stay above $90 a barrel, residual values should stay firm. Some people are forecasting an active market in used electric vehicles, which will provide an easy way to dispose of them.

Funding

Until a residual value is established, banks may be reluctant to fund electric cars. This will be especially true with new, independent manufacturers such as CODA. However, Bank of America did provide funding for the purchase of Teslas. If you need funding, start small. 1st Source Bank "would consider 10 to 20 for a customer but not a hundred units initially," according to Joe Opferman, vice president of the bank's auto and light truck division.

Range Issues

The first generation of electric cars has limited range. Nissan estimates a range of 62 to 138 miles depending on terrain, speed and accessory use. This rental situation works well for business travelers with a series of local meetings, but not a family going from New York to Disney World.

All manufacturers are equipping their electric vehicles with smart displays to manage remaining charge and direct drivers to a charge point. This should help reduce "range anxiety," but what happens if your rental customer runs out of charge?[PAGEBREAK]

Charging Infrastructure, Time and Cost

Public charging infrastructure is just coming online. A lack of charging stations combined with limited range and a lengthy charge time reduces electric vehicles' utility.

While most EVs will charge on a standard 110v household circuit, EVs take at least eight to 10 hours to get to a full charge, or longer. This presents charging challenges for quick turnarounds. Specialized quick charge circuits will charge an EV to 80 percent in about 20 minutes, but can cost up to $12,000 per unit and are not yet widely available.

Training

In order to get the most miles out of your electric car, both drivers and your rental personnel need a limited amount of training.

The cars are amazingly quiet. Some vehicles require that accessories need to be turned off when the EV is parked to avoid draining the battery. Driving style affects the range. Smooth acceleration and deceleration will extend range while aggressive acceleration and deceleration will decrease range.

Availability

Electric vehicles will be first assigned to dealers. As with any overhyped new model, dealers will sell them for substantially more than invoice.

We have already seen delays in the projected delivery of the first all-electric production vehicles and will probably see more. The Nissan LEAF and the extended-range electric Chevy Volt are officially on sale but are experiencing severe backlogs. With this in mind, it is highly likely that only the larger rental companies will be able to get their hands on early units.

CODA, makers of an all-electric sedan, have pushed back their release date from December 2010 to the third quarter of 2011.

Smart has announced it will launch the smart fortwo electric as a 2012 model in the fourth quarter of 2011 with very limited availability. Wider availability will not occur until the first or second quarter of 2012.

The American version of the Mitsubishi i-MiEV is slated for sale in the fourth quarter as well. Eckhaus Fleet has a fleet allocation of iMiEVs available for rental and commercial fleets.

Depending on your market, adding a small number of electric cars to your fleet could be very profitable if they are marketed properly. There is a risk, but you will be a market leader and as more electric vehicles arrive the first adopters will have established the market.

Tim Yopp is chief technology officer of Eckhaus Fleet LLC, one of the largest independent fleet suppliers representing Hyundai, Suzuki, Toyota and other manufacturers to the corporate fleet and rental car industries. He can be reached at [email protected]

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