While electric vehicles are facing some serious challenges, fleet operations should not give up hope on the eventual advances and improvements that will make EVs more feasible to run than ICE vehicles, according to a recent session at the International Car Rental Show.

Led by Sharky Laguana, the president of the American Car Rental Association, the April 16 presentation started out acknowledging some painful and widely publicized realities for rental fleets and other fleet sectors.

“I owe it to you to talk about this because my responsibility as president of the American Car Rental Association is to you as members,” Laguana said.

Hard Luck EVs Take a Hit

EVs faced challenges in 2023-24 with sub-freezing weather that prevented many from starting, limited battery range, lack of adequate charging, and consumer confusion, he said. In the rental sector, Hertz had to pare back its massive investment in EVs after they flopped with consumers.

“Some of our members had to get rid of many EVs. There are people in this room who have lost a lot of money trying to make EVs work. They continue to be more expensive to take care of and a challenge to teach consumers how to use them.”

Laguana advised attendees that despite current drawbacks, EVs will eventually improve and gain market share.

“Given that state of facts, why would I in my right mind continue to talk about EVs and think they are important to each of you in this room? If I had to sum it up in one word, the raw economics of it are projecting us forward and we are going to wind up with EVs whether you like it or not.”

EVs Keep Advancing and Moving Ahead

Laguana hit on a major hangup with EVs: Range. In the last five years, the energy density of EV batteries has doubled. In coming years, solid-state batteries could replace or complement stronger lithium batteries, providing much further range at lower costs. Solids state battery ranges are projected to be more than 900 miles.

“If you're worried about range, that doesn't look likely to be a concern going forward,” Laguana said. The other factor is cost, which could fall dramatically on EVs as in the case of the Chinese-built BYD EVs which cost only $9,700 in Europe.

“Look me in the eye and tell me American consumers are going to turn their heads away from a car that is under $10,000, that can get 900 miles of range, and only takes 10 minutes to charge,” Laguana said. “Try and tell me that we will continue to buy $30,000 Toyota Corollas and Honda Civics and that buyers will ignore this far cheaper vehicle that takes far less time to charge and is far more economical to take care of.”

The Role of Rental Cars in EV Adoption

The overriding goal for mass electrification is to make EVs less painful, challenging, and disruptive to keep vehicle owners moving in that direction, Laguana said. The car rental industry, for example, still has 100,000 EVs in circulation, more than any other sector.

“For most consumers, their first encounter with an EV will probably be through us,” he said, citing the agreement from his peers on the federal EV working group who represent other transportation sectors and EV stakeholders. “We've got to make it work for the car rental industry.”

Laguana named two key challenges for the car rental sector to succeed in providing EVs that build confidence in the driving public:

1. Providing reliable conveniently located chargers with uniform connections, which most likely will be based on the Tesla standard.

2. Creating adequate power resources through innovative options, such as a natural gas generator that can put out eight megawatts, more than enough to charge an entire EV car rental fleet. “We’re not as reliant as we thought we would have to be on the current power grid,” he said.

EV Plans Should Involve Calculated Caution

Laguana advised rental car operators that now may not be the right time to buy EVs depending on circumstances, but companies should at least be planning for the day the technology, power, and efficiencies exceed those of conventional vehicles.

“I’m not saying you should go out and buy EVs now,” Laguana said. “You have to think about this very carefully because we're not quite where we need to be yet. But my point is, you can't disregard it. You can’t just ignore everybody talking about EVs and think it will go away. The problem will solve itself. (EVs) are coming around the corner and anybody not paying attention is making a big mistake.”

Later in the presentation, Laguana underscored how EV adoption for now is a highly individual decision since the path for every fleet is unique. “Every operator is going to be in a different place, and there's no magic bright line where it doesn't make sense, or it does make sense. Each operator has to assess all the different factors,” such as charging stations, staffing, customer interest, etc., he added.

“Assuming you can clear all the hurdles I don't see any harm in running a pilot or getting a vehicle or two and just seeing how it works out and tread cautiously.”

Sifting Through the Latest EV Data and Trends

To add some current perspective on the state of electric vehicles and future trend lines, Laguana brought in Stephanie Valdez Streaty, director of industry insights at Cox Automotive. Streaty covered four key areas:

1. What's going on in the EV marketplace?

2. What does EV inventory and pricing look like?

3. What is the state of consumer adoption?

4. What are some of the barriers to electrification, including infrastructure?

A Small but Mighty EV Marketplace for Now

Streaty pointed out the U.S. saw a record 1.2 million EV sales in 2023 with a quarter-over-quarter sales decline in Q1 2024, the first since 2020. Despite that downturn, Q1 EV sales growth was 2.6% year over year, following a 15.5% dip compared to Q4 2023.

Used EVs now comprise about 2% of the overall automotive sales market, Streaty said, with auctions seeing 50-60% of EVs coming through remarketing channels in the past year.

The numbers indicate electrification is in a major transition but destined to accelerate, Streaty said. “It's going to be a bumpy ride and there’s a lot of it that’s complicated.” Compared to ICE vehicles, EVs involve a different sales process, maintenance process, residual counting, and depreciation schedule, she said.

While Tesla has experienced sales declines, other brands such as BMW, Mercedes-Benz, Rivian, Hyundai, Kia, and Ford all saw significant year-over-year growth in sales, Streaty said.

Laguana added, “Consumers are now diversifying from Tesla and we're seeing upticks across a broad array of manufacturers. We’re starting to see a broader adoption of the approach to vehicle transportation overall.”

EV Supply and Prices

Based on data projections, Streaty predicted the average transaction prices (ATPs) for EVs will continue to trend down. Batteries comprise about 40% of the cost of an EV, with the average price of an EV battery declining 9% from 2010 to 2022 and declining further in 2023, Streaty said. “That will also help with closing the EV price premium gap.”

Part of the higher upfront costs for EVs involves a shortage of EV technicians and an underdeveloped parts and dealership network, which temporarily is driving up the maintenance costs, Streaty said.

“I think the silver lining is, as we start to scale EVs they will have fewer parts to replace,” she said. “It should be less maintenance.” Tires and windshield fluid will be the most frequent parts to replace. “Over the long term, I think the TCO will be good. But we're not there yet.”

As to resale values, EVs still haven’t collectively reached mileage and age levels like those of ICE vehicles that inform accurate valuations, Streaty said. “It's so new that we don't have a lot of data. “As we start to see more used EVs in the marketplace, we’ll get more data and see what kind of residual value trends we have throughout the country.”

More EVs in the marketplace also will improve affordability, she said. “It will be critical to know the value of battery health. An EV could have 25,000 miles but if it was supercharged all the time in Arizona in the middle of the summer, that could cause degradation of the battery.” Cox Automotive is now testing battery scoring systems to assess what percentage of range a used EV battery has left.

Consumers Hesitate on EVs but Are Watching

Regarding consumer attitudes and sentiments, affordability has been a primary barrier to adoption, Streaty said. EVs still average about $6,000 to $7,000 more per vehicle than ICE vehicles.

“I think that's something the industry is having to deal with and trying to figure out how to resolve,” she said. “Fortunately, if you look at the Inflation Reduction Act, that's helped a little bit. Now that the rules have changed, it's at the point of purchase.”

The market is also seeing a strong rise in the leasing of EVs, with about 27-30% of EVs being leased in December 2023 through Q1 of this year, Streaty said.

“Leasing allows you to test the vehicle if you're not ready to commit to buying a pure battery electric vehicle. In addition, consumers are hearing about new battery technology,” she said, adding that improved batteries with more range and faster charging could spur more consumer confidence in EVs.

The rental car industry offers a major opportunity for adoption because many first-time consumers will at first want to test out EVs before choosing a model and buying or leasing it. That means rental car companies must train employees to help educate first-time EV drivers, Streaty said. “I think all kinds of education pieces will be critical to this journey of awareness and engagement.”

Consumer surveys from Cox show that in the interim consumers are more interested in hybrids and would be more receptive to EVs if the average purchase costs decline and charging access improves, Streaty said. “I think we will probably see an increase in hybrid sales because that's an easy gateway where you don't have to change anything with your experience. You go to a gas station.”

Charging Still Biggest Barrier to Electrification

Streaty predicted exponential growth in charging infrastructure during the next few years based on the national EV infrastructure plan that aims for 500,000 new charging points during the next five years, with chargers one mile from major routes and then every 50 miles beyond, Streaty said. “You will start to see the charging network built out in rural areas.

However, chargers must be reliable and seamless for access and payment, so drivers do not have to use multiple apps and payment methods for different brands and types of chargers, she added.

Laguana said the charging network must find the right balance between underserved rural areas and areas with high EV activity and demand.

“There is a thought that we need to focus more on destinations, resorts, amusement parks, national parks, hotels, and the very underserved market of multifamily buildings that make it very hard for someone living in an apartment to get an EV because they can’t connect to a charger,” he said.

One solution Laguana suggested is for rental car companies that own or lease large tracts of land to sub-lease out parcels to EV charging companies to install chargers that the rental car provider uses for free while earning rent revenue and allowing public access that could be a source of potential rental customers.