Mapping the transition to zero emission medium- and heavy-duty trucks
The US trucking industry is inching toward the production of zero emission medium- and heavy-duty trucks (ZEV trucks). Our map shows where these ZEV trucks are being built and opportunities for more assembly to go electric in the future.
Truckers are discovering that the cost of owning and operating a ZEV truck is getting cheaper than conventional trucks run on gasoline and diesel, but not cheap enough to make a wholesale shift. Fleet businesses will swap out gasoline and diesel trucks when the price and cost fit their balance sheets.
It will take federal policy support to get there. Both demand and supply incentives can accelerate this transition and help retain US competitive leadership while enabling us to reduce air pollution from trucking and meet our climate goals. Accelerating the transition is critical because other countries are moving ahead of us with subsidies and support for their trucking industry. Doing nothing is a recipe for stagnation and job losses.
This memo will break down the current trend toward ZEVs in the trucking industry and the types of policy tools that can pencil out a faster switch for the truck business.
Mapping medium- and heavy-duty trucks in the US
Third Way has created an interactive map to help visualize the factory footprint of truck manufacturers in the US.
The key takeaways from this map are encouraging for the trend toward electrification:
- Of the 52 assembly plants spread across the country, 42 of them are already producing ZEV trucks or have a ZEV truck in its product planning for the plant by 2025.
- Twenty of these plants are unionized, with 14 union plants producing ZEV trucks.
- A total of 23 plants are producing both ZEV and conventional trucks with gasoline or diesel powertrains. This suggests that ongoing ramp up of ZEV trucks would likely include ongoing investment for retooling existing plants, instead of breaking new ground with a greenfield facility.
- The ZEV truck volume remains low. Last year, US facilities produced 3,000 ZEV trucks, or about 6% of total production.
- The callout boxes for each plant demonstrate the significant work force in this industry. Our research uncovered 52,000 jobs at these plants with nearly 2 million units of capacity. This is a large industry with solid pay and productivity trends.
- Some of these plants produce zero emission buses as well – and these are turning toward zero emission powertrains because the battery costs are falling.
- The callout boxes for each plant details the types of trucks produced at each location. They run from delivery vans to garbage truck haulers. The sheer variety of trucks means that a host of different battery pack configurations are needed.
Truck fleets are poised to grow
Demand for medium and heavy-duty vehicles (MHDVs) is growing. This, in turn, provides a significant opportunity to ensure these new trucks are zero-emission. Nearly 40 of the largest retailers have committed to science-based targets to reduce emissions. Reducing emissions from the transport of goods from port to warehouse to store or home will be vital. Swapping in ZEV trucks now will be an important part of meeting these commitments.
Americans are increasingly choosing to buy goods and services online, prompting retailers to upgrade their e-commerce services like 2-hour windows for delivery. Last year, e-commerce sales were $870 billion or 13.2% of total retail sales. This is up from just 5% in 2012. This upward trend is likely to continue.
Fast Fact: According to the US Census Bureau, trucks transported 71.6% or $10.4 trillion of the $14.5 trillion of the value of all goods shipped in 2017, the latest year for which statistics are available.
New supply chains are emerging in batteries for zero emission vehicles, semiconductors, and many components that had been outsourced to Asia. Building new supply chains in the US also means more goods being moved around the country, not just from ports to warehouses to homes. Adding “business-to-business” traffic could add to truck fleets and increase demand for goods movements from hub-to-hub.
Three facts about truck electrification in the US
1. Buying a truck for a fleet business is a major capital investment.
Trucks are expensive. Depending on the size, whether it is a commercial van or a large, sleeper tractor trailer, these trucks can cost from $90,000 to as much as $230,000. Switching toward zero emission trucks can add 30% to the sticker prices. Recently, supply chain bottlenecks have added an additional 20% to the cost of a new truck. For truckers to see the advantage of switching to electric, they need access to funding – whether that is through loans or, in the case of public companies, debt and equity financing. Barring this, truck businesses must generate internal cash flow to make the transition investment. This adds up to a significant barrier for many truckers to accelerate their ZEV truck purchases.
2. Cost of ownership for many zero emission trucks is now lower than conventional gasoline or diesel powertrains…
ZEV truck adoption rates are determined by the ‘total cost of ownership” (TCO). According to a recent research study that modeled TCO, the authors found that over 9 different types of ZEV trucks already have lower TCO than the conventional gasoline or diesel trucks in that segment. The figure below shows these truck segments and ACT Research LLC’s estimates of the TCO for each.
In addition to the purchase price of the truck, the cost of ownership (TCO) includes the fuel, interest payments on purchase loans, maintenance, insurance, charging infrastructure expenses, and other operating expenses.
3. …But truck businesses must have the investment dollars to buy them and electric trucks need to be readily available when the replacement cycle kicks in.
Many businesses that buy trucks survive in a thin profit margin world. These truck customers often are small and medium-sized companies that compete in a crowded market. They may have a fleet of 10 trucks and must pay attention to the total cost of ownership.
If the TCO for a new truck can guarantee the investment is paid back in 2-5 years, then companies that buy trucks have a market incentive to adopt ZEV trucks. Once the payback extends beyond 5 years, it means that the company has greater incentive to retain and depreciate the existing fleet of gas or diesel trucks.
To ensure a fast transition to ZEVs that boosts the American economy and creates jobs for American workers, we need federal policy to help domestic manufacturers invest in new and retooled facilities to make these vehicles. The Bipartisan Infrastructure Law (BIL) included new funding for battery manufacturing and recycling, which will help build a domestic supply chain for the components that go into these vehicles. Additional support is needed, however, to accelerate manufacturing and adoption of ZEV trucks and other MHDVs in line with our competitiveness and climate goals.
Clean technologies need both demand and supply side support, especially when the industries require years of product planning before the first unit comes off the assembly line. Stable, consistent policy support lays the groundwork for a tech transformation.
Here are four policies that would accelerate the path to zero emission MHDVs.
1. Suspend the 12% federal excise tax on the purchase of a new ZEV truck
This tax raises the cost of new trucks equipped with environmentally friendly, but more expensive, emissions technologies that reduce CO2, NOx, and particulate matter (PM). Since ZEV trucks are right now more expensive than gasoline and diesel trucks, the 12% tax prolongs the payback period. This, in turn, slows the adoption rate for ZEV trucks.
Because the revenue from this tax is deposited into the Highway Trust Fund, some policymakers may be concerned that eliminating this tax for ZEV trucks permanently would reduce the amount of money in the Fund for highway projects. To minimize the potential impacts of repealing this tax, we recommend Congress suspend it temporarily. This would still help boost adoption of ZEV trucks by reducing their upfront cost, and because the policy would only be in effect during the early stages of adoption, its impact on revenues would be modest.
There is no reason why we should let this 12% tax stand in the way of ZEV truck adoption. Suspending this 12% tax means that additional truck segments – especially the heavier trucks that transport goods across the country – will see lower TCOs for zero emission powertrains as compared to conventional gasoline and diesel versions.
2. Provide a tax credit for manufacturing or purchasing zero emission MHDVs
To get more zero emission MHDVs—including trucks and buses—on the road more quickly, Congress could establish a tax incentive that would reduce the upfront cost of these vehicles. This credit could be on the supply or demand side. For example, the GREEN Act–clean energy legislation crafted by the House Ways & Means Committee–would have established a 10% credit to manufacturers for the sale of zero-emission heavy-duty trucks or buses (including electric and fuel cell electric). This would incentivize manufacturers to produce these vehicles and offer them at lower prices.
Alternatively, the House-passed Build Back Better Act established a 30% tax credit for the purchase of a commercial EV, which would have included electric or fuel cell MHDVs. While the Build Back Better Act will not become law as written, Congress should pursue a similar policy in any upcoming reconciliation or clean energy tax package.
3. Increase federal support for manufacturers with the 48C manufacturing tax credit
One thing we learned from our study of light duty zero emission vehicles is that building or retooling for EV production is expensive. Automotive companies are spending billions to ramp up EV production across the US. Similarly, truck manufacturers must make the investments needed to convert to producing ZEV trucks. The 48C Advanced Manufacturing Tax Credit originally provided a 30 percent investment tax credit to 183 domestic clean energy manufacturing facilities valued at $2.3 billion. The Build Back Better Act passed by the House of Representatives last year would have reestablished the 48C credit; any reconciliation or clean energy tax package Congress considers this year should include a similar provision to help these manufacturers move faster toward the production of zero emission MHDVs.
4. Provide more funding for the DOE Loan Programs Office
DOE’s Advanced Technology Vehicle Manufacturing (ATVM) Loan Program provides low-interest rate loans for companies investing in facilities to manufacture clean vehicles and components. To date, ATVM has loaned $8 billion for projects that have supported the production of more than four million electric vehicles. ATVM was originally established to help manufacture clean light-duty vehicles, but the Bipartisan Infrastructure Law expanded its authority to include clean MHDVs (as well as heavier modes like trains, aircraft, and maritime vessels). Congress should provide an additional $300 million in credit subsidy costs for ATVM in the Fiscal Year 2023 appropriations so the program can take advantage of these new authorities and support manufacturers in retooling and building new assembly plants for zero emission MHDVs.
Like many industries across the US, the truck business is on the cusp of shifting gears toward electric. Planning for new electric trucks takes time and money. While the total cost of ownership looks very favorable for zero emission trucks, these companies know that fleet operators have 6 million units in operation and the capital costs of moving toward electric also entail running down these old units to a point where the switch makes economic sense.
That is where policy incentives come in. Suspending the 12% federal excise tax on truck buyers would give a substantial boost on the demand side and would increase truck orders. On the supply side, renewed efforts on manufacturing tax credits like 48C and more funding through the Department of Energy’s Loan Programs Office would reinforce and accelerate zero emission truck production. These policies, coupled with the over $12 billion of battery funding support included in the Bipartisan Infrastructure Law, would move us faster and farther down the road.
Background on medium- and heavy-duty trucks
The definition of medium and heavy-duty trucks varies across US government agencies. The Federal Highway Administration (FHWA) considers Class 3 (10,001 lbs.) to Class 8 (larger than 33,000 lbs.) as medium- and heavy-duty trucks (MHDVs). The EPA breaks down Class 2 trucks into Class 2a and Class 2b and includes Class 2b as medium-duty vehicles. 1
Understanding Vehicle Weight Classifications
A recent study conducted on the Colorado medium- and heavy-duty vehicle market provides a good summary of classification categories. 2
FHWA: The vehicle weight classes are defined by the FHWA and are used consistently throughout the industry (see Figure 2 for vehicle weight classes and categories). Each of these classes, which span from Class One to Class Eight– are based on gross vehicle weight rating (GVWR), the maximum weight of the vehicle, as specified by the manufacturer. FHWA categorizes vehicles as Light-Duty (Class 1–2), Medium-Duty (Class 3–6), and Heavy-Duty (Class 7–8).
EPA: EPA defines vehicle categories, also by GVWR, for the purposes of emissions and fuel economy certification. EPA classifies vehicles as Light Duty (GVWR less than 8,500 lbs.) or Heavy Duty (GVWR greater than 8,501 lbs.). The September 2011 U.S. DOT/EPA rulemaking on Greenhouse Gas Emissions Standards and Fuel Efficiency Standards for Medium- and Heavy-Duty Engines and Vehicles uses categories and weights for Heavy-Duty Vehicle Classes 2b through 8, similar to the FHWA weight classes.
CARB: The California Air Resources Board (CARB) established vehicle classes consistent with EPA; however, CARB refers to Classes 2b and 3 as medium-duty vehicles.
Bureau of Economic Analysis and Federal Reserve: Vehicle production and sales data define light vehicles as Class 1 – 3 and medium and heavy-duty vehicles are Class 4 – 8.
Third Way: Our report includes Class 4 – 8 as medium- and heavy-duty vehicles. We have produced maps and memos on light vehicles that includes the important Class 2b delivery vans. In many assembly plants, this vehicle class is typically produced alongside other light duty vehicles and have battery packs that are like other light vehicles.
Class 4 – 8 trucks
These MHDVS come in many sizes and shapes and have many uses among nearly every sector of the US economy, ranging from city delivery vehicles and conventional vans to cement and long-haul trucks. According to the US Department of Transportation, trucks carry over 70% of all freight transported. While a comparatively smaller sector on a per vehicle basis than the LDV sector, the importance of MHDVs to the nation’s economy cannot be understated. Almost all goods consumed in the US are shipped by MHDVs for at least part of their trip and, according to the US Department of Transportation (US DOT), trucks carry more than 73 percent of the nation’s freight on a value basis. 3
These trucks are a large part of American economic life. There are over 6 million MHDVs on the road today. Last year over 400,000 MHDVs were sold in the U.S., 20% more than the two-decade average.
There are many different types of trucks, and most are owned and operated by commercial businesses, ranging from small operators with less than 20 trucks to major transportation providers like USPS, FedEx and UPS.
Fewer miles, but harmful emissions
Americans have so much to gain from an accelerated transition to zero emission MHDVs. The transportation sector accounts for 27% of U.S. GHG emissions. Of this, 24% comes from MHDVs. Bus emissions are included in “other,” and comprise roughly one-half of that amount. MHDVs run fewer miles on the roads and highways than cars, but gasoline and diesel emissions are large given the size of the powertrains needed to move goods in large payloads.
In addition to having zero tailpipe greenhouse gas emissions, zero emission trucks will also reduce pollution of nitrogen oxides, volatile organic compounds, and fine particles. The faster we move towards these trucks, the faster we can realize the air quality benefits of a cleaner vehicle fleet.
The American Lung Association found that moving towards 100% ZEV sales, combined with moving towards 100% clean electricity, could generate over $1.2 trillion in health benefits in the U.S. through 2050, saving approximately 110,000 lives and avoiding over 2.7 million asthma attacks.
This transition will particularly help communities of color, who are disproportionately impacted by air pollution from today’s transportation system. Many of these communities live on routes from ports to warehouses, thereby exposing them to a lifetime of severe health consequences and with it, public health costs that could be avoided.
1. Third Way thanks ACT Research LLC for sharing their expertise on the medium- and heavy-duty truck industry. They have developed substantial data and analysis of this technology transition, including revenue, cost, and other dynamics that are influencing the trend toward electrification. See their website here.
2. M.J. Bradley and Associates. “Colorado Medium- and Heavy Duty (M/HD) Vehicle Study.” 2021. https://drive.google.com/file/d/1N8tQp0v1RPK86Kle08ZQ83rKsY4Ja5Tx/view. Accessed 27 Apr 2022.
3. Smith, David, et al. “Medium- and Heavy-Duty Vehicle Electrification: An Assessment of Technology and Knowledge Gaps.” U.S. Department of Energy, Office of Energy Efficiency & Renewable Energy – Oak Ridge National Laboratory (ORNL) and National Renewable Energy Laboratory (NREL), 2019.
https://info.ornl.gov/sites/publications/Files/Pub136575.pdf. Accessed 27 Apr 2022.