In a big step towards carbon neutrality, Governor Charlie Baker of the state of Massachusetts plans to ban gas-dependent vehicles. This recently released plan for the state aims to meet decarbonization goals by 2050. To reach the goal of net zero fossil fuel emissions, Massachusetts plans to ban the sale of any gas-dependent vehicle following the year 2035. While no legislation has been passed yet, with this intention Massachusetts joins California and New Jersey. That list may only include three states currently, but it’s likely to grow, especially as the production of electric vehicles increases. So how far off is that? And how will it impact businesses that rely on vehicle programs?
The Growth of Electric Vehicles
Big names in the auto-manufacturing industry have made significant progress in increasing their contribution of electric vehicles to the market. Those efforts, while likely to result in future change, have yet to see major change in purchasing behavior. Of the 3,880,144 vehicles sold in the third quarter of 2020, alternate-fuel vehicles accounted for just over 10%. What’s more, the United States currently lack the infrastructure to support electric vehicles. While this Bloomberg report predicts electric vehicle will make up 58% of auto sales globally in 2040, the United States falls behind other leading countries in this projection. Countries in Europe and Asia have CO2 regulations and credit systems, a greater share of electric vehicles and policy support that the U.S. does not.
Barriers to an Electrified Future
A gas dependent vehicle can travel from one coast to the other. With plenty of gas stations to support the journey, a driver need only wait five minutes before their tank is full and they’re on the way again. An electric vehicle would have a much harder time replicating the journey. Even if charging stations were as plentiful as gas stations across the country, the average time to completely charge a battery is well over 30 minutes.
The infrastructure and charging capabilities to support electric vehicles are a ways off, as is 2035. But that doesn’t mean efforts aren’t being taken to find solutions to those problems, efforts that may arrive before the ban date.
What does this mean for your company?
The proposed ban on gas-dependent vehicles and the peak of electric vehicle production are still years away. That doesn’t mean your company should put off thinking through solutions to prepare for that future. And enacting some of those solutions now may pay dividends in the near-term.
Take, for example, a company with a fleet. Employers seeing the leases on their current vehicles coming to an end may see this news and begin to look at a fleet of electric vehicles as a solution. This does away with gas-dependent vehicles and enables the company to establish policies around the electric vehicle. However, committing to a fleet of electric vehicles may result in more problems than it solves.
We’ve mentioned the lack of infrastructure above. This may no longer be an issue in a decade, but struggles will remain in the next five years. Additionally, the future of charging stations remains a mystery. Current electric vehicles have different charging systems, and as electric vehicle technology improves, those are likely to change. The electric vehicles of 2020 aren’t likely to use the same apparatus as those of 2030 and 2035. Remember when the iPhone charging cable changed? Only now it’s your car, and an adapter may not be on hand.
Consider, too, the cost of current electric vehicles. While that price is likely to fall considerably as production increases, today many sit near luxury vehicle prices. Were they to become idle assets, the cost would be considerably more difficult to swallow. With so many variables, an investment in a fleet of electric vehicles would be ill-advised.
While these vehicle programs are considerably different, they do share one thing in common: neither is well suited to electric vehicles. Regardless of calculations, a car allowance paid monthly is likely to create winners and losers. While it may come closer to fair, the same can be said of mileage reimbursement. Obviously the cents-per-mile reimbursement would have to be configured to account for the price of gas, but neither will it account adequately for the costs of wear and tear, and vehicle ownership in general.
What is the answer?
Economic or technological, when change comes, companies with inflexible vehicle programs struggle to adapt. Implementing a vehicle program easily adjusted with these changes gives companies a leg up on competitors stuck with fleets, or still trying to hold onto top sales reps with poor attempts at compensation. The Fixed and Variable Rate (FAVR) vehicle program accounts for both the fixed costs and variable costs of vehicle ownership. Employees may drive multiple different vehicles based in various states and the reimbursements they receive will be fair, accurate and specific to them.
Say your company is aiming to become carbon neutral, and you’re including the personal vehicles your employees drive for work. You can offer an adjusted FAVR rate to employees with electric vehicles to incentive them to make the switch before 2035, without sinking so much money into a fleet that will be out of date in a few years time.