Who will finance the electrification of logistics? Challenges for the industry as the transport sector strives to decarbonize

Data from the European Alternative Fuels Observatory (EAFO) show that by the end of 2023, there were 307,943 battery electric delivery vehicles (BEVs) in the European Union.

For the first time in history, N1 class electric vehicles – commercial vehicles with a gross vehicle weight (GVW) of up to 3.5 tonnes – exceeded LPG-powered vehicles with 293,667 units.

Update from mid-April this year. showed that the total number of alternative fuel delivery vehicles reached 770,548, an increase of 14% from 675,828 in 2022. It is worth emphasizing that the share of electric delivery vehicles in the total vehicle fleet increased, although at the end of 2023 . was only 1.2%. This marginal increase highlights that the electrification of the light commercial vehicle fleet, used mainly for city logistics, is still at a very early stage.

Electrification levels in other segments of the EU transport and logistics market show similar trends. For example, BEV trucks in the N2 and N3 categories are now even less common. In 2023, the EU fleet of these electric vehicles numbered only 8,781 units, significantly less than CNG vehicles, which amounted to 25,736 units.

More heavy electric vehicles (HGVs) were registered last year – 5,209 units – but this number represented only 1.5% of new vehicle registrations. As a result, the share of electric trucks in the EU vehicle fleet still hovers around just 0.1%.

The infrastructure gap is the Achilles heel of European electric transport

May data from the European Automobile Manufacturers Association (ACEA) show that at the end of 2023, only three EU countries – the Netherlands, France and Germany – had 61% of all public electric car charging points in the territory. These countries provided a total of 384,333 of the 632,423 charging points available across the EU, with the Netherlands having 52 times more than Romania, which had 2,754 charging points. Poland had 6,102 charging points, which constituted only 1% of the European network.

ACEA emphasizes that this discrepancy is a significant problem because there is a clear correlation between the availability of charging points and sales of battery-powered vehicles. Their analysis shows that from 2017 to 2023, sales of electric cars in the EU grew three times faster than the installation of new charging points.

ACEA specialists warn that eight times more charging installations are needed annually to achieve the decarbonization goals set for 2030. They questioned the calculations underlying the current Alternative Fuels Infrastructure Regulation (AFIR), which states that to reduce greenhouse gas emissions by 55% by 2030, the EU must install 3.5 million charging points. This equates to approximately 410,000 charging points per year, or approximately 7,900 per week.

However, in 2023, only 153,027 charging points were installed, mainly in three countries. Given the current pace, projections indicate that fewer than 1.6 million points will be available by 2030, which is 1.9 million fewer than originally expected. ACEA believes that even if initial targets are achieved, installations will still fall significantly short of meeting the needs of both consumers and industry.

The organization estimates that instead of 3.5 million, approximately 8.8 million charging points will be needed. This would require installing not 410,000, but about 1.2 million points per year, or 22,438 per week – eight times the current number. By 2035, as many as 18.8 million charging points will be needed.

This significant divergence in forecasts is due to different estimates of the fleet of vehicles on EU roads requiring charging. The EU predicts there will be 30 million of them by 2030, but ACEA data suggests as many as 65 million may be needed. The discrepancy is also due to ACEA’s inclusion of electric commercial vehicles in its calculations, as these light vehicles are expected to use the same infrastructure as passenger cars and plug-in hybrids. In addition, there are divergent assessments regarding energy consumption.

“The fact is that without appropriate fast charging infrastructure, the dynamic development of zero-emission transport will not be possible. This certainly applies to long-distance heavy goods transport, and to a lesser extent to the last mile. This is due to the fact that in practice, operators carrying out urban operations use their own charging stations located in logistics centers – says Adam Olejnik, Electromobility Project Manager at ID Logistics Polska, which provides logistics and transport solutions, e-commerce services, and chain management. deliveries in 18 countries.

In his opinion, sufficient charging infrastructure is currently a basic condition for success in zero-emission transport:

“A public charging network is, of course, necessary, but individual recharging opportunities created by the operator will play a key role in logistics. Especially since there is no turning back from zero-emission urban deliveries. This is determined not only by the recently adopted EU regulations, which include limiting vehicle emissions to 3.5 tonnes, but also by global trends in the separation of clean transport zones by city authorities, as well as the participation of cities in climate neutrality programs such as Net Zero Cities. Warsaw, Kraków, Wrocław, Łódź and Rzeszów have already registered to participate in the latter. The zero-emission fleet will provide unlimited access to the centers of these cities, and at the same time will give the opportunity to use bus lanes and free parking in paid zones, which is undoubtedly a very big advantage.

Olejnik added:

“When it comes to the electrification of urban goods, we should also think about two other, less obvious, global factors. The first is the growing population of urban areas, and the second is the growing demand in the e-commerce market. According to UN analyses, 55% of the world’s population lives in cities. In 2030 it will be 60%, and in 2050 it will be 68%. Given the rapid pace of urbanization, eco-friendly delivery will become even more important as e-commerce delivery continues to grow. Pitney Bowes Parcel Shipping Index forecasts indicate that the global shipment volume will reach 225 billion in 2028, which means an average annual growth of 6% in 2023-2028. Even in a more conservative scenario, it will be 200 billion and an average of 4% growth per year.”

How does this relate to the costs of building infrastructure?

Operators will face many challenges, including financial ones, as they will finance the transformation primarily from their own funds.

The Transport and Logistics Employers’ Association in Poland (TLP) estimates that in order to meet the requirement to reduce CO2 emissions from trucks by 90% by 2040, Polish companies must invest EUR 81 billion in N2 and N3 class electric vehicles by 2030, which is an additional €36 billion five years later and €45 billion by 2040.

The support proposed by the National Fund for Environmental Protection and Water Management amounts to EUR 1 billion and is intended to compensate for 60% of the cost difference between combustion and electric wheelchairs. However, this EUR 1 billion will cover only 0.28% of the necessary investments, which are estimated at EUR 350 billion. Moreover, to achieve EU targets, EU carriers will need to spend between EUR 674 billion and EUR 1 trillion on fleet modernization by 2040.

TLP is not the only entity calculating the costs of freight transport transformation. The UK Green Finance Institute estimates that decarbonising the country’s 450,000-vehicle fleet will require between £50 billion and £100 billion. Of this amount, £40-75 billion will go towards purchasing battery trucks, which are two to three times more expensive than diesel trucks and up to five times more expensive for hydrogen versions. A further £11-25 billion will be needed to adapt infrastructure at bases, while £1-2 billion will go towards investing in public chargers, for example for vehicles arriving from mainland Europe.

In Poland, the National Fund for Environmental Protection and Water Management plans to subsidize chargers for trucks. The subsidy program for the expansion of charging stations, whose budget is PLN 2 billion by the end of 2029, will finance 80% of the infrastructure on the TEN-T network, of which only 20% will be allocated to points launched in logistics centers or intermodal terminals, which equates to an average PLN 80 million annually over the next five years.

“These and similar data are excellent proof that the success of the energy transformation in road transport, both light and heavy, will depend on the consensus developed among all stakeholders of the process. Dialogue between the client and the operator, simultaneous communication with the regulator, and mutual understanding of needs and possibilities, including operational and financial ones, are necessary. It is expected that in the coming years the industry will face a huge technological and investment effort, which is why we need instruments that will help us go through the entire process efficiently, while maintaining the competitiveness of family businesses. Some steps have already been taken, but today they can be considered a good start in thinking about future needs and challenges that will certainly arise – sums up Adam Olejnik from ID Logistics.

New challenges begin to appear

In mid-May this year, the United States announced a package of tariffs on $18 billion worth of Chinese imports, ranging from 25% to 100%, particularly on electric vehicles. The move is intended to protect U.S. industry but has prompted China to announce retaliatory measures that could make the U.S. energy transition more expensive. China significantly dominates technological processes necessary for the energy and electric transport transformation, such as battery production.

At the same time, the European Union, in connection with the ongoing anti-subsidy investigation, is considering increasing customs duties on electric cars from the Far East from 10% to as much as 25%. Recently, executives from Europe’s largest car companies expressed concerns, suggesting that such measures could jeopardize the EU’s decarbonization plans. BMW’s president sharply noted that without Chinese resources and components, the implementation of the EU Green Deal would be impossible, and not a single car could be produced in the EU.

The investigation is ongoing and a final decision has not yet been made. However, it is clear that China’s retaliatory tariffs are likely to escalate costs and complicate the challenges of transforming European logistics. This escalation could prove particularly disruptive as the transport and logistics sector is just beginning the long and complex journey towards electric transport.