In this episode, I talk with Ray Minjares of ICCT and Jacqueline Torres of Forum Mobility about the electrification of heavy trucks, from drayage at ports to long-haul big rigs. We dig into charging challenges, innovative financing models, and the massive pollution cuts possible by transitioning fleets. Electric trucks are here — but they need the right policies and partnerships to scale.
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David Roberts
All right, everyone. Hello, this is Volts for November 22, 2024, "Electrifying big trucks." I'm your host, David Roberts. Transportation is the highest emitting sector of the US economy with 28% of total greenhouse gas emissions and 23% of that — between 6 and 7% of total emissions — traces to heavy commercial trucks. Heavy trucking is not the sexiest topic in decarbonization, but it is critical, and it is the focus of a frenzy of recent action from private companies, partnerships, and agencies within the Biden administration (RIP).
Big electric trucks are being manufactured, charging stations are being built, and financing puzzles are being solved. To discuss this and other progress in the sector, I've got two guests with me today.
For an overview, I'm talking with Ray Minjares, who runs the heavy-duty vehicles program at The International Council on Clean Transportation, where he's been since 2007. And for a closer look at a big financing-related deal that was announced this month, I've got Jacqueline Torres of Forum Mobility, a company that offers "trucking as a service."
With no further ado, Ray and Jacqueline, thank you for coming to Volts. Welcome.
Ray Minjares
Hi, nice to be here.
David Roberts
There's a lot to get into here. But Ray, I want to start with you with just a little background. So, for those in the audience and me who are not super familiar with commercial trucking, let's just set the stage a little bit. What kind of trucks are we talking about here? When I talk about heavy commercial vehicles, what should spring to mind? What are these trucks and what are they used for?
Ray Minjares
Well, David, I love starting from the simplest of questions. So let's start with, what is a truck?
David Roberts
What is a truck, Ray?
Ray Minjares
What is a truck? And look, if you were to go ask experts at US EPA, they would give you a list of more than 100 different types of trucks that they've identified — which are subject to their regulations. So, if I were to put it very simply here, I would start with: A truck is a moving vehicle that is road-worthy, or let's say, can be legally driven on U.S. highways and carries a specific amount of weight. So, when we think about trucks, we're starting with exactly how heavy they are. And we can use the broadest definition of more than 8,500 pounds or greater.
We have trucks that can be up to 40 tons or more on US roads. And then finally, a truck is a vehicle that has a specific job to do. So just to give you a couple of examples, I think everybody's familiar with a big rig, right? When we think about trucks, we think about 18-wheelers. And they're very visible on our US highways, but so are delivery trucks. If you're moving apartments and you call up what looks like a big box on a truck, literally, they're called box trucks. But we can also include a whole range of other types of vehicles, including refuse trucks, for example, cement trucks, dump trucks, utility trucks.
David Roberts
These are all officially heavy-duty trucks.
Ray Minjares
Officially, they are heavy. They fall into the category of heavy-duty. Now, what we're not talking about, that still classifies as heavy-duty, are buses. So, I assume we're leaving buses out of the conversation here, where there's a lot of electrification happening, but for now, we're just talking about trucks. We're leaving the buses out.
David Roberts
Yeah, yeah, there's a lot going on in buses, and we can separate that. So, do you have any sense, I mean, just sort of like globally, of the proportions of these things? Like, intuitively, I want to think that when we're talking about electrifying heavy trucks, we're mostly talking about those big rigs, but I don't have any reason that I think that other than my gut.
Ray Minjares
You would think that those would be the ones electrifying the fastest, but they're not. The vehicles that are electrifying the fastest today are the smaller vehicles, the delivery vans, vehicles like the E-Transit, for example, or the Rivian here in the United States. But in general, we're talking about vehicles that are traveling a fairly short distance, let's say 150 miles per day, that have a place where they can reliably park and charge so that they're getting that full overnight top-up before they start the shift the next day. The transition is a transition that's going to take a couple of years as the total cost of ownership comes down for every one of these different categories of vehicles.
So, as time passes, we will see bigger, larger trucks, trucks that are traveling longer distances, trucks that are even traveling into more rural areas of the country, get electrified.
David Roberts
So, it sounds then like in some ways, the big rigs, which are what people envision when they think heavy truck, are slightly the exception in the category then, in that they are traveling further distances and are somewhat heavier than the rest of the class.
Ray Minjares
That's right.
David Roberts
Are they the hardest, I mean, are they the most difficult piece of this puzzle?
Ray Minjares
I would argue that we already have the commercially available technology to electrify that narrow category of trucks, and we're also seeing the infrastructure being deployed actively, including by groups that provide charging as a service. So, from an economics perspective, I would answer the question a little bit differently from the research that the ICCT has been doing. We expect that total cost of ownership parity to arrive for that specific category of trucks by the end of this decade. It means that fleets that are more progressive, that are willing to take that risk early, might be paying a little bit more than they otherwise would. But, I do expect that we're going to see an inflection point by the end of this decade with a massive, let's say, profit-driven and investment-driven transition to electrify that specific subsector.
But I wouldn't necessarily get too hung up around that specific sector when there's so much other electrification that's already happening.
David Roberts
And just before I forget this: When the EPA refers to Class 8 trucks, is that different than the broad category of heavy that we're discussing? Is that more specific? Do we need to understand these EPA classes or is there a simple way of explaining them?
Ray Minjares
So, when we're talking about Class 8, that is included in the larger umbrella that EPA and other regulators use to describe heavy-duty vehicles. And it's also worth knowing that within the Class 8 category, we can have those big rigs, those tractor trucks, but we can also have buses and we can also have dump trucks and other very heavy vehicles that all fit within the Class 8 space. Each will have their unique business or operational use case that can give it a particular advantage or disadvantage in the current economic environment. So, some will be able to electrify faster, like arguably the long-haul tractors because they're consuming so much fuel and that savings you get from going electric will be realized much faster. That would be different from, let's say, a dump truck that you're only using seasonally that's operating in more rural areas and just doesn't have that level of utilization to justify that return on investment.
David Roberts
So when you talk about total cost of ownership coming into parity, that's mostly through fuel savings. And so, the fuel savings are bigger for the more fuel-intensive trucks.
Ray Minjares
Exactly. There's a pretty clear relationship here between that fuel savings and the time to transition, because effectively we're talking about vehicles that on average are going to be more expensive because you're paying for that battery. But because these same vehicles are so much more energy efficient, that over the long term will make it a cheaper vehicle to own and operate for any fleet.
David Roberts
So then, this may be a difficult question to answer since, as you say, this is a somewhat heterogeneous class — you know, there's a lot of different things going on in this class — but what can we say about who owns these trucks and operates them? Are there generalizations?
Ray Minjares
Yeah, I think we can create a couple of different convenient buckets for the different ownership types here. Like I started with, this is a very diverse sector given all the different ways in which trucks are built and used. But I think it's fair to say that on one hand, we have large corporate owner-operators of fleets, companies like JB Hunt or Walmart, companies that are buying hundreds if not thousands of vehicles a year and incorporating those vehicles into their entire transportation logistics network.
David Roberts
And that'll be like the tractor trailers, the delivery trucks?
Ray Minjares
Exactly.
David Roberts
But not like a trash truck, you're not going to buy a whole fleet of garbage trucks?
Ray Minjares
Typically, not for those large corporate companies, although we do have certain corporate companies that do provide refuse-only fleet services. So that does exist. But generally speaking, when we think about garbage trucks, we're probably talking about a smallish municipal fleet and their couple of dozen vehicles that they're operating. But then if we switch to another kind of business model, there are fleets that are very small. So I'm thinking now about single owner-operators. So these might be literally a single person who's incorporated him or herself to be able to buy a truck, maybe get a loan on that truck and drive it, and that is their entire livelihood.
So, you can have these two very opposite types of ownership models. And I would say there's even a third one just to like throw in the middle here, which is companies that buy large volumes of vehicles and lease them out so they, they don't operate them, they're just vehicle providers. Right. And Penske might be a good example of a company that's buying literally thousands of these a year. A person can walk up, you know, or go online and rent a truck for a day, a week, a month, or even a year. So, we get a whole set of types of ownership models there.
Jacqueline Torres
Is there a specific ownership model that is most common on the long haul side?
Ray Minjares
I have heard, and I can't prove this because I haven't done the research myself, but I have heard that on the long haul side, something like 80% of the vehicles are owned by small owner-operators. So, if we've got 3 million on US roads today, 80% is multiple, maybe north of 2 million there. And that means that their business model and their approach to operating trucks has an outsized influence over who's going electric and at what pace.
David Roberts
Am I right in guessing that when it comes to decarbonization, these smaller owner-operators are more difficult, just more difficult to reach? Because if you're a big corporate fleet, you can to some extent look years ahead for your returns. You can do some long-term planning, you can do some bulk buying, things like that. I'm guessing if you're just a dude who owns a truck or two, the price differential for an electric truck is going to be a much bigger deal for you. Is that right?
Ray Minjares
Yes. So, let me give you a concrete example of this. We've worked with a group called the African Chamber of Commerce, which is representing truck drivers who primarily are immigrants from African countries, like Kenya, South Africa, etc. What they do is, they come to this specific organization in Seattle who helps them set up their trucking business. And what I've learned is, these people are coming sometimes with absolutely nothing. Right. But this is the land of opportunity. And so, you have these African immigrants who might go up to Alaska for a season, make enough money to come back down and actually have enough to put down on a truck.
But what kind of truck are they buying? If it's just them, what they're probably going to buy is the oldest, dirtiest truck they can get their hands on because it's the cheapest one. So we're talking maybe, you know, if these trucks new go for maybe $190,000, they might get a used one for $50,000 or less. And then on top of that, let's say they've bought this used truck which already might have 20 years of life on it. Right. We actually found one truck serving the Port of Seattle that was still running and it was built in 1990.
Right. So, these same drivers are running a business on the tightest of margins. Being a truck driver is a very difficult livelihood. And it's not just because you're going wherever the load is taking you. It could be out to Utah one day and who knows where you're going the next day. But also, the amount of money you're making driving that truck just might not be enough to do the proper maintenance on it. And so, that's where these drivers can also really struggle. And they may not have parking that they can rely on. Right. So, maybe they're just parking on the street.
So, all this to say that this is a particular population of truck drivers. They're not the only population of truck drivers, but they're a particular population of truck drivers who, given the business model that exists for them and that is available to them in the trucking space, it's going to take that many more resources to help them electrify.
David Roberts
Yeah, this is a very, very familiar structure here: A new cleaner technology costs more upfront, you save over a long period of time. But the people who are making the buying decisions are money-stressed, can't necessarily plan over five to ten-year horizons, don't have the extra capital. So, just a very, very, very familiar thing, which is why financing is such a big piece of it.
Jacqueline Torres
And not only from a cash perspective, but also from a knowledge and general sophistication perspective. Right. We went from, you know, they know how to operate their business on a mile per gallon.
David Roberts
Right.
Jacqueline Torres
Really tight margins. Now they have to learn what kilowatt hours per mile are. That's a really big shift. I think there's a lot of anxiety from those smaller customers as far as, is this technology here to stay? Do I have to transfer over my business to a new technology and then 10 years later do that again? So, I think it's an existential question for many of those small businesses.
Ray Minjares
It is a really important question for them, but it's also so important that they get a solution because these same drivers may themselves be living near that port, which itself is a diesel hotspot. So, just to give you one statistic, again, pulling from the Seattle example, we found that people who live in the neighborhoods of Georgetown and South Park, just feet really from the port, have a life expectancy that's 13 years less —
David Roberts
Good Lord.
Ray Minjares
than people living in North Seattle. Right. So, there's a dramatic, real-world impact here for that specific community of seeing the deployment of zero-emission trucks.
David Roberts
Yes, but who's going to monetize the value of all that saved health and put it where it's visible in the truck price? Again, a very familiar problem. Before we get to some of the logistical and financing challenges, which are many, I just want to talk about the trucks themselves and just to sort of ask, you know, when you Google "decarbonizing heavy trucks," it's easy to find reports and researchers who will say, "You're not going to be able to electrify all this. You're going to need hydrogen or some such alternative liquid fuel."
You know, a similar argument is being made about planes right now. So Ray, are there viable electric versions of all existing heavy trucks? Technologically, where are we on this? Do they exist and it's all about getting the price point down now, or are there still actual technological challenges to overcome?
Ray Minjares
So, the products exist; they're commercially available in the market. There's a group called CALSTART who's counting all of the models; we're in the hundreds of electric truck models across the entire spectrum that I started to describe at the beginning of this podcast. But in addition to that, David, the fact is that any manufacturer of trucks in the United States is effectively required to sell an electric truck by virtue of being in the California market. And the reason for that is because California has adopted a rule called the Advanced Clean Trucks Rule, which states that if you want to be in the California market, you must sell a non-zero amount of electric vehicles.
And so, if you care about that market, and it is about 15% of the national truck market, you need to be in California and you need to have an electric truck product. Now, whether or not manufacturers are pricing those vehicles to sell is a different question. And I know for each one, it depends on what your managing board is telling you to do. It depends on what your customers are demanding from you. It depends on what the policies are shaping your investments towards. But the fact is that all of the major truck manufacturers in California, in the United States, and effectively in the world, have products that are ready to deploy and they're doubling down on those investments.
For example, there is a joint venture between Daimler, Paccar, and Cummins, three of the largest truck manufacturers and engine manufacturers in the world, who are building a 21 GWh battery production facility in Marshall County, Mississippi.
David Roberts
Just to throw it out for the battery geeks in the audience: Building LFP batteries.
Ray Minjares
That's right.
David Roberts
For trucks, which are interesting, slightly lower energy density, but somewhat more durable, somewhat cheaper, less prone to fire, et cetera, et cetera.
Ray Minjares
Exactly. And so they're doubling down on the investment. They're building out charging infrastructure as well. And all of that is a signal to the rest of the truck consumer universe that these products are coming. We're past the point of asking, "Is the technology feasible?" I think the answer is yes, the technology works. We're now at the point in this transition of trying to figure out how do we make it as cost-effective or as cheap as what people are used to paying.
David Roberts
Do you believe, and do you think it's consensus in the industry, that heavy trucking is going to go fully electric? You think that sort of horse is out of the barn. There's no longer, I mean, are there like hydrogen fuel cell holdouts? Are there, you know, there? I mean, I know they're still making natural gas trucks. There are alternatives out there.
Ray Minjares
Yes. So, when you work in this industry long enough, you realize there are little pockets that have their little fan bases of fuels. Right. So, we're talking about, you know, because it used to be the question of "Is it natural gas?" Right. I think we're past the natural gas question and that led us to "Is it hydrogen?" And I think there's still a pretty strong fan base for hydrogen, despite our own research that shows we're never getting to TCO (Total Cost of Ownership) parity, let alone upfront cost parity by 2040. So, battery-powered trucks, from our perspective, are the most cost-effective, most technologically feasible solution that will get us that TCO parity the soonest with diesel.
But I'll just add one little piece on the hydrogen story, which is I think that there are still pockets of the industry that would like to see a hydrogen internal combustion engine, despite what is really bad economics.
David Roberts
And the evidence of the last 20 to 30 years, all of which points in one direction, on hydrogen vehicles.
Ray Minjares
That's right.
David Roberts
Well, you know, we're institutionally committed to electrification here at Volts. So, I'm going to go ahead and just believe that this horse is out of the barn and we're heading in this direction. One quick question before we leave the trucks themselves. I know a particular concern among this class of trucks are what are called drayage trucks, which are working, as I understand it, at ports, basically carrying heavy things around in ports. So, this is very big, very heavy, very polluting. And not just polluting in the sense that it's a big diesel engine, but polluting in the sense that it's starting and stopping and starting and stopping, which with diesel engines is horrendously polluting.
And thus, we get these huge pollution problems around ports that are very well understood. It's a big subject of focus now. But on the other hand, these big trucks are going short distances. So, as you say, those are the trickiest ones to make the financing work. So, is there a particular focus policy tool around drayage trucks that stand out?
Ray Minjares
Well, from a policy tool perspective, I think the most effective policy that I've seen come forward is a component of California's Advanced Clean Fleets rule, which requires that 100% of new drayage trucks be zero emission. And in fact, it's backdated. So at this point, it was supposed to start on January 1st of this year.
David Roberts
A little behind that, I'm guessing.
Ray Minjares
Well, if it were up to the state and specifically the California Air Resources Board, it would already be in force, except for the fact that that policy has now been challenged in court by the California Trucking Association, and then it's being joined by other trucking associations. So, there is a contingent of these associations representing trucking fleets who are not ready to go along with that policy.
David Roberts
And I'm guessing their objection is just, "We can't afford these things yet."
Ray Minjares
I think they're making a number of arguments. I can't predict which ones will actually work for them, but I can tell you that they are very motivated to delay the electric transition for some period of time. At the same time, they publicly support the transition to zero emissions. But the devil is in the details, and we just don't know based on their public position, exactly when is the right time for them to arrive.
David Roberts
Later, Ray. It's always the right time, just when I'm out of the office or when I retire, just after that. Jacqueline, let's turn to you here. So, as discussed, we've got now the trucks. The trucks exist, electric trucks exist. They are currently two things: one, much more expensive up front. And then as you sort of briefly alluded to before, if I'm the driver of a big truck, especially a long-haul truck, I need to know that there's infrastructure to support me, that there's charging, charging where and when I need it, charging that's affordable, charging that I can wrap my head around economically and plan for, et cetera.
And so, like I said, this is a very familiar problem in the clean energy space. How do you overcome these upfront costs? So, with all that context in mind, tell us about this deal with Climate United and what your part in it is and what it's supposed to accomplish.
Jacqueline Torres
Yeah, I'd love to start by talking about Forum Mobility, if I can, for just a few minutes.
David Roberts
Sure.
Jacqueline Torres
And Ray, I think you saw my notes before we started because you were saying a lot of the things that I like to point back to, and one of them that actually surprised me was that 80% of operators doing long haul are smaller operators. Well, that kind of leads me to Forum Mobility. So, Forum Mobility is focused on drayage. So, drayage being that movement of goods between ports and warehouses, trucks going in and out of ports. We are building charging infrastructure custom-built for drayage operators. And 80% of drayage operators are those smaller fleets.
David Roberts
These drayage trucks are typically confined to a single port or do they drive between ports? In other words, are these all short distances, stop and start stuff?
Jacqueline Torres
Mostly short distances. Mostly, they have routes of about 200 miles a day or less. You get some outliers there, but they're going from the port to the warehouse and then from that warehouse, they're going, that container is going on rail through the rest of the country or on a different truck that's going long haul across the country. And so, within Forum Mobility's business model, we're building the charging infrastructure for those drayage fleets and talking a bit about who our customer is: It's those, you know, 80% of our market is made up of those smaller fleets. They have a number of challenges for transitioning and one of them is figuring out the charging infrastructure.
Right. So, it's hard to go a conversation talking about transitioning to zero-emission trucking without talking about the chicken and the egg, that you can't have the truck without the charging, the charging without the truck.
David Roberts
And that charging would be by necessity at the port. Right. It would be a piece of port infrastructure, presumably.
Jacqueline Torres
Yeah, that's a great question. That's just kind of what I wanted to talk about, which is really what led to Forum Mobility's business model evolving the way it has evolved. So, if the customer had it their own way, the best thing for the customer would be to have that charging infrastructure behind their fence, so to speak, at their warehouse, at their yard. But there are a lot of challenges with that. Number one, come to find out, a lot of these customers don't have power at the yard that their warehouse is at. You know, you get into a conversation with a utility and it's going to take several years to bring the amount of power to that.
David Roberts
Yeah, because these are large amounts of power. I mean, these are not like your sort of neighborhood EV charger. Right. I mean, these are large amounts of power.
Jacqueline Torres
Right. So, like an F150, is a 100 kilowatt-hour battery, whereas these trucks are over 500 kilowatt-hour batteries.
David Roberts
Good grief.
Jacqueline Torres
So, they're massive. And that's one of the community's biggest concerns. The two that they talk about are the cost of the truck and then the lack of charging infrastructure. And then the other issue with being able to install infrastructure on your own yard is that these customers, these 80% of operators, well, they don't own their land where their warehouse is. Maybe they have a two or three or five-year lease with their landlord. So now you have to bring the landlord involved in order to make improvements to the land or install infrastructure. And suddenly we're snowballing into a really challenging transition to put some chargers on your site.
And so, that's where Forum Mobility really identified that this was going to be a good place for, you know, early electrification and a good place for this model of consolidated charging infrastructure.
David Roberts
It just makes sense that you would want to have all these various trucks with all these various owners sharing charging. Right? I mean, just common sense wise.
Jacqueline Torres
At the end of the day, it is about bringing them together and having a company like Forum Mobility finance that and own and operate the facility and have customers pay for that over time. You don't have to put in the upfront investment, Forum Mobility is going to do that. And our team is made up of power infrastructure professionals that have lifetimes in solar and wind and battery technology such that we really know how to build power infrastructure and we have a lot of real estate expertise. So, as we've been in this space for a long time, we've really figured out where should we be locating these facilities for our drayage operators.
And one thing you mentioned, you know, is the best place for them in the port. Well, for some of them, the best place is directly in the port. And actually, Forum Mobility in about 15 days is opening up our first large-scale charging facility in the Port of Long Beach. So it's actually located within the confines of the Port of Long Beach. The Port of Long Beach is the largest port in the United States. Port of LA and Long Beach, a single port complex. 35% of all goods come into the nation through that port. And to Ray's point about air quality, it's no different in Long Beach.
Long Beach last year had the worst air quality in the nation. And so, to wrap up on this facility, it's nine megawatts of power, which is a lot of power to have at a facility.
David Roberts
I mean, you, I'm guessing that a big part of looking around for sites for this, like, do all ports have, you know, nine-megawatt power connections, interconnections to spare? Where do you even find, you know, this is a problem for every clean electricity technology. Where do you find a place to hook up on the grid?
Jacqueline Torres
No, they do not. And that's part of Forum Mobility's superpower, I would call it, is finding where, you know, a good site, a good piece of real estate that would be a convenient location for our customers, lines up with feeder capacity on the grid. And so, you can imagine we are extremely tight with Southern California Edison and PG&E and getting up there with all three of the utilities in the Seattle Tacoma region.
David Roberts
Are you exclusively scouring the grid for places where places like this already exist? Have you abandoned the idea of upgrading the grid in specific places? I mean, I know it takes a long time, but like, have you just written that out of your business model or is anyone actually working on trying to create these places?
Jacqueline Torres
It's the idea of the low-hanging fruit and being able to get those sites that do have power today under land control because, well, if you want to start upgrading a site with SCE, you have to have land control. Now, land control in these industrial areas around ports is really expensive and to be holding on to land control for five years until the utility can upgrade the power to that site is a big investment.
David Roberts
I want to come back later to what the role of utilities is in all this, but I'm guessing. So, you're just — I mean, this is maybe too obvious even to point out — but sort of the business model is you make the upfront investment, build the charging facility, and you charge these trucks the cost of the power plus a little extra to pay back the upfront investment. That's the basic model?
Jacqueline Torres
Yeah, that's right. And actually, ours is, we call it a subscription-based model. You sign a multi-year agreement where you pay a fixed fee and then we actually pass through the electricity. So, you subscribe to the network and then you pay for your electricity usage.
David Roberts
I see, so your model is not directly involved with the trucks themselves. You're not —
Jacqueline Torres
So, yeah. So, thanks for bringing us back to the topic here. So, Forum Mobility does provide trucks today.
David Roberts
Because I saw trucking, you know, when you go to your website, it says "trucking as a service," which presumably includes the truck.
Jacqueline Torres
That's right, we provide truck and charging today. And Forum Mobility's broader goal is to make this transition easy. So, we are providing it today because we realize it's difficult and we want to provide customers that full package. But what we have realized is that we have infrastructure capital backing us and that infrastructure capital is not all that efficient when it comes to providing financing for vehicles. That's a totally different asset class. And so, as we've evolved, we realized that, you know what, we are not moving as many trucks as we would like to. We're not providing an effective enough cost with the infrastructure dollars for the vehicle.
And so, that's really where this Climate United Partnership idea was born. It's still really challenging to effectively finance the vehicle. Just for a little bit of perspective on the cost of the vehicle, I'll give out some numbers here and I'll use that to transition into how this Climate United Partnership works. But, a Class 8 vehicle, once you tag on sales tax and federal excise tax, we're talking about a vehicle that is north of $500,000.
David Roberts
This is the electric variety.
Jacqueline Torres
That's the electric variety.
David Roberts
That's a lot.
Jacqueline Torres
And in comparison, the diesel Class 8 counterpart is around $150,000. Ray can fact-check me on that.
David Roberts
Oh geez. So this is like a 3x.
Jacqueline Torres
Well, I'll make it even worse. Our drayage operators, those 80% small businesses, I think Ray mentioned this too, they're buying the second and third life of that vehicle. And you can look online, those vehicles are going between $30,000 and $50,000 for a vehicle that has, you know, 500,000 plus miles on that vehicle.
David Roberts
And I'm guessing there aren't a lot of used electric drayage trucks out there on the market.
Jacqueline Torres
No, I swear, both of you are kind of giving me really nice setup for things I'm talking about. But that's exactly right. Which means that when you think about how the market, how financiers today price and finance an ICE vehicle, an internal combustion engine vehicle, if you're doing a five-year lease, they're going to assume a 40% residual value in that lease. So, you're only paying for 60% of that vehicle over the life of the lease.
David Roberts
Right. Because after the five years you own it, they are assuming they will be able to sell it for whatever 40% of the original price.
Jacqueline Torres
That's right. The financier would hold on to it and then assume that in the secondary lease they're going to be able to make up that value because there's tons of data points. Because financiers make those decisions, not because they're taking risk, but because they have thousands and thousands and thousands of data points to price it that way. But we just don't have that on the zero-emission side, on the Class 8 side. You know, we have not seen, we don't have data points on the secondary value. And that's, you know, when you talk to the financiers of these Class 8 vehicles, they will point to that, the lack of residual value data as one of the key financing challenges.
David Roberts
So in the absence of any data points, any used trucks that have been sold to give them data points, are they just assuming it's zero? I mean, does it just effectively become zero in their calculation?
Jacqueline Torres
That's right. Because they're not set up to take risk in that way.
David Roberts
Right.
Jacqueline Torres
And so, here enters Climate United, and I'll just take a second to say who Climate United is. Climate United is a nonprofit entity that was a recipient of a $7 billion grant from the EPA's National Clean Investment Fund. And with that $7 billion grant, Climate United is tasked with creating financing products that reduce greenhouse gas emissions.
David Roberts
Wait, is that $7 billion for heavy trucks or just for financing in general?
Jacqueline Torres
$7 billion in total. So, this National Clean Investment Fund awarded three different groups. Those three groups are supposed to become national green banks. The $7 billion will be spread over many things. Heavy-duty trucks is one of them. And so, within that, Climate United said, "We really like this opportunity to finance zero-emission trucks." They have committed to a partnership with Forum Mobility whereby Climate United will be financing 500 trucks over the next several years, a commitment of $250 million. And the partnership is that Climate United finances the vehicles for Forum Mobility's charging customers.
David Roberts
But wait a minute, finance: Does that mean they're buying the trucks?
Jacqueline Torres
Right. So, it is grant financing that Climate United received, but they have to make it a financing product because they want to make this $7 billion evergreen. And so, they will buy the vehicle and then lease it to our charging customer.
David Roberts
Got it. And they're buying 500 of these things, which is, I'm guessing, I mean, it sounds like a large number to me. There can't be that many of these things.
Jacqueline Torres
No, there's not. And there's, you know, in Long Beach there are 500 zero-emission trucks on the registry today. So that will double the number of trucks in Southern California, the number of zero-emission trucks in California.
Ray Minjares
If I could just jump in and add a little bit of international context for how large this purchase is. There's no single purchase of battery electric drayage trucks larger than what Climate United is about to pursue, at least outside of China, that I'm aware of. And I've checked with my colleagues in Europe. They're saying, "Wow, this seems like the biggest one in the world." And I'm telling them, "Probably there's something that big in China, I don't know yet. I'm sure I'll find out."
David Roberts
One just assumes that they've got some kajillion-dollar thing going on there.
Ray Minjares
Yes. But it is a massive investment. And just like, can I just say how beautiful this business model is? Because it works and I've seen it work in emerging markets. So the best example is in Santiago, Chile, which now this is on the buses side. But Santiago, Chile started their transition to bus electrification with utilities buying large volumes of these electric heavy-duty vehicles. We had ENGIE and we had Enel buying each about 100 battery electric buses. Of course, they provided power at the depot and they leased these buses to operators who themselves can't afford to buy an electric bus.
Now, Chile is buying thousands of electric buses at a time and they've electrified one third of their fleet. They're on track to electrify 6,000 by 2025 without subsidies.
David Roberts
Right. So, I'm guessing this sort of ladders itself up, right? Like, the purchase makes the trucks cheaper. The leasing, like you get, the more infrastructure, more infrastructure makes it easier to buy the next round of trucks, et cetera, et cetera. Like, in some sense, this is a flywheel that you just got to start turning.
Ray Minjares
Absolutely, a flywheel. And the key in my mind is the separation of the asset, which is the vehicles and the infrastructure, from the operation. So, you can be an independent owner-operator who doesn't have a reliable parking space, who can barely afford to buy a truck, but who has a driver's license. Right? And who knows how to make money driving that vehicle. They don't have to go out, beg for a loan to get one. They don't have to do all the paperwork if they did to get all the incentive money. The point is, they can go to a company like Forum in partnership with Climate United, they get those keys to that vehicle, and they can run that like a business.
David Roberts
I mean, I guess from the consumer standpoint, they're effectively subscribing; it's like a monthly payment. You're like subscribing to the truck and the chargers. Is that right, Jacqueline? I mean, from the owner-operator's perspective, they're just paying a monthly fee.
Jacqueline Torres
That's right. It's a long-term commitment. So, around four to five years for both the charging and the trucking. So, you know, it's not like you can just cancel in your second month if you don't like it.
David Roberts
Right. But I just — Jacqueline, I mean, in some sense my brain is running up against this. If these trucks cost $500,000 and these owner-operators could afford maybe like a $50,000 truck, that's a lot of financing. That's a lot. That is a large delta. Like how —
Jacqueline Torres
That's right.
David Roberts
Is Climate United getting a deal on these trucks? Because they're buying in bulk.
Jacqueline Torres
Yeah. So, let me break down a little bit more how the partnership is going to work and how and why the financing is really transformational, down to some of the details. So, we are focusing on drayage trucks. One, because of the big climate impact that it has, reducing or transitioning to zero emission has, but also because there are a lot of incentives available for drayage trucks in particular in California, but other states are following suit. So, Washington is also setting up similar incentive programs mimicking California. So, our operators, you know, if that truck is around $500,000, you can get up to 90% of the cost before taxes covered by incentives.
So, that's like if you stack everything together and you qualify, you're a small business, you're going in and out of the port, you're in a disadvantaged community, you know, all these things together, you can get up to 90%.
David Roberts
This is like federal and state, both?
Jacqueline Torres
State only, state only.
David Roberts
So, these just. This is California, basically. Like, there's a lot of incentives in California.
Jacqueline Torres
Right. So, we are, in order to tackle this challenge, we are putting together all the mechanisms at once. So, the state level incentives that are bringing down the cost of the vehicle. Furthermore, the residual value support that Climate United is bringing. So, we're not disclosing exactly how much of residual value support that Climate United will be supporting, but I can tell you it's a significant amount.
David Roberts
I'm sorry, what does that mean, residual value support?
Jacqueline Torres
If we just say that the cost of the truck is $500,000 and we can get $250,000 of incentives based on the customer, maybe they go into the port. That means that we're left with a net CapEx amount of $250,000 that we have to pay to get that vehicle. Now, if you went to a traditional financier, they're going to finance that for you at $250,000. And they're going to say, "Over the course of a four-year lease, you need to pay us $250,000 plus interest." Now, Climate United is going to say we're going to take the risk that there's residual value left in that vehicle because of course there's residual value.
The thing that nobody can say is what that value will be. Nobody knows what that value will be because we don't have those data points. But they're going to assume some significant residual value.
David Roberts
I get it. So they're de-risking. This is a species of de-risking. Basically, for the financiers.
Jacqueline Torres
It's about putting the right risk capital to work. Whereas traditional financiers, vehicle lessors, are not set up. They don't have the credit committees that understand or can take risk on residual value writ. However, a new green bank that has been given a $7 billion grant can look at things differently. One of the major benefits they see in this program is creating data points. So they want to create data points for the market so that eventually the traditional financiers can come in and can say, "Okay, now after your four-year lease, Climate United, I see what this vehicle sold for, or I saw how you released that and now I can start to build those data points."
So, this is going to create at least 500 data points. We think it'll be much more than that, really. And then, Climate United is going to go do something else. They're going to use this 250 million plus dollars of capital into a new venture in a new market that needs transformation. And we're going to be, this market is going to be up and running and that's going to be wonderful.
David Roberts
Got it. So just to review here, Climate United is going to buy 500 trucks, they're going to stack up all these incentives, they're going to lease them to owner-operators at relatively low rates because they, Climate United, are assuming some of the risks, they're assuming some of this residual value. So they're securing low rates for the owner-operators. And the owner-operators, when they lease: Is it like a single rate, a single point of contact for the truck and the charging? Like, is that from their perspective, how it works?
Jacqueline Torres
That's right. So the point of contact is Forum Mobility. The wonderful thing about Climate United is that they just want to see the impact. They want to see the trucks on the road. Forum Mobility has the customer relationship. We've spent a lot of time, a lot of time since the beginning of our business, getting to know the customer and our customer really trusts us. So, we'll be that customer relationship. Whether the customer ever hears the name Climate United, or whether they see it in the fine print on the lease, doesn't really matter.
David Roberts
But the presumption here is that this is a kick-start kind of thing and once traditional financiers see it working, they will step in and then Climate United can go kick-start something else.
Jacqueline Torres
Yes, that's right.
David Roberts
Got it. There's a couple of other pieces I wanted to mention, just to get on the record here. Some action is happening in this space. So, you, Jacqueline, Forum Mobility, are building these really big chargers where there's space on the grid, but you're just using grid power for the most part. I thought, Ray, it was really interesting hearing about what WattEV is doing. I'm so curious how that's going to work out in the long run. But maybe you can just briefly say what their approach to the charging dilemma is.
Ray Minjares
Happy to do that. I mean, the first thing I'll say, David, is that from the infrastructure deployment perspective, understanding that there are constraints in the capacity of the grid, it's not necessary at this point in time to build everything everywhere all at once. It's okay to take a strategic step forward year by year in the right places.
David Roberts
I mean, maybe this is obvious too, but just to say it explicitly, drayage is fairly localized. Right. So, you can build a charger that handles the drayage for a particular port. It's not like long haul where you sort of have network effects, like you need to be everywhere on the network. These drayage, you can do in chunks.
Ray Minjares
Absolutely, absolutely. And there's this nice synergy between a use case like drayage, like, as you say, it's going to a very discreet location and it's not going very far from that location in its day-to-day operations. So, I like to think of ports as no regret zones and I also like to think about the industrial warehousing that typically is co-located near ports as a part of that no regret zone. And when you think about this from the economics perspective as well, that's where you're going to get the highest utilization earliest of those vehicles and of that infrastructure.
David Roberts
Guaranteed utilization. Basically, it's not like building a charging station for long-haul trucks out in the middle of the desert where it only is going to work if there's lots of long-haul trucks.
Ray Minjares
That's right, exactly. So, just going back to companies like WattEV, and there's also Terawatt Infrastructure and Green Lane, there are so many new companies that are emerging in this space. It's really exciting. But what they're doing is they are finding these no-regret zones, they're securing control over the property in those places where they know trucks are most likely to be driving by, and then they're doing whatever is necessary to get the power. And there are a couple of tactics that they have. I think WattEV is one example, but it's not the only example that everybody is following.
So, in the case of WattEV, the splashiest station they've opened up so far is this facility in Bakersfield, which is a more than 100-acre facility. It has megawatt charging already activated. So, one can go and charge up one of these long-haul tractors in under 30 minutes with that. But it also has on-site battery energy storage and it has on-site energy generation with solar. And the reason for that, I mean there are lots of reasons for it, but they couldn't get the full connection they needed from their utility, which in this case was PG&E.
So, you have these companies that are realizing, "We've got to be flexible, we've got to be innovative, but we can't be behind, we've got to be ahead." So, they're deploying a variety of these technologies.
David Roberts
Well, let me just touch on this before you go past it because I love this idea. I love the idea of sort of all the ideas where you're pairing renewable with the use of the renewables, thereby not needing a grid connection. So the idea is you build a bunch of solar, all the solar dumps into batteries, and then the batteries are fueling the chargers, which enables you to get much faster surges, much faster power out of the batteries than you can get out of the grid per se. Which means that you can charge these long-haul trucks with 300 miles worth of range in 30 minutes, which I think is very — like if people are familiar at all with batteries and charging, that's pretty mind-blowing.
That's a huge battery. You're charging very, very, very quickly. Like, that's a new thing in the world, I think, to be able to move that kind of power that fast. And it's batteries that are enabling that. Praise batteries.
Jacqueline Torres
"Is that available today? I wasn't aware of any trucks that could take megawatt charging today, but maybe I'm just not aware."
David Roberts
Oh, you need special trucks to deal with that amount of power?
Ray Minjares
You need an 800-volt battery. So, not all of the, in this case, tractors that are commercially available, have such a battery. So, I understand the Tesla semi does have an 800-volt battery. So yes, there is a limited number of commercially available products that can use that. But for those that are sort of road testing and have yet to go commercial, it is something that supports that. But the point is that they're trying to lead the market with megawatt charging for that first set of massive deployment of 800-volt trucks, enabled trucks. But I'll just speak to some limitations of this particular model for investment.
And that is, you need land.
David Roberts
Yeah.
Ray Minjares
You also need a lot of capital because we're talking about buying up all that land, also buying up all those batteries, and all of that solar.
David Roberts
Solar, storage, and chargers. I mean, that's the whole CapEx menu, right?
Ray Minjares
It's a big CapEx menu. So, I'm seeing other providers and for all I know, WATV may also be doing this. They know that whatever footprint their facility has, you know, maybe they're buying a parcel right next to it so that they can grow into it. But for that initial parcel, they're not asking for the full 10 or 20 megawatts on day one.
David Roberts
From the utility you mean?
Ray Minjares
Exactly. All they need is, let's say, 5 megawatts and maybe that utility can deliver that within — maybe they can deliver three megawatts on day one, maybe they can deliver another two plus in a year's time. So the point is that these infrastructure providers have learned, "We've got to be flexible with the utilities' processes. We just want to get ourselves control of that land. We want to get ourselves some active chargers deployed. We know we're not going to be at 100% utilization on day one."
David Roberts
This is just racing to get a foothold before other people do. Basically, that's the stage we're in.
Ray Minjares
Like returning to the 1800s, like railroads fighting for control over those rights of way. So, that's the way I see it.
David Roberts
Can I ask this? Why are utilities like — A) Utilities have to pay attention to this because a 5, 10, 20 megawatt node on their grid is no small thing. But also, this seems like a really golden opportunity for them to rate base some very high value CapEx. It seems like utilities would want to get in this business. Are they doing that anywhere?
Ray Minjares
Oh, it's such a golden opportunity, David. I think the utilities should be swallowing the oil industry right now. There's so much opportunity out there. But I've been trying to understand, not being a utility professional myself, the business model that shapes whether or not they're going after these opportunities. And look, it's a business model that we, the public, give them. These are, and here I'm talking about the investor-owned utilities. But look, if there's anybody at fault, it's the public for not giving them the proper incentives to go after this whole new tremendous market that's standing right in front of them.
So, if I'm a utility executive, I'm seeing all this coming. The ones that I've spoken to are a mixture of either indifferent or nervous about all of this electrification.
David Roberts
I just fundamentally don't get that. Like, "Hey, people responsible for product X, pretty soon we're going to need like 10 times the amount of product X." And they're like, "Ooh, I don't know." Who's nervous about surging demand for their own product?
Ray Minjares
Yeah. So, the stories that I've been told are that, number one, they're not convinced that their regulators, namely the whatever public utility commission or municipal governing board oversees them, are nervous about what their response will be because they're not sure that they are up to speed on what's happening. Second of all, they're nervous about consumer advocates pointing to proposals they're bringing and saying, "Told you they would come and ask for more money. Told you they're just trying to jack up our rates." There's an inherent, I think, gap of awareness and knowledge, particularly I think amongst these two groups, the public utility commissioners and the consumer advocates, to really understand how much this stuff costs, how fast it's coming, and how we're going to pay for it.
So, if we can do a better job lining up these actors in their understanding of all of these core elements of truck electrification, I think utilities would feel more confident that they wouldn't be wasting their time asking their regulators to approve an investment.
David Roberts
Jacqueline, how have you found interacting with utilities? Have you — it's just Southern California regulators so far, or are you beyond that?
Jacqueline Torres
A little bit beyond that, I think we're talking to utilities in a lot of different states. Definitely, Southern California Edison stands out as top in class in terms of preparedness and putting resources towards this. They have rebates already for infrastructure and for trucks. They have special programs. They have specific rates for zero-emission vehicle charging. So, they've really built out the in-house capabilities to be able to handle what they know is coming. And that makes sense for the utility that has the largest port in the nation in its backyard. Other utilities, I think, are learning from Southern California Edison and trying to do their playbook as well.
They're certainly further behind, but it's been a good relationship with a lot of them, I would say, that want to speak to the groups like Forum Mobility that are going to be installing infrastructure, speaking to us early. So, I'd say we have had good experiences with utilities. We'd like them to be building out more in advance and be doing things faster. They've been very collaborative.
David Roberts
Everybody wants utilities to move faster. Final question then for you, Ray, and Jacqueline, feel free to jump in if you have things to say. How much of this, this is a question that is suddenly relevant, became relevant between the time we scheduled this and the time we're doing it. To what extent is progress in this sector being driven by Biden administration programs and how do we feel about the future of those programs? I mean, if all those programs should be crushed by a hostile administration, how badly would that set back the sector? How tied is this sector to a friendly federal administration?
Ray Minjares
Great question. And very timely, David.
David Roberts
So, so timely.
Ray Minjares
So timely. Yes. Well, I think the first way I can answer this question is first by focusing on the fundamental physics that drive this transition. Electric motors are fundamentally more energy efficient than any internal combustion engine can ever be. And I think just to give a little bit of cred to Elon Musk here, I think he's realized how to combine that understanding of physics with a lot of capital. When you combine these two things, you can make tremendous technological progress. So what happens if we lose out on not only incentives from the Inflation Reduction Act, but also the Bipartisan Infrastructure Law?
We also have state-level policies that are at stake. We've got the Advanced Clean Trucks rule, which now California plus 11 other states have adopted.
David Roberts
Right. They're going to, they're going to try to take California's waiver, so that could nuke that whole thing.
Ray Minjares
Yes, that would be a very big blow to our progress because it's these policies that are fundamentally changing the incentive strategy infrastructure of our industry here. And if we have manufacturers that have not yet found profitability in selling zero-emission trucks and these policies are taken away, then we revert back to what we had before. Now, one can argue, and I even saw this written up in The Economist just now, that Tesla might stand to benefit from the withdrawal of these incentives because they've already found profitability in selling electric vehicles. Now, that might be eaten away by lower volumes of sales.
David Roberts
Is that true in the truck space though?
Ray Minjares
In the truck space, Tesla is telling — I mean, I think this was announced on their Q3 financials that they're ready to fire up their 50,000 volume truck manufacturing facility by Q1 of 2026. Have they found profitability with that? It took them a while to get there with Tesla with the Model 3.
David Roberts
And they benefited heavily from the very subsidies that Musk is now going to have a hand in yanking back up, yanking the ladder up, as they say.
Ray Minjares
And one other big way that Tesla has benefited is from the credits that they earn from other manufacturers who aren't able to comply with sales requirements in California and for other states that are following California. So, you know, I don't think there's a way to sugarcoat this. I think that there are real risks both to federal policy in terms of the Greenhouse Gas Standard for Phase 3, which itself provides incentives for manufacturers to electrify. To be clear, it doesn't require them to electrify. They could hybridize if they want. They can do more efficient ICE vehicles.
But it does ratchet down the stringency of CO2 emissions levels, such that manufacturers may find it cheaper to electrify than to keep making the incremental investments in ICE efficiency. But on the state level, I think the leadership on electrification is clearly coming from California, which has been reinforced by these other states, about a dozen other states, which as a group constitute about 25% of the national markets.
David Roberts
So, California losing its waiver would be the biggest threat here, the biggest blow to this specifically, I think.
Ray Minjares
And there are multiple waivers, to be clear, that are at risk here. There's the waiver on the Advanced Clean Trucks rule, which the Biden administration has already granted. So, California is enforcing that. Now, that one I mentioned, well, I guess all the lawsuits on that one have been settled at this point. So, that one's in the clear unless Trump changes that waiver. And then there's the Advanced Clean Fleets rule, which is the rule that would require 100% drayage truck registrations that are new to the state, would require them to be zero emission. And that's what would really drive a lot more of the demand for the products that Forum Mobility and Climate United are offering.
David Roberts
And the standards the EPA just came out with, or is about to come out with, it's like happening now-ish with medium and heavy-duty truck efficiency standards. Are those, do those have real teeth? Like, are they going to help? Because it would take a while, even if EPA wants to kill those, they have to do another rulemaking. That's going to take a while.
Ray Minjares
That's right. There's a process. So, that was a standard that was finalized. I believe it was in March of this year. It wouldn't take effect until model year 2027. And it would set new limits on CO2 in that model year and then again in 2032. And it would clearly set a pathway for manufacturers to compare with electric vehicles. But again, it wouldn't require that. The best guess is that there would be — you could get as much as a 42% share of electric truck sales by 2032. Today, we're at less than 1%. So, that's a meaningful change.
And for us to just be aligned with our domestic and international climate goals, we need about a million electric trucks on U.S. roads by 2030, which amounts to about a 40 to 45% of sales share. So, it actually sort of like is only marginally meeting that goal because I mentioned 42% in 2032. But if that rule goes away, then I think something else has to equally drive electrification. And I can't tell you what that would be under a Trump administration.
David Roberts
Grim.
Jacqueline Torres
I have a few ideas.
David Roberts
Are there federal? I mean how dependent is your whole business model on federal programs?
Jacqueline Torres
So, Advanced Clean Fleets is a big one. And that's a California program. However, as Ray pointed out, we are waiting on that waiver. So, that program was supposed to be or mandate was supposed to be in effect January 1st of this year. And I guess what I would point out is that Forum Mobility is signing up customers. Forum Mobility is currently signing up customers to charge at our facilities. And that's before this mandate is in place. And so, customers are seeing that there is an opportunity to transition and they're doing it. And so, while Advanced Clean Fleets not taking effect would be detrimental to the industry for sure, it doesn't mean that it goes away.
It means that we are relying more on TCO. We need to ensure that these customers are being offered a transition that is economically viable in comparison to diesel. And I would say that that makes our Climate United partnership even more essential is that our customers get access to vehicles at affordable rates. And I also put it onto corporates. Corporations need to demand zero-emission goods transportation, and we are starting to see some corporations do that. Corporations need to reduce their Scope 3 emissions and they can do that without the federal government telling them to do so.
And we need stronger alliances between those corporations asking for that so that we can send the right demand-side signals to our customers.
David Roberts
Right. A little torturous because it does sound like a big shift that's just like we're just on the front end of it, and it would be a real shame if a bunch of the struts holding it up got yanked out at this particular juncture. This is one where, like, we're just so close to getting things going, so I guess we'll all keep our fingers crossed. Thanks so much to you two for coming on and walking us through all this.
Ray Minjares
My pleasure.
Jacqueline Torres
Absolutely. Thanks.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
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