Future Fuels in the Pipeline

Future Fuels in the Pipeline

While the federal policy is boosting 20th-century fuel sources in 2018, serious capital and experienced talent are combining to form startups, working under the umbrella of established corporations or are being recruited by well-funded visionaries to not simply disrupt, but to supersede the diesel ecosystem.

We’ve heard the names before – hydrogen, electric, versions of natural gas – but have been told that these sources are too expensive. In the past 20 years, that view is shifting inline with the price at the pump. In 1998, the average price of a gallon of diesel was $1.02 and jumped to $3.25 in 2008. So far this year, it’s hovered around $3, roughly $0.50 higher than at this point last year. Technological advances, investment, and rising costs associated with traditional fuels are setting the conditions for a truck freight engine overhaul.

Regulatory, Financial and Incentive Environment

Yes. The US Energy Information Administration is forecasting record-high domestic crude oil production this year, with the expectation of 9.9 million barrels a day, which would exceed the 1970 record of 9.6 million. Yet analysts are projecting slightly higher diesel prices by the beginning of October, which we all know will continue the trend of passing increases in fuel costs and associated taxes onto shippers through higher surcharges.

What’s more, in many state and municipal jurisdictions, regulations and positive financial incentives are steadily pushing the truck freight industry closer to embracing a renewable fuel world. In December, California, which has about 602,000 diesel tractors on its roads on any given day, cleared the way for $208 million in incentives directed at heavy haul trucks and buses. The incentives include grants and vouchers for replacement, repower, or retrofit of existing vehicles, as well as the construction of supporting infrastructure, such as fuel stops.

Georgia offers heavy haulers an income tax credit of up to $20,000 if they purchase a vehicle that uses alternative fuels. Delaware offers the same, but only for electric heavy-duty vehicles.  Even Texas, home of the domestic oil industry, offers grants at the state, county, and municipal levels to assist solo operators and fleet owners to become converts. The complete list of federal and state level programs can be found here.

Corporate investment and Venture capital are also planting flags. In the third quarter of 2017, Axioma Ventures invested $21 million into Hyliion, Inc.’s intelligent electric drive axle that can be retrofitted onto semi-trucks’ trailers to hybridize a Class 8 truck. Toyota, Bosch, Daimler, Tesla, Cumins and a host of lithium mining companies are positioning themselves to meet the demand for batteries, a must-have component for electric vehicles. Hydrogen fuels cell startups are starting to emerge.

Future Fuels Very Near and Near-ish

Electric – Very Near

The competition is fierce, which is great because that means that at least a couple of truck-makers are going to bust through with a true Class 8 tractor that really can haul 80,000 pounds.  Auto-drive is already standard in Tesla’s Semi, which already has orders from UPS, Budweiser, Sysco and more. Thor, Cummins, Daimler, Mercedes-Benz, and more are also competing for an electric future.

You will know that heavy electric trucks are ready for prime time when you start seeing mega charging stations charge up these vehicles in 30 minutes and get them hauling loads beyond mile 300. Tesla is working with its customers to install charging facilities onsite and has been exploring how to stand up a network of solar-powered mega chargers.

Hydrogen – Near-ish

Toyota Motor North America is investing in bovine excrement. Yes. That’s right. It announced at the 2017 L.A. Auto show that it intends to use methane-rich cow manure from California dairy farms to produce 2.35 megawatts of electricity and 1.2 tons of hydrogen per day at its Port of Long Beach facility. It is currently testing proof-of-concept hydrogen drayage trucks for 200-mile runs. Toyota has partnered with FuelCell Energy Inc. to develop its production facility and also with Shell to open retail hydrogen filling stations.

Toyota’s project is not alone. HyTech Power, Inc. of Redmond Wash. claims that its Internal Combustion Assistance diesel retrofit technology can deliver a 90 percent reduction in harmful emissions and increase fuel efficiency by 30 percent. The retrofit injects hydrogen with precise timing into engine cylinders. HyTech claims a return on investment within a year.

Natural Gas – Been There, Done That

There is an established field of makers that have been working and working, and working to make this fuel competitive with diesel. It’s just not there yet. Despite federal, state, and local initiatives switching from diesel to natural gas, no matter the flavor, remains cost prohibitive for the heavy haul market.

Until diesel prices rise further, fueling stops are less frequent, and as the cost of these tractors becomes more affordable, this fuel will remain solely in the local, short-haul market. Despite the continued government support and hype, it will take time for some fleets and solo owners to move past feeling the pain of being early adopters, even if this becomes financially viable.

Predictions on Cost

Admittedly, without being able to provide a real comparative analysis of the total cost of operation per fuel type, this is just a wave-tops view of what is in the art of the possible. Until these alternative fuel trucks hit the showroom, pricing is very much a semi-educated guess, but…

If Elon Musk holds true to what he has said, at the very least, the sticker price of Tesla’s Semi will be instantly competitive with what is currently on offer in the diesel market. He has repeatedly stated that a new Class 8 Semi will cost $150,000 for the 300-mile range, and $180,000 for the 500-mile range models. Compare that with the cost of a similar new Freightliner, which costs northward of $150,000, suddenly adding up all of the variables becomes quite interesting. To boot, do not forget that depending on the state, there are clean energy grants, tax credits, vouchers, loan-interest loans, and more available specifically to fleets and solo operators.

Regarding fuel cost per mile, again, alternative fuels are set to compete. According to The Truckers Report, almost 40 percent of operating costs are spent on diesel fuel at roughly $0.54 a mile. Fortune is reporting Tesla’s Semi is expected to cut that cost in half to roughly $0.26 a mile. You can bet that with the manufacturing power of the other big truck makers that are venturing into the alternative fuel market, that they too know the numbers they need to make future fuels sweet.

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