European e-van makers look to US
A year on from the passing of the IRA, commercial EV makers are chasing the subsidies
Incentives offered under the US Inflation Reduction Act (IRA) are leading non-US e-van and truck makers, including both legacy OEMs and EV start-ups, to pursue American customer bases for larger vehicles.
Companies are seeking to take advantage of tax credits which effectively discount the price of purchasing EVs, as long as a sufficient proportion of their manufacturing is done in North America, or in a country with which the US has a free trade agreement. The effect is seen most prominently in the medium- to heavy-duty electric commercial vehicle space, where the IRA offers a $40,000 credit for EVs weighing over 14,000lbs, compared to only $7,500 which is made available for vehicles weighing under the 14,000lbs mark.
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Commercial EVs over 14,000lbs come under the Class 4 or above designation in the US, where trucks and vans are classified by their weight and payload. As a result, some commercial EV fleet manufacturers have shifted their focus towards Class 4 vehicles, in a bid to attract customers with the saving.
In April this year, UK electric vehicle start-up Arrival decided to reduce its line-up to just one US-made vehicle, the Class 4 XL van, hoping to attract fleet operators’ business with the purchase discount. The XL van “has a high margin profile, and qualifies for IRA tax credits up to $40,000, making it ultimately a very strong contender for adoption by US fleet operators”, Arrival CEO Igor Torgov said during the company’s Q1 results call.
With the move, Arrival narrowed its focus to the US market, with its only remaining UK operation a micro-factory in Bicester, Oxfordshire, with a target of producing only 10 prototype vans.
“We think that [Class 4] is a sweet spot where Arrival can make a lot of money," Arrival CFO John Wozniak says. "We looked across the competitive landscape, and from where you sit today, there is a lot of room to run in that segment."
The Bicester factory primarily co-ordinates test driving and is used to pilot fully automated body assembly manufacturing machines. The company has indicated that the microfactory is being used as a model for Arrival’s factory in Charlotte, North Carolina, currently under construction.
“Because the manufacturing process we are using in Bicester is very similar to what we will use in Charlotte for the XL van, our Bicester development experience will have an enormous benefit for the Charlotte factory next year,” says Mike Ableson, Arrival’s North American CEO.
But Arrival has been in choppy waters for some time, and the company terminated a deal with Spac Kensington Capital Acquisition Corp V in July, which saw it miss out on a proposed $238mn capital injection. “In these challenging market conditions, it will require a great deal of discipline, perseverance, and support from our partners,” Wozniak said on the Q1 call before the deal was terminated.
Arrival’s travails means that a company once called ‘Britain’s Tesla’ now no longer serves the UK market, and is looking overseas where government assistance can stimulate demand. That said, the firm's website contains caveat that Arrival has not yet completed the steps to be a qualified manufacturer, although, based on current specifications, it anticipates the XL van will be eligible for the US credit.
Earlier this year, German commercial vehicle heavyweight Daimler Trucks announced its Rizon brand of trucks, citing IRA subsidies as a major motivation for the product line.
“The mobility industry is changing rapidly as legislation and customer initiatives focus the spotlight on zero-emissions commercial transportation,” the company says. “Incentive funding and tax credits in certain markets are helping to ease fleets’ switching costs.” The first announced vehicles are Class 4 and 5, both of which qualify for the $40,000 tax credit.
“The Inflation Reduction Act from the Biden administration is, of course, supporting demand,” agrees Christian Levin, CEO of Volkswagen-owned truck maker Traton.
For California start-up Xos, deliveries may be slow, but orders are high. The company delivered 38 vehicles in the second quarter. However, after reporting, the company announced receipt of a 30-truck order from repeat customer Unifirst, a Massachusetts-based workwear firm.
Xos is aiming to take advantage of demand created by the tax credits on medium and heavy-duty vehicles, saying on the occasion of its Q2 results that “direct benefits from EV mandates and incentives put Xos on track for long-term success". California brandishes a stick as well as a carrot, as large fleet operators will be required to make up 10pc of their fleets with zero-emissions vehicles by 2025.
“On the incentive front, we are seeing a strong uptake of the $40,000 IRA tax credit and additional incentives available in 11 states, covering 42pc of the US population. In some cases, the stackable federal and state incentives bring the cost of an Xos step van meaningfully below the purchase price of a diesel alternative,” says CEO Dakota Semler.
Amongst other electric commercial manufacturers, Michigan-based van maker Blue Arc’s Class 5 vans are slated to begin deliveries in Q4 this year, while peer Bollinger Motors is developing pilots of class 4-6 trucks which will qualify for the IRA credits.
“These credits are a win for Bollinger, our customers, and our nation’s sustainability agenda as we help accelerate the adoption of this clean technology across America’s roadways,” the company says.