Amazon’s electric trucks: US$20 billion turning point for sustainable shipping

The American retail giant announces its purchase of 100,000 electric trucks from US electric-vehicle startup Rivian as part of its effort to eliminate the carbon footprint of the company by 2030.

Amazon is adding 10,000 electric trucks in 2021 reaching 100,000 by 2030. As the fleet rolls out, Amazon will learn how to optimise routes, electricity and batteries to maximise savings. That sustainability know-how could earn big bucks as a service for fleets worldwide going electric.

To power a clean truck fleet

Deploying 100,000 electric trucks is a big sustainability step for Amazon’s corporate energy transition. Amazon will need to ramp up sourcing of clean energy. So how much electricity might Amazon need for 100,000 trucks? 

Details of the truck battery or route patterns are unavailable so it’s hard to say. Still, at this scale a back of the envelope calculation will do for a first look.

Rivian, a company part owned by Amazon, will make the trucks. Rivian offers its current vehicle platform as a truck or an SUV. The smallest battery is 105 kWh and the largest 180 kWh. A Tesla battery is about 75 kWh. Let’s assume the Amazon truck battery will be 200 kWh with speed limited to preserve range, and reduce insurance costs.

Amazon’s battery fleet by 2030 will have a total energy capacity of 20,000,000 kWh, or 20 GWh. By today’s standards Amazon is probably the largest planned battery operator in the world, by a long way. The only company that might have a larger planned fleet is China’s national grid operator, State Grid, which among other things also runs batteries for electric buses.

How much power capacity Amazon will need to charge its batteries? If the batteries have a maximum charging rate of 50 kWh per hour, charging takes at least four hours probably between 10 pm and 6 am. Therefore, Amazon will need about 5 GW of wind power. 

However, no power plant operates at 100 per cent capacity all the time. Wind is variable, but predictable. So, more realistically Amazon will need 7-8 GW of wind power capacity, about 1,750-2,000 turbines, to charge batteries. 

In practice, it’s more complicated. Some trucks may charge during the day. In some countries, regulation doesn’t yet allow sourcing power directly from wind and solar power plants. 

A $20 billion clean-truck transition

What will it cost? A truck might be $100,000, including about $20,000 for the battery, for a fleet cost of $10 billion. Wind power plants about $9-10 billion. So, the source-to-service solution is about $20 billion, give or take, or $2 billion a year for 10 years. 

Amazon only needs $2 billion of cash or debt per year if it’s better off owning trucks, batteries and power plants outright. Instead, power will probably be sourced from a mix of long-term contracts, plus trading of surplus and deficits in electricity wholesale day ahead and spot markets. 

Leasing is an option for trucks and batteries. Then again, Amazon, given the scale of operations and the challenges of optimising fleet management, may bring it all in house. 

There’s a precedent. Amazon didn’t buy all its data centre needs from third parties. Instead, it setup data centres, learned a lot, and recycled that into Amazon Web Services, one the company’s biggest moneyspinners.

Capitalising on data and power

Electric trucks present a similar opportunity. Amazon will capture reams of data from electric trucks to design, train and refine algorithms for optimising routes, electricity and batteries. Amazon’s expertise in artificial intelligence (AI), especially machine learning, will be critical. If there’s a gap, expect Amazon to buy or partner with AI pure plays. 

Getting the most value out of the mobile battery fleet extends beyond shipping into electricity trading. Selling energy in vehicle batteries back to the grid is an emerging opportunity over the coming decade. Countries with open electricity markets, such as Australia, India, Malaysia and the US, will be in the vanguard.

Such vehicle-to-grid (V2G) services, conceptually, could result in vehicle owners earning cash or electricity credits. Fleets of batteries, whether in vehicles or at fixed locations, managed together function as virtual power plants (VPP). Amazon’s batteries are potentially the largest collection of VPPs in the world, at least outside China. 

If most of Amazon’s vehicles are on the road during peak periods the V2G opportunity is small. However, at peak times it might be more profitable to delay deliveries and let trucks plug-in to sell battery services to power grids. That’s a good probability and risk opportunity for AI to solve.

Batteries have a second-life after trucking. Circular business thinking plans for the evolving role and value of a battery over its lifetime. A battery no longer good enough for a truck will work well in less demanding roles, such as at a data centre or factory. After its second-life value is exhausted there’s money from recycling materials into new products, such as batteries.

Amazon fleet services for a few billion electric trucks and buses

Running a fleet of electric trucks is going to save money in energy and maintenance costs compared to diesel trucks. It will complement Amazon’s push into delivery drone services and prepare the company for the electrification of short-haul aircraft in the late 2020s. 

In getting ahead of the regulatory curve, Amazon is enhancing its reputation at a time of increased scrutiny. It is also positioned for a strong position with a wide moat in energy services markets emerging from and indeed critical to the energy transition. 

For fleet and battery operators, Amazon’s expertise recycled into services will be valuable, simplifying a complicated opportunity. It might come as standard with Rivian trucks. The potential is there for fleet services to become a major business for Amazon as a few billion buses and trucks worldwide go electric. 

It might even pay for Amazon’s own electric truck fleet. In which case, free delivery on everything?

David Fullbrook is a partner with XRG Energy, a project development and strategy consultancy that supports the wise use of clean energy in a warming world.

 
 

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