Kick your CO2 Habit –> Save $$Millions
In the face of climate change, limited fossil fuel resources and fragile fuel trade agreements, it is clear that the way the world ‘does’ energy has to change. Whilst there are many moral and ethical reasons that businesses should seek to reduce their energy consumption and emissions, the course of business history tells us that few companies will actually do this unless the decision to do so is also financially attractive.
Enter XL Hybrids.
The industry at the center of this situation is the American Logistics industry.[ii] These businesses are sitting on enormous amounts of energy inefficient trucks, vans and trailers. It is financially impossible for them to abandon these existing fleets in favour of new, more energy efficient vehicles yet the social and corporate pressure for fleets to become environmentally “safe” is increasing by the day.[iii]
XL Hybrids has created technology that can be retrofitted onto existing trucks to greatly improve their fuel efficiency and reduce their emissions. More importantly, an investment in an XL Hybrids retrofit pays for itself in only two years, making it a very attractive financial decision.[v]
The increase in “on-demand services” has created a conundrum for many companies, especially in America. Consumers expect access to goods and services 24/7 and as a result many large companies, especially CPG and logistics, have started to expand their fleets to incorporate numerous smaller vehicles to accommodate for the continuous shipping needs of their customers and the urban location of many of the requests. A product of this has been a steep increase in the fuel costs for companies – especially in states such as California where petrol prices are much higher than the U.S. national average – as well as an increase in the rate of wear and tear of the vehicles, (urban driving damages vehicles more quickly than long-haul trips as there is heightened stopping and starting).[vi]
With transportation believed to be responsible for 28% of U.S. CO2 emissions, [vii] (making it the second largest source behind electricity), innovation in the transportation space is not only critical to combating climate change, but can also be very lucrative.
XL Hybrids (XL) was founded in 2009 by MIT grad, Tod Hynes. Based in Boston, Massachusetts, XL is the, “leader in fleet electrification solutions for commercial and municipal fleets”.[viii] XL has created an innovative technology solution using regenerative braking – a proprietary hybrid electric car process – that helps its customer to optimise fuel efficiency, (25% increase in miles per gallon), lower performance costs and measure performance to meet corporate responsibility goals put in place by the company or the government. [ix]
The XL system can be installed in a fleet truck within six hours, meaning that it can be done overnight so there is 99.9+% fleet uptime. The installation works seamlessly with the truck’s current functionalities so there is no training time or infrastructure needs required and no disruption to the fleet schedule.
I went to visit the factory in Newton, Massachusetts to see the team install one of their products into a Coca-Cola truck.
To install the system consistently in under six hours the team needs to have every stage of the process memorised and needs to be operating at 100% capacity, (there was no idle time and almost 0% time for product defects or personal error). In general, the installation process is designed as a job shop in which all of the required amendments to a truck are worked on in parallel. The sales cycle for the products is complicated and long and XL has not yet been able to build out a very sophisticated inventory management system. The current system is to ramp up inventory purchasing when XL thinks a deal is about to close meaning that the plant often has a high quantity of raw materials and some WIP, though almost never any finished goods as the truck is almost always picked up as soon as the six hours of work on it are complete.[xii]
XL’s innovative technology have allowed it to acquire a wealth of brand name customers, ranging from Coca-Cola to FedEx and ThyssenKrupp. With the likelihood of an increase in climate change bills being introduced in the coming years, XL needs to be prepared to educate their customers about the opportunities that they provide and to position themselves as the continued preferred partner for corporate America. Marketing to the consumer and credibility of the XL products will be paramount for XL’s continued success. As well, ensuring that XL’s products remain in keeping with changing regulation and guidelines will be essential for success.
With its mission statement of, “Our team is dedicated to beating big oil by giving fleets a cost-effective way to reduce fuel consumption and meet sustainability goals”,[xiii] XL is a strong example of a company created to combat the growing climate challenge in our world.
Want further proof? Let’s look at some case studies to see how effective XL is:
[i] Climate Change in 2016: Implications for Business (317032)
[iv] XL Hybrids – factory visit
[x] XL Hybrids – internal company documents
[xi] XL Hybrids – factory visit
Student comments on Kick your CO2 Habit –> Save $$Millions
Improving an existing fleet is an interesting idea, and one that seems logistically difficult especially with different companies owning many different types of trucks. I am glad to see that there is an intermediary solution for companies with vehicles whose fleets are not at the end of their useful lives. Although large manufacturers such as GM or Ford do not have a strong hybrid offering for their fleet vehicles today I believe they will be increasing options available in this category. I would be interested to know what the XL Hybrid team plans to do as more corporations buy hybrid vehicles as they replace their older vehicles. Is their a likelihood they will be obsolete in 5 years?
Also I would be interested in how the XL Hybrid team is taking advantage of emissions regulations to make their business more attractive for potential customers. A brief look at the XL Hybrid website did not speak about potential carbon credits or other similar benefits. This could be a potential opportunity for the team.
Sho-time, these are great comments and some really good insights, making me think, thanks!
XL’s belief is that the rate of fleet replacement isn’t expected to be less than 15 years. This should give XL the time to create strong relationships with the companies as they a). innovate and develop more products and b). have the potential to spin out into a data company. You are absolutely correct that the threat of fleet replacement is very real for their business model and that ensuring that their business model is always taking advantage of carbon credits and regulations in their favour will be critical for success.
I had no idea that such a company existed, and I am very optimistic about this concept. I think it addresses the gap that consumer electric cars have yet to address: the fact that no one wants to buy electric cars (except for $80,000+ Teslas). Tapping into the commercial market is both smart from a financial and strategic perspective. The commercial need is there. They are governed by regulation and consumer pressure to be green. XL Hybrid gives them a tool to enact measures that bring tangible cost savings and reduce CO2 emissions. Furthermore, from a strategic perspective, it is more reasonable to ask a commercial company to retrofit its fleet of trucks and vans with this kit rather than completely replace them with electric vehicles. I think XL Hybrid has found a niche market that it can benefit from while simultaneously helping the world gain ground in the battle against greenhouse gases. My only concern is long term viability. I wonder what is the long term strategy of XL Hybrid. I have an intuition that over the next generation, or so, electric cars will become much more mainstream, and it will not be unreasonable for a commercial entity to have a fleet of electric vehicles. The viability of XL Hybrid comes into question in that world. Great post!
Hi Billy, you raise a really good point with your concern about the long-term viability of XL Hybrids! You are absolutely right that if the cause it is hoping to help – climate change – starts to “win” and more electric cars start to be on the road and in fleets then XL faces a serious issue of relevance for its current clients.
I think what will be key is XL continuing to innovate on the products and solutions that it has for its customers as well as to continue to build new answers as the regulation landscape changes and new avenues are opened for improved processes to the CO2 emissions troubles for fleet managers. Thanks for your comment and thoughts!
I thought this was a very interesting post. Ideally, an electric vehicle would get invented and Coke or GE would be able to replace their entire old fleet with the new vehicle within a year or so. In practice, I would guess that it is actually going to take many years before those old vehicles would get replaced with new electric ones. Having an interim option – this electric retrofit – is an innovative solution.
I’m interested in how this company’s value is related to the prevailing oil prices. I would imagine that their pay back period is closely related to whether gas is really expensive or really cheap at any given time. Do you have any sense of whether XL Hybrids thinks about this sort of thing? The volatility of gas prices over the past 24 months has probably been crazy for them!
Finally, I thought your description of how they actually perform the retrofit was cool. It makes sense that not only do these retrofits need to be cost effective, they need to not create downtime in their fleet. It makes sense that the idea of ‘asset utilization’ from our earlier TOM classes holds true with these fleets. If Coke paid a ton of money for a truck, they probably want it to be on the road making deliveries as much as possible. Being able to install the system overnight must be a big selling point with customers.