This should be Intramotev’s moment. The St. Louis, Mo.-based manufacturer of electric railcars is positioned to take advantage of the push to bring green technology to the carbon-intensive freight industry. But like startups across the country, the company is confronting less venture capital with interest rates at a historic high.

Shifting the entire U.S. freight industry towards net-zero emissions is a massive undertaking. It’s even more difficult with persistent high interest rates. While the technology is ready with powerful batteries and fast charging, huge investment is needed to buy the comparably expensive vehicles and build out electric infrastructure — making the industry vulnerable to the impact of increased borrowing costs. That means federal and state governments will likely need to support the transition via subsidies and regulations to reach those goals in the coming decades.

“Higher interest rates are really hurting clean technology investments, a lot more so than fossil fuel investments,” said Ethan Elkind, director of the Climate Program at UC Berkeley School of Law. “That’s because everything from electric trucks to solar panels and wind turbines are much more capital intensive.”

Fed Holds Rates High

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Earlier this month, policymakers at the Federal Reserve kept their benchmark rate at a 23-year high and indicated they are likely to keep them there for months longer. 

Shifting freight transportation away from carbon-intensive fuel sources is critical for the U.S. to hit its climate commitments. The transportation sector as a whole emitted 1,840 million metric tons of CO2 equivalent in 2022, according to the EPA. Medium- and heavy-duty vehicles, referring to trucks, are responsible for 21% of transportation emissions, according to the DOE. In comparison, rail, with its diesel locomotives, account for about 2% of total emissions. 

In April, the Biden administration announced a goal of transitioning the entire freight sector to net-zero emissions. Technologies such as battery and hydrogen have made massive strides in the past few years, but they are still more expensive than their fossil fuel counterparts.

The transition will be incredibly expensive. The Port of Los Angeles, for example, estimates electrifying their terminal equipment would cost over $2 billion. As venture capital funding dries out with higher rates, startups with limited runways are feeling the pressure.

“With high interest rates, there’s less venture capital out there than normal,” said Tim Luchini, CEO at Intramotev.

Still, high rates haven’t stopped their progress. With its ReVolt model already in the field in Pennsylvania, Intramotev is deploying its first TugVolt model this summer. The new autonomous railcar can autonomously detach and finish ‘last mile’ legs that are currently left to trucks.

Large delivery companies like UPS and Schneider have been able to purchase some electric vehicles for their fleet. For example, UPS says they have 18,000 alternative fuel and advanced technologies vehicles in use globally. On the other hand, it has proved more difficult for smaller companies to bear the higher upfront cost of this new technology.

Source: Intramotev

WattEV, a freight transport startup based in California, decided to construct both the trucks and charging infrastructure for their truck-as-a-service model. The company recently announced its fourth charging depot in Bakersfield, featuring a solar-powered microgrid and megawatt rapid charging for medium- and heavy-duty trucks. The series A-startup received about $5 million in grant funding from the California Energy Commission to construct the site. 

“We’re going to keep applying for grants as long as they’re available to us,” said Salim Youssefzadeh, CEO and co-founder of WattEV. “Eventually, we’re assuming that economies of scale will take over and costs will come down.”

Experts studying the transportation sector argue incentives and subsidies will be crucial if the government wants to achieve its goals, particularly with high rates making it harder for the private sector to provide funding. “I think it’s really on the public sector side to make sure that the incentives, dollars and land are all available,” Elkind added.

The Biden administration is earmarking funds for the expensive transition. The Environmental Protection Agency announced nearly $1 billion via the Inflation Reduction Act to replace heavy-duty vehicles like delivery trucks with zero-emissions alternatives. The Department of Transportation is putting the first tranche of its $400 million Reduction of Truck Emissions at Port Facilities Grant Program to improve air quality.

It’s up to federal and state governments to decide how much of the ‘green transition’ bill they want to absorb, and what’s forced onto companies and consequently consumers. The truck and rail industries have each created incredibly efficient and cost-effective systems, and changing that routine might require uncomfortable intervention.

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