McKinsey Energy report projects Europe will move to electric vehicles quicker than U.S., China
The world is going electric, and according to a McKinsey Energy Insights report, it is leaving the U.S. behind. According to the report authored by Chrsiter Tryggestand, Namit Sharma, Jasper van de Staaij and Arjan Keizer, because of market dynamics, the U.S. and China are lagging in the development and cost parity needed to make electric trucks viable.
While most countries will reach a cost parity by 2025 (the cost difference between electric and diesel power), the U.S. and China will not reach that level until 2030, making adoption rates slower.
“The first driver for eTruck attractiveness is the cost parity of these trucks with diesel alternatives,” the authors note in the report, New reality: electric trucks and their implications on energy demand. “Once eTrucks have lower total cost of ownership (TCO), many commercially driven business owners are expected to switch their fleets. The second [driver] is electrification readiness, which includes the availability of models on the market and supporting infrastructure, both driven by technology developments and actual investments/production. Thirdly, local and national regulations are enabling a supportive environment, in the form of stricter emission targets and (local) diesel bans.”
Many countries, including France and Britain, have announced they will no longer allow conventional-powered vehicles to be produced by 2040.
McKinsey noted that each region studied (U.S., Europe and China) has its own dynamics and average cost parity range, which also includes factors such as battery size and cost, daily driving distances, electricity consumption and fuel price difference between electric and diesel.
“Our analyses indicate that the majority of commercial vehicles can reach cost parity with diesel-powered trucks within the next 10 years, assuming we see continued improvements in battery cost and power density,” the authors wrote. “The most cost-effective application seems to be in the light duty truck (LDT) segment that drive a relatively constant distance of 100 to 200 kilometer per day, which is a sufficient range but avoids battery costs being too high.”
In the light duty segment, McKinsey expects cost parity in Europe before 2021. “For cases like parcel delivery and small retail delivery, we see a clear economic rationale for operating electric trucks as soon as they are on the market,” it said.
Heavy-duty truck segments will be the last to reach parity, coming in 2027 in Europe and after 2030 in the U.S. and China.
McKinsey said that the electrification of trucks is happening faster than initially predicted and the eTruck market share could be 15% globally by 2030, with that number reaching as much as 35% in light-duty applications in China and Europe.
The U.S. market share will lag that of Europe due to a smaller price differential between electricity and diesel prices, as well as larger battery requirements for vehicles needed to run routes typically longer than what is seen in Europe, faster average speeds, and heavier loads.
An area of concern in all markets is infrastructure. The quickening pace of electric truck adoption is likely to stress electrical grids.
“We expect that early adopters will mainly charge their fleet overnight at their own depots or warehouses,” the authors surmise. “Thus, they will not be dependent on public infrastructure. The inability to charge while on the road means battery size needs to match daily range, which pushes vehicle cost up. However, once eTrucks become more mainstream, we expect the roll-out of supercharging infrastructure at distribution centers and along the main highways, enabling long-haul ‘refueling’ along popular routes.”
Regulations such as clean air programs like those in California are also accelerating the push to electric vehicles.
“Regulation could accelerate eTruck proliferation beyond the levels expected from reaching cost parity alone,” the McKinsey report cautioned. “Important regulatory measures include tightening emissions targets for carbon dioxide (CO2) and oxides of nitrogen (NOx) and the likely introduction of diesel bans in many urban areas around the world.”
McKinsey noted that some 200 cities in the world have emissions and access regulation zones with some, such as Paris, Madrid and Mexico City, banning diesel-powered vehicles by 2040.
“We expect the first eTrucks to be sold at scale in the LDT (light-duty truck) segment by 2020,” the authors conclude. “The delay compared to their early cost parity is due to the limited availability of eTrucks on the market in the short-term. The MDT (medium-duty truck) segment is mostly active in urban and regional applications, which will reach cost parity early as well. Uptake of eTrucks in MDT follows shortly after LDT as cost parity is reached a bit later due to larger battery requirements and lower fuel efficiency. Adoption in the HDT (heavy-duty segment) segment will be the last because of later cost parity, and because HDT predominantly operates on long-haul routes where charging infrastructure will take longer to establish.”
McKinsey does note some of the challenges to this fast adoption rate. These include the difficulty in determining TCO due to the varied applications for vehicles; higher initial investments that require quicker payback; operational flexibility, especially for carriers with variable routes and mileage; and unknown operational risks.
“Although battery electric vehicle technology is becoming more mainstream for passenger cars, the technology for trucks is still relatively unproven,” McKinsey said. “Reliability could initially suffer from startup issues, although expectations are that reliability of eTrucks will ultimately outcompete that of [internal combustion engine] trucks.