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IAA 2018: McKinsey forsees a business model disruption in transportation


In the larger scheme of things, the approach towards mobility is evolving, as people and governments are increasingly perturbed by traffic on the roads, and emissions from exhaust. This has led to a noticeable push towards a reduction in CO2 emissions in the trucking industry, disruption of last-mile delivery chains via business models, a regulatory drive towards Mobility as a Service (MaaS), and alternative powertrains running on batteries or fuel cells that wrestle for market share.

At the IAA 2018, Bernd Heid, Senior Partner at McKinsey & Company, gave a holistic perspective towards the future of mobility, especially within urban boundaries. “In our research, we’ve modeled the global revenue and profit pool. In 2017, the combined profit of the industry summed up to  €11 billion, and by 2030, we see it increase to €16 billion,” he said.

“In the core business, we see that macroeconomic tailwinds of €3.2 billion get fully eaten up by €3.9 billion of negative industry effects, such as emission regulations or further price decrease from competition. Additional industry profit growth could likely come from two sources – first, operational efficiency of €2.9 billion will help create resilience against downturn, and finance required investment into new technology. Second, new opportunities are expected to deliver €2.7 billion of additional industry profit pools,” said Heid.

Heid pointed out that though there were a handful of alternative powertrains that could complement diesel, most of them would require significant investments in infrastructure, such as electric charging points or hydrogen refilling stations. Nonetheless, looking at it realistically, the total cost of ownership (TCO) of battery electric and fuel cell vehicles could have an advantage over diesel in the coming years.

Though industry trends already suggest the inevitability of electric powertrains in city distribution and last-mile, the scope could be broadened to include the long-haul segment as it amounts to 60% of all commercial vehicle sales in Europe. “In 2023, the TCO cost parity might be reached at 81 cents per km ($1.5 per mile), for selected use cases. The timing of the TCO break even obviously depends on specific use cases, however also on a couple of other drivers such as – regulations, highway tolls, and the battery lifetime,” said Heid.

Heid also made a case for autonomous driving, elaborating on what McKinsey believes would be the roadmap towards the technology’s mainstream adoption. “We expect highly automated driving in geofenced areas by 2020. 4-5 years from now, we expect platooning on highways to become a reality,” he said. “However, this stage still requires a driver in the leading vehicle and autonomy will only be on the highways at the beginning.”

The company expects full autonomy on highways by 2025, with drivers required only for pick-up and drop-off operations in the first and last mile. Then again, Heid was certain that complete autonomy is in the distant future, mentioning that it was “still a decade away.” Regardless, the relevance of autonomous vehicles is felt with the TCO savings per truck, as driverless applications would mean operational costs are slashed by 45%.

Investment and VC interest in the autonomous driving vertical have exploded over the last decade. “We see that more than 1000 players are active in the field and more than $40 billion have been invested since 2010. Interestingly, less than 10% of these investments came from the automotive space,” said Heid.

As situations change, so do business models. Commercial vehicle players in the market understand its evolution from being driven solely by vehicle technology to branching out towards connectivity services and data-driven analytics. Vehicle electrification is a future that has already panned out in the East, with over 90% of buses sold in China today being battery electric. “By 2020, we expect that 20% of the European bus sales would be electrified. OEMs are required to offer fully integrated systems that go beyond the pure selling of buses and range into the full ecosystem,” said Heid.

Increasing commoditization of vehicles will lead to OEMs staying focussed on operational efficiency at the heart of its business, as they look towards alternative powertrain solutions to complement their diesel offerings. McKinsey expects disruptive competitors emerging from corners that have traditionally ignored the OEM industry, like the Silicon Valley, Tel Aviv, or Shanghai. Heid contended that differentiation through a product alone would no longer be feasible, and that mobility would change across major dimensions.

“On the people dimension, we have the aim for zero fatalities and accidents, as well as a shift from pure commuting time to value-added time. And on our planet, we further strive towards 100% clean technology and emission-free technology,” he said. “And on the business dimension, it is important to stay competitive, decrease transport costs and further gain in attractiveness.”