The trucking industry’s transition to zero-emission and autonomous trucks will unlock new revenue opportunities for OEMs, while drastically reshaping the relationships truck makers have with their fleet customers.

This is according to McKinsey & Company, which shared findings from its recent research with trucking journalists at this year’s Consumer Electronics Show. McKinsey is anticipating the freight market will grow this year, with a pre-buy ahead of EPA27 emissions standards providing additional tailwinds for truck makers.

In fact, the North American medium- and heavy-duty truck market is the only large global market expected to grow through 2035.

“This is the most profitable market for OEMs, and the largest growing market,” said Prasad Ganorkar, partner with McKinsey & Company, adding sales are expected to grow at a 1% compound annual growth rate (CAGR) through this period.

McKinsey — and its Center for Future Mobility — expects the adoption of zero-emission vehicles to ramp up after 2027, but there are still significant investments that must be made in charging infrastructure to support those vehicles. In order to achieve targets to slash truck emissions by 23% by 2030, $7 billion (all figures US) will need to be invested in charging infrastructure, ramping up to $20 billion by 2035.

“That does not take into account any grid upgrades that will be required,” said Ganorkar. “So, in our sense, this number can increase by anywhere from 30-50% as you think about the additional work that’s required to enable the grid infrastructure to be connected.”

Currently, just 1% of the North American medium- and heavy-duty truck market’s new sales are powered by battery-electric vehicles (BEVs). That’s expected to grow to 17% by 2030, with hydrogen-fueled trucks emerging to capture about 6% of the market and internal combustion engines remaining the dominant player at 76%.

By 2040, McKinsey sees a more balanced market with 36% battery-electric, 27% hydrogen and 37% internal combustion. BEV is first to market, noted Ganorkar, but he added there will be “a place for different technologies, depending on use cases and applications.”

Tobias Schneiderbauer, also a partner with McKinsey & Company, noted hydrogen will play a role as well, but the biggest barrier to overcome is the cost of green hydrogen, which remains cost prohibitive. Trucking will also have to compete with other industrial users for the clean fuel.

New revenue opportunities for OEMs

As the transition to zero-emission trucks occurs, manufacturers will look to access new revenue pools. The sale of the truck will represent just a small portion of the truck maker’s revenue and profit, as they expand their breadth of offerings to include the entire ecosystem around that truck, the analysts suggested.

“As we start to see the penetration of zero-emission trucks growing, we also expect the profit pools from the industry start to shift,” Ganorkar said. “A lot of the profits will start to come from new sources of revenue for the OEMs within the broader ecosystem.”

By 2035, said Schneiderbauer, 90% of the OEMs’ profits will come from non-truck sales, generating $21.7 billion annually in recurring revenue for data-related and other services. These could include: financing and leasing, charging and electricity, data-enabled services, and even insurance.

Today, 15% of a truck OEM’s profit comes from the sale of the vehicle; McKinsey anticipates that will shrink to 8% by 2035 as OEMs take advantage of new profit streams.

As truck makers evolve their offerings to cover the entire ecosystem around the truck, “The truck will not be seen as a differentiator,” said Ganorkar. “The ecosystem will be [the differentiator]. The truck is just an enabler.”

This means the winning OEMs will be those who can provide the most appealing total cost of ownership across the entire ecosystem. And as they look to achieve this, McKinsey believes the industry will embrace the Truck-as-a-Service model, which will enable the OEM to provide not just the vehicle, but all surrounding pieces of the ecosystem around that vehicle, from the fueling or charging, to maintenance and aftermarket support, right down to a virtual driver in the case of autonomous trucks.

Fleets receptive to Truck-as-a-Service model

McKinsey’s research suggests fleets are receptive to this model. More than 70% of surveyed fleet customers told McKinsey they’re interested in TaaS. As trucks become more complex and are equipped with ever more electronics, fleets are more likely to rely on the OEM to service all aspects of those vehicles, the company has found.

This will take a different approach to business from the OEs.

“This offering requires a bit of a different mindset and a business model change for the OEMs,” Ganorkar said. “So far, their whole focus has been ‘I’m going to sell a truck. The service is going to be taken care of by my dealer or by the fleet themselves. All I need to do is make sure the parts are available.’ The mindset now needs to shift toward saying ‘I’m offering an integrated solution. I need to be responsible for the end-to-end uptime of the truck’.”

Still, more must be done to reduce the costs of both zero-emission and autonomous trucks before market acceptance grows. McKinsey indicated a 30-50% cost reduction in BEVs will be needed to match the TCO of diesel trucks today.

It projects SAE Level 4 autonomous trucks will become TCO-positive on hub-to-hub routes by 2030 based on the technology’s continued maturity.

6 additional takeaways from McKinsey & Company

• The truck market will become less fragmented, as fleets look to streamline the makeup of their fleet, likely relying on two brands at most;
• OEMs could provide transportation services, through their TaaS models, for shippers directly;
• Partnerships with suppliers will be key, and standardization (of charging, for instance) across brands will be necessary;
• Green hydrogen will need to become more affordable for widespread adoption;
• Truck OEMs will compete for a bigger slice of the revenue pool associated with connected services, including telematics, potentially displacing some third-party providers;
• McKinsey doesn’t comment on policy, but anticipates the new U.S. administration could potentially allow “a longer pathway to the transition” to zero emissions.