The electric medium- and heavy-duty truck and bus market today is still small, with less than 1,500 units in annual sales in North America and less than 2,500 units in Europe. The vast majority of these volumes come from the transit bus segment. Only China is a sizable market for electric commercial vehicles today with about 70,000 units sold in 2020. Again, the transit bus segment accounts for the majority of these sales.
In all three regions, the market is fragmented with only a handful of players reaching meaningful volumes like the Chinese bus manufacturer Ytong or the US specialty truck builder Workhorse. BYD is so far the only manufacturer with a presence in China, the US and Europe. The traditional truck manufacturers are catching up and launching their electric trucks in 2021. COVID-19 caused many players to delay their launches initially planned for 2020.
Regulatory push increasingly important
Growth of the electric truck market can be driven by regulatory push or market pull. Battery electric vehicle (BEV) adoption in the European market will mainly be driven by regulation in the coming years. In 2019, the European Commission set challenging CO2 targets for heavy trucks with high penalties for non-compliance from 2025 onwards. Medium-duty truck regulation may follow in 2022. In addition, many European cities have announced diesel bans that will also affect delivery or utility trucks operating in urban environments. With the long-term vision of the European Commission to decarbonise transport, adoption of zero-emission vehicles will gradually increase over the next decades.
Regulatory push and societal pressure will ensure that fossil fuels will not dominate the future of transportation
The US market, so far, has seen more market pull than regulatory push. Large fleets, especially in end-consumer facing industry verticals, are trying to convey a green image by engaging in electric truck trial programmes. While federal CO2 targets are being introduced also in the truck segment, they are designed to optimise existing internal combustion engine (ICE) technology and not drive the transition to zero-emission trucks. This picture changed in mid-2020, when California announced the introduction of the Advanced Clean Truck regulation that mandates sale targets for zero-emission trucks from 2024 onwards. Several other states have already announced that they would introduce similar regulations and with the new administration coming into office, further uptake of the regulatory push in the US is likely.
TCO parity necessary for growth
Across regions, the development of the BEV truck market will go through some fundamental stages. The proof-of-concept phase, where manufacturers showcased the viability of the technology, has passed. All markets are now in or entering the early adopter phase, where truckmakers launch small scale production and where adoption is driven by the region-specific push or pull forces. While the US and Europe are about to enter this phase, the Chinese market is already further down on that path.
Annual volumes in the early adopter phase will still be limited, but the market is poised to grow in the following growth phase. This phase will start once total cost of ownership (TCO) parity between BEV and diesel vehicles is reached. Timing of TCO parity depends on regional market characteristics such as CO2 penalties, diesel price and electricity price.
Considering the regulatory push to drive volumes in Europe and China, it is likely that these two regions will be the first to achieve TCO parity. However, the actions of the incoming administration in the US will have to be watched carefully. Clearly, with a change in government, the risk of a technological decoupling between the US and the rest of the world has receded.
In terms of use cases, regional differences are likely to persist as well. For example, within the European Union, 4×2 heavy-duty trucks must be electrified to avoid steep penalties starting in 2025 and even steeper penalties in 2030. In the US, the medium-duty truck and school bus market will continue to be attractive use cases for electrification.
Electrification will impact the vehicle value chain
As is visible in the passenger car segment, electrification is changing the playing field for manufacturers. Consolidation or co-opetition between industry players is critical as investments outstrip the funding capacity of single players. Truckmakers will look at their technology portfolio critically, re-evaluate ‘make versus buy’ decisions, and—as is the case in hydrogen already—find ways to co-operate. Similar to the passenger car segment, albeit with a certain delay, players will have to re-evaluate their overall manufacturing footprint as well.
Downstream challenges go beyond the typical core competencies of truckmakers
These challenges are significant, but the biggest impact is downstream in the value chain. Here, customers rely on truckmakers to provide support in terms of consulting, such as regarding charging concepts and infrastructure. The role of telematics is also more important as charging vehicles is hampered by a lack of charging infrastructure and by long charging times. Being smart about when and where to charge is critical for smooth vehicle operation and must be supported by telematics.
These downstream challenges go beyond the typical core competencies of truckmakers, hence most opt for solving these challenges by constructing ecosystems that include utilities and charging station operators.
Vehicle cost and TCO parity, charging times and infrastructure limitations are valid concerns regarding medium- and heavy-duty electrification, but regulatory push and societal pressure will ensure that fossil fuels will not dominate the future of transportation. The transition for truckmakers and suppliers will not be easy, but there truly are no alternatives.
Wilfried Aulbur is a Senior Partner and Walter Rentzsch a Principal at Roland Berger’s Chicago office. Frank Pietras and Thomas Fang are Partners in Roland Berger’s Munich and Shanghai offices, respectively.
