Trucking is a significant source of emissions. Given that transportation is the second-largest source of greenhouse gas emissions in the United States, with medium- and heavy-duty trucks accounting for about a quarter of these, transitioning fleets to zero-emission vehicles (ZEVs) has emerged as an urgent priority.1 McKinsey’s recent survey of more than 200 US trucking fleets found that while two-thirds are committed to decarbonization and over half are piloting ZEVs, fewer than 10 percent see a viable path to scaling the use of ZEVs.2 Adoption currently sits at a few thousand units per year, and even with decarbonization targets, there is uncertainty around scalable and timely zero-emission truck adoption.3
Fleet operators aiming to make the ZEV switch share a persistent underlying challenge: The total cost of ownership (TCO) for ZEVs remains significantly higher than that of internal combustion engine (ICE) vehicles. The TCO gap ranges between 30 and 50 percent compared to ICE vehicles running on diesel.4
Other barriers to scaling are multifaceted; for instance, available ZEV models, though improving, often struggle with uptime rate, while charging and depot infrastructure remains underdeveloped.5 Operational complexity further complicates the equation.6
Closing the TCO gap could be essential to unlocking ZEV adoption at scale. Even with the significant structural challenges, there are many opportunities for fleet operators, OEMs, and ecosystem partners to act now, collectively, and pave the path to a zero-emissions future at TCO parity. This article explores three areas for potential action:
- Truck OEMs could take steps to incrementally reduce product costs and deliver their offerings in the US market at scale—which, in turn, could unlock opportunities to compete effectively with their global counterparts.
- Fleet operators can consider evolving their ZEV adoption approach from plug-and-play to operations tailored toward optimizing the unique capabilities ZEV assets can deliver compared to ICE vehicles.
- Service providers, beyond OEMs and fleet operators, play an important role in reinforcing an ecosystem that supports zero-emission truck adoption at scale. This may include supplying the required charging or fuel infrastructure along freight corridors and developing innovative financing offerings.
Sizing the TCO gap
Achieving TCO parity is a pivotal enabler for the ZEV transition, but most fleets struggle to achieve it today. TCO parity exists for light vehicles like vans, but for heavy-duty trucking, TCO is 50 percent higher in many cases.7 The hurdles to TCO parity differ across truck archetypes and use cases.
For example, local distributors run routes that, on the surface, seem perfect for electrification—low daily mileage, predictable routes, light payloads, and vehicles that return to the same depot each night. However, these operators don’t turn the vehicles frequently enough to amortize the higher zero-emission truck costs. To recoup the up-front ZEV costs and approach TCO parity, local distributors may need to increase utilization and raise daily mileage (Exhibit 1).
Conversely, long-haul full truckload (FTL) networks have multishift operations with high utilization at over 500 miles per day. Yet, their schedules are less predictable, and the time available to charge is limited. FTL fleets’ high payload density also requires large batteries or hydrogen tanks supported by infrastructure built out across freight corridors. Reliance on public fast-charging stations—often during peak electricity rate periods—adds unpredictability and erases much of the variable cost advantages of battery electric vehicle (BEV) trucks compared to ICE trucks. Beyond lower up-front vehicle costs, a path to parity may require FTL fleets to tailor schedules to allow for charging in off-peak times and to form partnerships to develop electrified freight corridors and reduce on-route charging costs.
Truck OEMs: Step change cost reductions for at-scale economics
For fleet operators aiming for TCO parity, the up-front vehicle price tag is a recurring obstacle.8 In the United States today, BEV trucks can cost between 50 and 250 percent more than ICE alternatives.9 While there could be opportunities for savings outside of the asset—fuel and maintenance, for example—these are less predictable. Trucking fleet owners are having to reckon with higher up-front asset costs against the uncertain anticipation of lower operational costs and residual value of ZEV assets in the future.
To make the initial outlays more palatable for fleet owners and maintain their own profitability, OEMs can look for opportunities to make a step-change reduction in BEV costs by improving strategic design, technology, and operational excellence. Systematic cost reduction pathways could take into account battery pack sourcing and design, manufacturing and engineering process improvements, economies of scale, and warranty and support reduction. If such measures are implemented, McKinsey’s bottom-up modeling suggests an up-front cost reduction of approximately $150,000, which is in line with cost reduction in light vehicles or passenger cars (Exhibit 2). To illustrate, US OEMs could consider exploring cost-saving opportunities in the following four areas.
Battery pack sourcing and design. This area holds significant potential for price improvement. Three interventions could lead to cost savings of up to $60,000.10 First, in-sourcing or near-sourcing battery cell production has the potential to reduce cell costs. In the United States, local cell production and pack assembly can bring eligibility for battery tax credits of $45 per kilowatt-hour (kWh) in total.11 Second, selecting cell chemistries for cost by moving from high-cost nickel manganese cobalt (NMC) to cheaper lithium iron phosphate (LFP) cells could also result in savings.12 Third, implementing cell pack design improvements, such as adopting a cell-to-body architecture approach and designs that incorporate manufacturing efficiency, could add incremental value. These approaches are gaining ground in the passenger car space and by Chinese OEMs.13
Manufacturing and engineering improvements. Engineering optimization in areas such as e-powertrain production and manufacturing efficiency could realize up to $30,000 in cost savings. Streamlining processes through innovative manufacturing techniques and automation could drive down production and energy costs.
Scale benefits in production. Increasing production from fewer than 100 vehicles a year to thousands could introduce up to $30,000 in savings. The potential could be realized through operational excellence, economies of scale with suppliers, and platform-specific development costs such as engineering and research and development.
Warranty and support reduction. Warranty accrual rates could come down as BEV products reach a steady state, maturing from prototype-like models to higher-reliability designs. EV-specific OEMs report warranty accrual rates from 5 to 10 percent of revenue, compared to 1.5 to 2.5 percent for traditional truck OEMs.14 McKinsey analysis indicates that by matching historical ICE warranty accrual levels, OEMs could reclaim $20,000 to $30,000 of their margin.
Looking to Chinese OEMs as a reference, US truck OEMs have an opportunity to continue innovating in operational efficiency and product cost. Today, for example, Chinese OEMs have access to Chinese-made LFP cells, spending approximately 25 percent less on battery cells than US truck OEMs that mostly rely on NMC batteries.15
Chinese OEMs are also adopting vertical integration, which has improved efficiency and reduced production costs. Incumbent OEMs in the US truck market could take the opportunity to drive product cost improvements and maintain relevance as new providers enter the market.
Fleet operators: Breaking with the current plug-and-play logic
In parallel to OEMs reducing up-front vehicle costs, fleet operators also have a critical role to play in shifting the TCO balance. In most truck applications, a plug-and-play model—trading ICE for BEV without altering operations—is not enough to reach TCO parity. To commit to this transition, fleets may need to dig deep into their operations model and optimize for zero-emission powertrains. While the solutions look different within each application, a core set of optimization enablers can apply across fleets.
McKinsey identified 24 parameters that impact TCO across different fleet operating models. Fleets can directly influence 13 of these (Exhibit 3). The remaining 11 are external market parameters that fleets could monitor but cannot control, such as electricity prices at fleet depots and public charging locations, ambient temperature, diesel and gas prices, and subsidies.
Some of the 13 parameters have a purely positive/negative relationship, where maximizing or minimizing variables has the most substantial impact on TCO. For example, maximizing the vehicle’s dwell time during off-peak periods allows for using slower, less expensive chargers in conjunction with lower electricity rates. Similarly, minimizing the number of trucks at a given site can help reduce peak-demand charges and overage fees, reduce the additional capital expenditure required for EV charging infrastructure at the site, and lower total energy costs.
Some operating parameters can be optimized to a specific value or range—a “sweet spot.” When considering the daily driving distance, too few miles result in insufficient utilization. On the other end of the scale, too many daily miles lead to increasingly inefficient charging schedules, requiring the use of pricier fast-charging facilities.
To prepare for the ZEV transition, fleet operators may need to challenge the way they run their ICE truck operations today. Depending on the fleet archetype and baseline TCO parity gap, this could go as deep as re-architecting their network to reduce the length of haul or adding additional shifts to increase utilization. For example, last-mile parcel delivery vehicles are able to achieve TCO parity today; their fleets’ operating parameters are well suited for EVs with moderate daily mileage and long off-peak charging periods and are ideal for regenerative braking during city trips.
Dry van long-haul networks, on the other hand, have a more challenging road to TCO parity. These fleets have less route predictability, haul heavier than average payloads, and don’t have access to an established network of charging stations across major highways (Exhibit 4). The opportunity lies in the vast set of use cases between these two extremes, where fleet owners willing to challenge their existing operating regimes could potentially gain a competitive advantage and accelerate their path to TCO parity.
Distributor heavy-duty trucking (HDT) fleets nearing TCO parity could reduce TCO by 5 to 25 percent by moving toward the sweet spot in their operations. This would require adjusting parameters alongside other interdependencies. Increasing the daily mileage—moving from one to two driving shifts, doubling the daily driving distance per vehicle—could increase asset utilization if balanced against other interdependencies, such as potential increases in demand charges and grid upgrade costs required for higher-speed charging.
Ecosystems and alliances can support solutions at scale
While fleets and OEMs are the primary stakeholders in the transition to ZEVs, they cannot solve it in isolation—it will take an extended ecosystem of industry stakeholders to support the shift. As has historically been the case with major technology disruptions, a whole new set of business models and participants will likely emerge, where cooperation among existing stakeholders will be critical. While the complete set of solutions cannot be predicted, two ecosystem factors stand out as key enablers to the zero-emission transition: Electrified fleet corridors and fleet ownership innovation.
Realizing electrified fleet corridors
Electrified fleet corridors with reliable on-route charging and fueling options may encourage faster EV adoption, particularly for longer-distance hauls.16 However, the current US public charging infrastructure situation presents a chicken-and-egg scenario: Most fleets have neither the scale nor budget to justify deploying their own on-route charging infrastructure. Meanwhile, existing public charging infrastructure demands high prices—two to three times higher than depot charging—to make up for the low utilization provided by the small BEV trucking fleet on the road today.17
In one possible solution, a consortium comprising US truck fleets and a charging solution provider—potentially with an infrastructure investor—could collaborate, each contributing a key missing piece of the long-haul fleet electrification puzzle. Fleets participating in the consortium could guarantee a minimum utilization of the on-route chargers, between 5 and 10 percent, for instance, while gaining access to competitively priced $/kWh charging rates and guaranteed charger uptime. Simultaneously, the charging solution provider could benefit from a predictable ROI through the pooled utilization of chargers by the participating fleets. An infrastructure investor could underwrite the investment in fast chargers, grid upgrades, and ancillary infrastructure like battery energy storage systems (BESS) and microgrids at the on-route charging locations, thereby easing some of the capital burden on the fleets and the charging provider. Lastly, a system orchestrator could plan the deployment of infrastructure along the freight routes most commonly used by the participant fleets, tailoring the plan to align with each fleet’s daily operating patterns.
This collaborative approach enables the deployment of optimal charging infrastructure in a cost-effective manner, potentially allowing for mutual economic and operational benefits for all stakeholders involved. Our analysis indicates that the consortium model of on-route charging could lead to a 15 to 20 percent TCO reduction for HDT electric fleets (Exhibit 5). To illustrate the potential impact: In a scenario where public charging has not been optimized, TCO parity is estimated to be attainable from the early 2030s, whereas a consortium approach could accelerate TCO parity to around the year 2026—with further upside if daily driving distances are higher than 125,000 miles per year or approximately 400 miles per day.
Generating innovative financing solutions
Beyond the comparatively high vehicle costs, ZEV operations require capital expenditure-intensive infrastructure for charging and, often, grid upgrades to draw enough energy from the power supply. Hardware alone can cost up to a few hundred thousand dollars per charger, while grid upgrades can cost a couple of million dollars per depot.18
While this is challenging for fleets with capital expenditure constraints, there are opportunities to tap into the funding earmarked for energy transition and green investments. The top ten core-plus infrastructure energy transition funds collectively hold an estimated $50 billion in available capital for green investing.19 Fleet operations could present an attractive investment opportunity due to their predictable business models; operational needs could be calculated with precision well in advance of committing to the investment. While residual vehicle value carries some risk, the sway it has over the overall investment case is minimal, and collaborating with the OEM could help mitigate this concern.
Innovative financing is particularly relevant for electrifying third-party logistics (3PL) or for-hire fleets. Notably, 3PL fleets account for about 86 percent of the total US truck ton-miles traveled.20 Few companies operate without significant reliance on these services, making the electrification of 3PL fleets an important step toward achieving Scope 3 targets for the companies that use them. A potential approach to accelerate 3PL ZEV adoption could involve a collaborative effort by investors, OEMs, fleets, and 3PLs to “buy out” diesel truck ownership and replace it with a lease-like model for ZEVs, paired with guarantees for routes and a sufficient price level.
An OEM-led version of that model could be truck-as-a-service (TaaS), through which OEMs can support fleets that may not have the necessary capabilities to face the transition. This type of solution could provide charging, insurance, and maintenance services for electric medium-duty trucks—reducing up-front costs and operational risk to fleets. Following a similar approach, there are opportunities for existing and new participants to reinvent the vehicle ownership structure.
Achieving cost parity with ICE trucks could be the catalyst that begins mass ZEV adoption in the United States. The path ahead is visible, but the journey may require a final push to clear various structural hurdles and close the TCO gap. A concerted effort by fleet operators, OEMs, and ecosystem players could activate new levels of collaboration across the industry, unlock opportunities for global competitiveness, and inspire novel business models that support shared decarbonization ambitions.
