Roundtable

Tokyo 2022: Harnessing net-zero fleets

Transportation accounts for one-fifth of global carbon emissions, and net-zero transport fleets are a key component of reducing transportation’s carbon footprint.

Questions prevail about how to make such fleets, from passenger vehicles to city buses and heavy-duty trucks, a reality.

On October 21, 2022, McKinsey’s Global Infrastructure Initiative convened a roundtable discussion in Tokyo titled, “Transportation infrastructure: Harnessing Net-Zero Fleets.” The audience comprised owners, operators, government officials, and senior leaders across engineering, construction, and transit. Roundtable participants discussed several important questions:

  • What needs to be solved to provide net-zero fleet alternatives across vehicle types and use cases?
  • What business performance requirements will underpin widespread adoption, and how can industry players accelerate the transition?
  • What infrastructure investments are necessary for a transition to the related fuels, and at what pace or sequence?

The following key themes emerged from the roundtable:

  1. Hydrogen is a longer-term focus, while a focus on battery electric is imminent. Battery electric vehicles (EVs) for most use cases outside of heavy-duty (and some medium-duty) trucks are the preferred technological solution. Battery electric is closer to total-cost-of-ownership parity, less complex, and, importantly, requires less coordination on the infrastructure side to set up and operate than hydrogen. Unlike battery electric vehicles, hydrogen vehicles will require extensive unique infrastructure to recharge. In early stages, hydrogen vehicles can piggyback off the existing electric-generation network and can grow incrementally along with needs.
  2. Electric vehicles are imperative for decarbonization. Depending on the geography, transportation can make up nearly 50 percent of Scope 1 and 2 emissions. Although a shift to public transportation is always a priority, realistically, in many car-centric geographies, decarbonizing internal combustion engine (ICE) vehicles will be the predominant pathway for reducing greenhouse-gas (GHG) transportation emissions; and global GHG goals will be impossible to meet without pursuing EVs aggressively.
  3. Infrastructure must adapt to keep up with demand. Governments are increasingly subsidizing EVs, but the true challenge is in building the infrastructure to service fleets of EVs. They have different maintenance needs, in addition to a host of different regulations, so they require purpose-built or carefully retrofitted depots and garages. Building out these facilities, particularly while fleet owners operate dual-fuel fleets, is a critical challenge and may require public subsidy in the short term for land leasing and approvals.
  4. Building and maintaining a new workforce will help sustain progress. EVs require new operating and maintenance needs in an industry that is already suffering labor shortages in key positions, such as drivers. These added labor needs will also need to be carefully managed. Success factors to attract and retain workers to the field include better defining the purpose behind the role, creating and advertising long-term career tracks, and carefully building the pipeline of labor supply by tapping into newer, or less traditional, pools of labor.
  5. Providing turnkey solutions to public transit will help accelerate the transition. The challenge of financing, maintaining, servicing, and operating EVs is supporting the buildout of a new class of electrification-as-a-service companies. These companies could offer turnkey solutions to buses, just as train operating companies have done for rail. These solutions represent a promising growth area that can help accelerate the transition to EVs, particularly as long as the sticker price of EV buses remains higher than that of ICE buses and companies need to maintain dual-fuel fleets.
  6. Capital is available, but partnerships are needed for deployment. The market size and return profile should make private investment in the transition to EVs attractive and will serve as the primary source of capital. Maximizing private-sector flows of capital requires the public sector to take an active role, such as setting up the regulatory framework and seeding projects so investment can follow. For new product types, the government may have to prove the model first through pilots or structured public–private partnerships. Once it does, private capital and demand risk projects should follow.