Client goal

Our client is Talbot Trucks. Talbot Trucks has approached McKinsey for help in assessing the feasibility
of manufacturing electric trucks to reduce their fleets carbon footprint.

Description of situation
Talbot Trucks is a European-based private original truck equipment manufacturer. They produce and sell
trucks across the world. Talbot Trucks is considered a leader in quality manufacturing. Its primary
customer base includes large trucking companies, that own thousands of trucks and owner-operators who
are smaller customers owning fewer trucks.
Trucks are mainly powered by diesel engines today and require carbon-based petroleum fuel. Talbot
Trucks is interested in exploring ways to reduce the carbon footprint of their vehicles and has specifically
asked about electric trucks (eTrucks).
eTrucks and diesel trucks differ in their design (e-motor and batteries vs. combustion engine) and also in
the way they are fueled (comparably slow charging vs. quick refilling with diesel fuel at gas stations). The
introduction of this new technology is disruptive for the manufacturers as well as their customers, both
large and small.

McKinsey study
The CEO of Talbot Trucks has approached McKinsey to help determine the attractiveness of an
investment in eTruck manufacturing for its European market.
Helpful hints
 Write down important information.
 Feel free to ask the interviewer for an explanation of any point that is not clear to you.
Question 1:
What information would you want to collect in order to understand the attractiveness for Talbot Trucks to
produce and sell electric trucks in Europe?
Helpful hints
 Take time to organize your thoughts before answering. This will help show your interviewer that
you have a logical approach and can think in an organized way, regardless of the “accuracy” of the
outcome.
 Develop an overall approach before diving into details.

Answer 1
Some of the information you might discuss with your interviewer could include

 Market. What are important differences between large and small truck customers (e.g., price,
features, reliability, volume)? Which geographies in Europe are most receptive to electric trucks
(e.g., environmentally conscious population, or ones with an environmental political agenda)? How
will customers perceive Talbot Trucks' eTrucks vs. existing competitors or new entrants? What are
potential substitutes (e.g., rail)?
 Financials. Are there different market segments (use cases) for e-trucks? How does revenue
potential compare among these segments? What are Talbot Trucks main cost drivers? What price
could be expected in different segments?
 Risks. How much experience has Talbot Trucks with eTrucks? Will they be able to produce a
reliable product in a cost efficient way? What will happen to sales of current Talbot Trucks models?
Will legislation force a move towards eTrucks? If so, what are the risks associated with actively
addressing the issue instead of waiting it out?
Question 2
The team set out to investigate the major cost drivers for buying and operating one diesel truck, an analysis
commonly called the Total Cost of Ownership (TCO). You were provided with the following information
comparing the TCO for a diesel truck and for an eTruck:
 Driver: A driver costs ~3,000 EUR
per month. There is a significant
shortage of drivers in the market.
 Depreciation: Diesel trucks costs
100k EUR. The typical lifetime is four
years. Residual value (i.e., the value
at which you can resell the truck) is
assumed at 0 EUR.
 Fuel: A heavy duty diesel truck
consumes around 30 liter diesel/100
km. Diesel price is 1 EUR/liter.
 Maintenance: As a rule of thumb
maintenance per truck are ~5,000
EUR/year for a diesel truck.
 Other (includes tolls, insurances,
taxes): 10,000 EUR/year.
Using the data, what can you infer about the differences in the TCO for diesel vs. etrucks?
Helpful hints
 Take some time to look at the information and note down any observations you have.
 Challenge yourself to identify trends that are not immediately obvious in the data.

Answer 2
Some of the differences you might discuss with your interviewer could include

 Fuel and depreciation account for ~80% of the costs of an eTruck (see bar on the left), and
therefore are the key drivers for buying an eTrucks
 eTrucks have a significant advantage over diesel trucks in costs per km. Therefore, eTrucks get
more and more attractive the more distance they cover per year.
 Depreciation may vary meaningfully for eTrucks as well, as presumably eTruck prices will be more
expensive given the newer technology.
 Other costs are much lower for eTrucks, suggesting there may be tax breaks or other financial
incentives keeping these costs lower.
Question 3
After conducting focus groups with Talbot Truck customers, the team concluded that the total cost of an
eTruck needs to the same as a diesel truck to be considered attractive by customers. Currently a Talbot
Truck diesel truck cost 100k EUR.
Assuming the figures above do not change, what is the maximum price Talbot Trucks can charge for
their eTruck, so that the total cost of ownership is equal to that of diesel trucks?
Helpful hints
 Don’t feel rushed into performing calculations. Take your time.
 Remember that calculators are not allowed, you may wish to write out your calculations on paper
during the interviews.
 Talk your interviewer through your steps so that you can demonstrate an organized approach; the
more you talk the easier it will be for your interviewer to help you.

Answer 3
A possible approach to discuss with your interviewer could be:

Annual TCO for an existing diesel truck has 5 components:

 Driver costs (3,000 EUR/month x 12 months) = 36,000 EUR

 Depreciation (100,000 EUR over lifetime ÷ 4 years) = 25,000 EUR
 Fuel (30 liter/100 km x 1 EUR/liter x 100,000km / year) = 30,000 EUR
 Maintenance (5,000 EUR)
 Other (10,000 EUR)

This sums up to 106,000 EUR total annual cost of ownership for a diesel Truck

4 of 5 components of an eTruck annual TCO are:

 Driver costs (3,000 EUR/month x 12 months) = 36,000 EUR

 Fuel (100 kWh/100 km x 0.15 EUR/kWh x 100,000km/year) = 15,000 EUR
 Maintenance (3,000 EUR)
 Other (5,000 EUR)

This sums up to 59,000 EUR with the depreciation component still missing

If the annual TCO for an eTruck is equal to the annual TCO of a diesel truck (106,000 EUR), then annual
depreciation for the eTruck is 47,000 EUR (106,000 EUR – 59,000 EUR)

Therefore, the full lifetime cost for a eTruck is 188,000 EUR (47,000 x 4 years); the maximum price for an
eTruck would be €188,000.