Road freight vehicles account for a significant share of global CO2 emissions. Hence, minimizing their carbon footprint is a vital step toward achieving global climate targets. Over the past decade, governments, fleet operators, and truck OEMs have realized this need for action and have gone to significant lengths to make this positive change happen. Today, the only effective way to reduce these emissions is by switching from combustion engines powered by fossil fuels to zero-emission propulsion systems or other carbon-neutral fuels.
Several potential carbon-neutral alternatives to diesel combustion engines exist, including hydrogen engines and biofuels or synthetic fuels (synfuels); however, battery electric vehicles (BEVs) are considered suitable propulsion systems for most commercial vehicle use cases and are expected to dominate the market, especially in the short term.
This publication discusses why investing in battery electric trucks is key to capturing the truck market and how OEMs can think strategically about pursuing battery technologies with a consideration for circularity.
Why batteries are the way forward for trucks
Regulators across the globe have set ambitious emissions targets for truck OEMs. For instance, the European Commission has set some of the tightest emission regulations, requiring a 45 percent emissions reduction in new-vehicle sales by 2030 compared to 2019 levels and 90 percent reduction by 2040. To enable OEMs in this transition and drive innovation, regulators have encouraged truck OEMs to consider a variety of technologies. In 2024, the Environmental Protection Agency in the United States emphasized this by stating that its “standards are performance-based, such that manufacturers are not required to use particular technologies” to meet the standards.
The alternatives to diesel
Currently, the most viable alternatives to diesel are BEVs, hydrogen fuel cell electric vehicles (H2-FCEVs), hydrogen internal combustion engines (H2-ICEs), and renewable fuels. For BEVs, truck OEMs can build on more than a decade of innovation in battery technologies in the passenger car and bus segments. Battery pack prices have also dropped by more than 80 percent over the past ten years, making battery electric powertrains an attractive option for trucks.
Hydrogen fuel cell powertrains are still a more nascent technology due to lower uptake in the passenger vehicle space. To make H2-FCEVs competitive, truck OEMs and suppliers would need to invest in further innovation and production scale-up. Hydrogen combustion requires fewer changes to the powertrain platform because existing combustion engines can be modified to suit the technology. While H2-ICE vehicles have only recently gained more attention, regulators have started to consider them as zero-emission powertrains that are eligible to meet emissions targets.
Last, renewable fuels can typically fuel existing diesel or gas combustion engines without further modifications and are already used to decarbonize certain fleet operations. However, these fuels do not count toward heavy-vehicle emission targets for OEMs in major markets such as Europe or the United States because they still produce tailpipe emissions.
In their practical application, alternative powertrains have specific sets of advantages and disadvantages (Exhibit 1).
Emissions. When considering CO2 emissions and air quality (including nitrogen oxides (NOx) and particulate matter), only BEVs and H2-FCEVs truly have zero emissions. While H2-ICE vehicles have no tailpipe CO2 emissions, they do emit NOx. Bio- and synfuels are holistically carbon neutral, but locally they emit CO2, NOx, and particulate matter comparable to diesel engines. Thus they are not considered zero-emission technologies by regulations and do not contribute to meeting emission-reduction targets.
Total cost of ownership. The total cost of ownership (TCO) for a truck depends on the investment in and costs of truck R&D, infrastructure, and technology. Achieving desired TCO requires a stable and attractive supply of alternative fuel and affordable electricity. BEVs may require substantial up-front capital because of the significant R&D investments needed to develop novel battery cell technology and build charging infrastructure for both fast-charging, high-powered stations and depot charging stations. Battery manufacturing also requires building new production facilities and an overhaul of existing vehicle assembly lines to adapt to new vehicle architectures. At the same time, BEVs can achieve well-to-wheel efficiencies of 75 to 85 percent, reducing operational costs over time.
The well-to-wheel efficiencies of H2-FCEVs range between 30 percent and 50 percent, depending on the type of electron used, while the well-to-wheel efficiency of H2-ICE vehicles is between 30 percent and 40 percent. H2-ICE vehicles are also more efficient in terms of capital expenditures because traditional engine technology can be modified to burn hydrogen rather than fossil fuels.
Performance. In addition to TCO, factors such as refueling time or payload constraints affect the suitability of propulsion systems for different use cases. Depending on the type of charger, BEVs require up to 2.5 hours for a charge that can last 500 kilometers (km), whereas H2-operated trucks take just 15 to 30 minutes to refuel to an amount that can last the same distance. Long refueling times reduce the efficiency of a truck and increase the complexity of route planning because both mandatory driver swaps and refueling breaks must be accounted for, making BEVs less attractive for use cases that require high utilization or around-the-clock operations. But the performance of batteries has improved significantly in recent years following strong R&D investments, especially for lithium-ion (Li-ion) cell chemistries. By 2030, much R&D is expected to go toward improving BEV chargers so they can charge trucks in 45 minutes for a 500-km range.
In addition to emissions, TCO, and performance, factors such as geopolitical dependencies and supply chain stability need to be considered.
So far, more than ten OEMs have launched or announced new medium- and heavy-duty zero-emission truck models. Among these are models for long-haul applications with ranges of up to 500 km in Europe and 700 km in the United States.
Battery electric trucks are expected to dominate in truck use cases with limited range requirements and predictable, regular usage patterns, such as distribution or line-haul operations. In such use cases, both vehicle specifications and charging infrastructure can be tailored to specific operational needs to enable battery-electric trucks to play out their full strengths on high energy efficiency. Battery electric powertrains are also expected to capture a sizable share of the market for long-haul use cases with very long ranges, limited predictability on use cases, or multidriver operations, but they will face competition from hydrogen powertrains, which are expected to offer longer ranges and faster refueling times and hence additional flexibility in their operations.
For OEMs to capture the BEV market, it is essential to offer technologically leading and commercially attractive vehicles. This will require them to master the battery, which is the key technological differentiator and the main cost driver (Exhibit 2).
The best short- and long-term battery technologies for trucks
As the performance of batteries improves due to continuous advancements in Li-ion cell chemistries, truck OEMs can leverage these innovations to offer technologies that best meet the unique requirements of their vehicles. Truck battery performance is dependent on several factors, including energy density, battery cost, and cycle life—the most relevant factors in choosing a battery technology. Additionally, power density, thermal propagation, and sustainability should be considered for a holistic perspective.
The higher the weight and volume of a battery, the more constrained the vehicle’s space and payload are. A high energy density of more than 210 watt-hours per kilogram (Wh/kg) is required to minimize the weight and volume of a battery while ensuring sufficient range, especially for use cases of more than 500 km. In a similar vein, high cycle life (3,000 to 6,000 cycles) is crucial to ensure the longevity of batteries. As fleet operators aim to maximize the uptime of trucks, freight batteries will experience significantly more charging cycles compared with passenger cars. Finally, because the battery makes up the largest portion of a truck’s bill of materials, OEMs have a high sensitivity to cell cost, which affects commercial competitiveness and profitability.
With these considerations in mind, two types of battery will be the best option in the short term: nickel manganese cobalt (NMC) and lithium iron phosphate (LFP). In the long term, lithium manganese iron phosphate (LMFP) batteries will be the most promising battery composition, with an exceptional performance across all categories (Exhibit 3).
NMC technology’s high energy density makes it an attractive option. However, the cost of NMC is relatively high and its cycle life is lower than that of other technologies because nickel chemistries are less durable than iron phosphate chemistries. Limiting NMC cells’ operating window to improve a battery’s lifetime is not a viable option because it can jeopardize its energy density advantage on both a cell and pack level due to the higher cooling and mechanical-stability requirements needed to comply with safety standards.
LFP cells have become an attractive option, thanks to adaptations that reduce the weight of packs and improve space efficiency, thereby increasing the batteries’ energy density. Additionally, LFP chemistries have been advanced by adding manganese, which increases voltage and energy density to improve the performance of iron phosphate chemistries. LFP’s cycle life is the highest of all three technologies; in addition, its total cost is relatively moderate and its makeup is cobalt free, which makes it a significantly more sustainable and affordable option.
While LMFP has the highest potential across all categories, the technology is not yet fully developed, and its first market application is not expected to emerge until 2025 or later. In the meantime, LFP performs similarly to LMFP in most categories but has lower energy density. This has an impact on range, especially in long-haul use cases. Until LMFP is ready, LFP will be the best battery chemistry for trucks.
Implications of battery pack designs for trucks
Pack design choices can also have a notable impact on the performance of a truck, including its range and charging speed.
Cell-to-pack and cell-to-vehicle designs
Traditionally, battery cells are arranged in modules and then combined into a pack. While modules have the advantage of better serviceability, a module-based pack design compromises energy density on the pack level and, thus, a truck’s range. Recently, the cell-to-pack design—which eliminates modules and assembles the pack directly from cells—has been discussed more widely because it offers a higher packaging density. A next potential step in integrating cells as structural battery components would be a cell-to-vehicle design, which would install the battery cells directly into the vehicle. But this approach would require rethinking trucks’ platform design, and the design of heavy-duty vehicles is foreseen to remain as a frame-based layout due to rigidity requirements and the many superstructures built on truck frames by independent suppliers.
Another factor influencing pack energy density is the format of battery cells. The three most common cell formats are round, pouch, and prismatic. While pouch cells offer higher energy density on a single cell level, the efficient packaging of prismatic cells offers higher energy density at the pack level. Prismatic cells also offer a financial incentive for cell production, in terms of both operating and capital expenditures, because they can be used to create larger-format cells. Hence, the popularity of the prismatic cell format has increased.
Another highly relevant trend is the switch from 400-volt to 800-volt vehicle architecture. Among many benefits, 800-volt technology allows trucks to charge with up to twice the power, reducing the required charging time by up to 50 percent. In addition to many advancements related to performance improvement, OEMs have also been focusing on the safety aspects of this new architecture. With advancements in cooling systems and insulation for packs, they can reduce the risk of thermal runaway, enhance fire resistance, and ensure more-stable operating temperatures, thereby improving the overall safety and reliability of electric trucks.
The potential of swappable batteries
Traditionally, BEV design assumes that a battery pack is permanently installed and recharged if empty. However, time lost on battery charging is one of the most significant drawbacks of BEV trucks and can be especially challenging for fleet operators, whose business model is dependent on high utilization. Battery swapping technology can reduce charging times for BEVs from several hours to less than five minutes, thereby eliminating a significant pain point.
In contrast to permanently installed batteries, swappable batteries can be removed from underneath the truck or behind the wheelhouse and replaced with a fully charged one. Placing batteries behind the wheelhouse would require minimal additional investment and could be executed immediately, but this option would affect a truck’s driving dynamics, braking distances, and, thus, driver safety. Alternatively, placing the battery below the truck would not affect driving dynamics, but this option might come at a higher cost because it may require adjustments to the vehicle architecture.
If implemented at scale, battery swapping could hold the potential to fundamentally change how the zero-emission-truck industry operates. In the Chinese market, most truck OEMs offer swappable battery concepts—almost half of all BEV HDT trucks sold in 2023 are battery swappable capable. In the short and midterm, this concept could be highly attractive. While not all trucks make use of this functionality today, individual cell players are pushing to establish battery swapping technology in the market and drive the development of the relevant infrastructure. If adopted, battery swapping technology could have far-reaching benefits across the freight trucking value chain:
Fleet owners. Fleet owners can increase fleet utilization resulting from reduced charging time while improving flexibility in route planning, because there will be fewer constraints in terms of matching driver breaks with fixed charging points. Owners will also have access to new technology and business models, including a battery-as-a-service (BaaS) model that will reduce upfront capital expenditures.
OEMs. With the introduction of the BaaS model, OEMs can generate recurring revenues with batteries and increase the volume of unit sales because providing batteries via the BaaS model will reduce the sales price of trucks. If battery swap technology prevails, OEMs will need to capitalize on BaaS opportunities or may find it difficult to recover lost revenues from trucks sold without batteries. However, OEMs might face competition from other players in the value chain, such as battery pack manufacturers or swapping-network operators.
OEMs can also increase the residual value of batteries, as standardized battery packs make second-life applications and recycling more attractive. Furthermore, battery lifetimes will be extended, as battery swap stations would intentionally have lower charging speeds than megawatt charging systems (MCSs), putting less strain on batteries. Finally, trucks will be easier to service because battery packs can be separately serviced, eliminating the need for specialized battery services at OEM service stations.
Battery manufacturers. BaaS models will increase the volume of batteries required from battery manufacturers to cover demand, which will drive top-line growth. Additionally, as batteries become standardized, manufacturers will be able to increase the efficiency of their production and find more opportunities to partner with OEMs to develop the design of these standardized battery packs. Furthermore, first movers could position themselves strategically to develop this standardized technology with OEMs and capture additional market share.
Utility companies. For utility companies, a battery swap technology would reduce the load on the grid because swapping stations charge with lower power than MCSs, and operators can optimize charging patterns by taking peak times into account. Utility companies could also generate additional revenue by taking energy arbitrage opportunities in a battery-to-grid concept.
To make the BaaS model possible in the United States and Europe, OEMs will need to standardize battery packs across OEM platforms, which could present challenges with R&D complexity and funding. However, the Western truck market is dominated by a few large OEMs, which could be a substantial advantage because it will be easier to standardize packs, attain critical vehicle volume to make battery swapping attractive for all players along the value chain, and gain regulatory support. US and European OEMs may think proactively about battery swap strategies and financing needs, either jointly or individually, to ensure they’re prepared. Otherwise, they might risk missing out on the potential next big thing.
Ways OEMs can source batteries
OEMs can source batteries in three distinctive ways: by directly purchasing batteries from battery suppliers; by partnering with battery players to develop and produce batteries in joint facilities; and by producing batteries in OEM-owned facilities with limited partner support. Leading truck OEMs typically deploy a mix of strategies. Some supplement long-term purchasing agreements with battery manufacturers with their own production capacities—mostly at the pilot stage—while others rely fully on partners using selected purchasing contracts or joint ventures.
Direct sourcing. Sourcing directly from battery suppliers can be beneficial for OEMs. It requires only limited battery expertise, takes less up-front investment in the form of capital expenditure, and allows for more flexibility in timing and volume.
Partnerships. Partnerships allow OEMs to be involved in the battery value chain without having to build batteries in-house. They can help bridge the capability gap within companies while lowering the investment hurdle of becoming a manufacturer. For example, major truck OEMs that were focused on direct sourcing can increasingly integrate vertically through various partnerships to be more competitive.
By partnering along the value chain, OEMs can participate in additional value pools, which could double their margins, depending on their depth of involvement (Exhibit 4). However, this strategy is also subject to risks. Low interest rates in the market could lead to an increase in battery production capacity before 2030 because cheap capital will be available for investors to put into gigafactories. If so, more battery manufacturing could result in “build to print” processes, which could slash cell prices and squeeze margins along the value chain.
In-house production. Producing batteries in-house can give OEMs the upper hand: they can develop and produce tailor-made batteries at low cost while protecting their own battery intellectual property, allowing them to gain more upstream value. OEMs especially have an opportunity when it comes to developing LFP batteries because, despite potential demand, the supplier base in Europe and North America is still limited.
The involvement of truck OEMs in the battery value chain depends mostly on their competence in battery technologies, their willingness and ability to make large-scale investments, and their strategic considerations regarding the value to be captured in the future EV truck market.
Usually, OEMs that pursue this strategy will still involve selected technology partners—but to a limited extent. Companies that choose to become independent will have to ensure that they have freedom to operate and that their end-to-end battery supply chain matches the regulatory environment.
Another important consideration is the market environment. EV car sales and investments have slowed down compared with the past five years, leading to overcapacities and making truck OEMs with smaller offtake agreements more attractive. Several Chinese cell suppliers have decreased their prices as much as 50 percent, falling below €60 per kilowatt-hour (kWh)—levels that cannot be met by European OEMs, even with in-house cell production. Producing cells in Europe comes with a premium of roughly €10/kWh but can better withstand potential regulatory changes and the risks that come with longer, more complex supply chains. In North America, alternatively, the current policy environment puts significant import tariffs on Chinese cells, making local cell production the economically more viable option. Depending on the region and regulatory environment, the current buyers’ cell market may delay in-house cell manufacturing plans or reduce the appetite of truck OEMs in the long term to invest in the battery value chain.
Sourcing raw materials
When sourcing raw materials for batteries—for example, for in-house battery production or to provide them to value chain partners—OEMs should consider whether the volume of available materials is sufficient, whether prices are low and stable, and whether the materials are compliant with internal and external environmental, social, and governance (ESG) regulations. Additional factors, such as geoeconomic risks and policies, should also be considered to develop a holistic sourcing strategy. Also, as the recent semiconductor shortage demonstrated, controlling critical parts of the supply chain can be considered a strategic and differentiating factor.
OEMs can choose among several sourcing instruments, each with a different level of organizational commitment (Exhibit 5).
Vertical integration may result in the most favorable position for OEMs in terms of volume, price, and ESG; however, poor operations could inflate costs, potentially above market price. For example, operational constraints and unforeseen complications in the development of an asset may raise the cost of producing it. In these cases, having a high level of organizational commitment through vertical integration does not necessarily result in a more favorable position for an OEM because inefficient operations could prevent them from realizing the price advantage. Moreover, investing in selected assets (one mine, for example) may make an OEM more dependent on certain suppliers, which increases supply risk and limits flexibility. For OEMs, risk exposure is high when investing in a limited number of assets compared with the lower risk when sourcing via one or multiple mining companies, which typically operate a portfolio of assets.
Alternatively, well-negotiated long-term supply agreements can offer positive impacts similar to those of higher-commitment options, such as equity investments or vertical integration. These long-term contracts also eliminate the need for up-front capital expenditure investments, allowing OEMs to allocate capital elsewhere. Long-term agreements thus could be the best immediate option to put OEMs in a good position.
The current raw-materials market underscores this fact, especially for the lithium needed to make LFP battery technology for truck applications. Based on McKinsey’s current demand-and-supply outlook, a global lithium shortage over the next ten years has become less likely, and sufficient volume will be available via contracts (Exhibit 6). But it’s important for OEMs to be aware of the amount of material available in a given location and the materialization of projects currently in development.
Confirmed and currently operational projects cover lithium demand until 2026. With new recycling capabilities and further projects expected, lithium demand could be satisfied beyond 2030. Additionally, after years of strong fluctuations, lithium prices have been low since electrification has become more popular, offering the opportunity to negotiate favorable long-term contracts. As it stands, changes in the price of lithium are affect contribution margins more significantly than potential supply interruptions, which makes the opportunity for long-term offtake agreements even more appealing for OEMs today.
Battery circularity: Managing complexity with partnerships
Eventually, batteries reach the end of life (EOL) of their original application. Multiple EOL pathways exist: batteries can be reused (following repair or refurbishment) for their initial purpose of powering trucks, used for second-life application in battery energy storage systems (BESS), or recycled to extract valuable raw materials. A battery’s EOL pathway is determined by a situation-based cost-benefit analysis, primarily driven by the battery’s state of health (SOH).
Batteries with a high SOH (more than 80 percent residual capacity) have a high potential of being reused in EVs, whereas those with a lower SOH (70 to 80 percent) can be repurposed in a suitable second-life application. The higher the SOH, the more value can be extracted from the battery during recycling, and the more emissions can be reduced.
Recycling represents the largest market in terms of mobility battery volume: about 78 percent of global mobility EOL batteries are expected to go directly to recycling by 2030 (Exhibit 7). When a battery is recycled, its raw materials are reintroduced into the battery value chain to make new batteries, which reduces the amount of raw material that needs to be extracted from mines and avoids 15 to 40 percent of CO2 emissions, depending on the material extracted.
To recycle batteries, trucking companies can choose among several business models, depending on their desired ownership of the recycled materials and control over the recycling process. In closed loop models, companies can retain ownership of the metals in the battery throughout the entire life cycle and can use them as input for their own battery production. Alternatively, open loop models release ownership by selling off batteries to third-party providers.
OEMs can choose between building fully owned in-house recycling divisions, relying on one preferred end-to-end partner (through a joint venture, for example) or selecting multiple service providers. Of course, pursuing fully owned in-house recycling requires OEMs to build recycling capabilities, manage recycling complexity, and invest capital expenditures. In the mid to short term, most large truck OEMs are likely to pursue strategic partnerships for recycling in a closed loop (with one or multiple partners) or open the loop to sell off batteries to third-party providers.
The potential value creation of battery recycling should also be considered. Value creation from battery recycling differs between NMC and LFP chemistries based on the cost of recycling and the worth of the materials extracted (Exhibit 8). For example, a company could lose nearly €1,000 from an LFP battery that is disassembled and recycled in Germany in 2030. For NMC truck batteries, however, a company could gain €2,000 from the materials extracted. This difference in value is because the primary revenue drivers in NMC batteries are nickel, cobalt, and lithium, while the sole driver in LFP batteries is lithium. Having a larger share of valuable metals leads, on average, to 300 percent greater revenues. But the cost of NMC recycling is usually also higher because it is more complex to extract multiple metals.
Currently, the value creation for LFP batteries with traditional recycling technology is highly dependent on the price of lithium, especially in the West. Alternative innovations, such as direct recycling processes, could significantly improve LFP recycling economics. However, these innovations are still quite early in their development, and more time and investment will be needed for them to reach maturity. The business case for recycling LFP could potentially be further optimized by introducing the recovery of the iron-phosphate precursor and the graphite, a practice already introduced in China.
The value of adaptability
As trucks move toward zero-emission powertrains, investing in BEV trucks will be a key driver of the transition, especially in the short term. Within the BEV-truck industry, batteries have the potential to be the most lucrative investment, considering their high potential for technological differentiation and high innovation speed, and will be crucial for the future success of OEMs. While various degrees of involvement are possible, building in-house competencies and capacities is vital to assess and steer the supply chain and ensure a technologically competitive and profitable product, both for themselves and their customers. But as OEMs continue to invest in BEV technologies, they should keep in mind four uncertainties.
First, battery swapping may seem like a lucrative opportunity, but the technology’s potential is more uncertain in the United States and Europe. At a minimum, OEMs can prepare for the option and foresee batteries’ ability to be swapped in product design. More boldly, an OEM could aim to become a front-runner in the design of this technology or invest in the needed infrastructure, such as swapping stations.
Second, it’s uncertain how much truck OEMs should invest in own battery production capacities and upstream activities. The current buyer’s market doesn’t promote direct investment in cell manufacturing, but investing in this capability today could help OEMs prepare for future bouts of undersupply if too many capacity expansions are delayed or stopped.
Third, it’s uncertain whether OEMs need to invest directly in raw materials. Doing so is a bold move that could bring high rewards—but it’s also a greater risk. Nonetheless, OEMs should prepare to have a steady supply of raw materials, which could mean engaging in long-term agreements.
Fourth, the path forward for OEMs to enter recycling is mildly uncertain. The best options are for OEMs to enter partnerships with battery recycling facilities or for truck OEMs to source EOL batteries if they don’t have in-house cell manufacturing capabilities.
OEMs can manage these uncertainties using the framework for battery mastery, which discusses how companies can approach cell component production and prioritize actions in a timely way.
There is enormous potential to reduce the emissions of road freight vehicles by implementing new technologies and updating and scaling current solutions. OEMs can manage the uncertainties that remain when it comes to investing in BEV technology by staying adaptable to react to potential technological, regulatory, and business model changes, especially over the next few years. Ultimately, taking steps to reduce emissions of heavy-duty trucks will get countries closer to meeting global emission targets and pave a more sustainable road forward.
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