Talbot Trucks

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.

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.

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.

After conducting focus groups with Talbot Truck customers, the team concluded that the total cost of an eTruck needs to be 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.