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 its fleet’s carbon footprint.

Situation description

Talbot Trucks is a Europe-based private truck OEM. It produces and sells trucks all over 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, which are smaller customers that own fewer trucks.

Trucks today are mainly powered by diesel engines and require carbon-based petroleum fuel. Talbot Trucks is interested in exploring ways to reduce the carbon footprint of its vehicles and has specifically asked about electric trucks, or “eTrucks.”

ETrucks and diesel trucks differ in the design—e-motor and batteries versus combustion engines—and also in the way they are fueled, meaning comparably slow charging versus quick refilling with diesel fuel at gas stations. The introduction of this new technology is disruptive for the manufacturers as well as 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 to explain anything that is not clear to you.

What information would you want to collect to understand the attractiveness for Talbot Trucks in producing and selling eTrucks 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 referred to as “total cost of ownership” (TCO). You have been given the following information comparing the TCO for a diesel truck against that for an eTruck:

• Driver: A driver costs around €3,000 per month. There is a significant shortage of drivers in the market
• Depreciation: Diesel trucks costs €100,000. The typical lifespan is four years. Residual value—the value at which you can resell the truck—is assumed to be €0
• Fuel: A heavy duty diesel truck consumes around 30 liters of diesel per 100 kilometers. Diesel costs €1 per liter
• Maintenance: As a general rule, maintenance per truck is around €5,000 a year for a diesel truck
• Other, including tolls, insurances, and taxes: €10,000 per year

Using this data, what can you infer about the differences in TCO for diesel trucks 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 from the data.

After running focus groups with Talbot Trucks’ customers, the team concluded that the total cost of an eTruck needs to be the same as a diesel truck to be considered attractive to customers. Currently, a Talbot Trucks diesel truck costs €100,000.

Assuming that the figures above do not change, what is the maximum price Talbot Trucks can charge for its eTruck so that the total cost of ownership is equal to that of a diesel truck?

Helpful hints

• Don’t feel rushed into performing calculations. Take your time.
• Remember that calculators are not allowed—you may want to write out your calculations on paper during the interview.
• 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.