Mobility industries are the engines of the global economy, enabling trillions of dollars of trade every year. Transportation is also among the most significant sources of greenhouse-gas (GHG) emissions, accounting for 19 percent of them. The good news is that with climate technologies such as batteries, fuel cells, and biofuels, vehicles could emit little or no GHGs. That would help businesses and governments alike to meet their net-zero targets.
McKinsey’s research on the economic implications of a net-zero transition suggests that decarbonizing mobility would involve major changes, including a shift in the mix of vehicles being manufactured and an increase in upfront capital costs for consumers and organizations as they switch to electric vehicles (EVs) and other low-emission transport alternatives. Because of these changes, companies throughout the mobility system—including OEMs and their suppliers, plus manufacturers and operators of infrastructure—will have opportunities to tap the growing demand for vehicles that produce minimal or no GHGs. They will also want to manage their legacy businesses carefully. By assessing these dynamics and adjusting strategies appropriately, mobility companies can transform themselves to thrive as the net-zero transition progresses.
A net-zero outlook for mobility
Across the mobility system, by far the biggest GHG producer is road transportation. Tailpipe emissions from cars, trucks, and other vehicles make up 75 percent of all emissions from transportation activity, compared with 13 percent from aviation, 11 percent from maritime transport, and 1 percent from rail transport. Within the auto industry, a move toward a net-zero economy and a new future for mobility is well underway: manufacturers are accelerating the development of electric, connected, autonomous, and shared mobility. The industry has attracted more than $400 billion in investment over the past decade—and around $100 billion since the beginning of 2020.
At the same time, governments and cities have introduced regulations and incentives to support the decarbonization of road transport. The European Commission, for example, has proposed a target to cut average CO2 emissions from new cars by 55 percent no later than 2030, and the US federal government has called for zero-emission vehicles to make up half of all new passenger car and light-truck sales by that year. Several countries have also brought forward timelines for bans on sales of new vehicles with internal combustion engines (ICEs). Some provide generous subsidies for low-emission vehicles.
Against this evolving regulatory backdrop, consumer attitudes are changing fast. The adoption of EVs has accelerated since 2020, despite the impact of the COVID-19 pandemic. Europe has been in the vanguard of this trend: EVs account for 8 percent of registrations of new cars there. Several leading OEMs have said they will stop investing in new ICE platforms or end the production of ICE vehicles by a specific date.
Such efforts are important because the world is under pressure to halt climate change. Under the Paris Agreement, governments pledged to hold warming to 2°C above preindustrial levels, and ideally to 1.5°C. With those targets in mind, the Network for Greening the Financial System (NGFS), a consortium of central banks and financial supervisors, designed a Net Zero 2050 scenario that provides an even chance of keeping postindustrial warming below 1.5°C by the end of the century. Climate science suggests that if warming can be limited to these levels, the most catastrophic impacts of climate change could be prevented. In that scenario, levels of physical risk would be relatively low, but stakeholders would need to manage the near-term transition risks and opportunities.
To better understand these risks and opportunities, we analyzed mobility outcomes consistent with NGFS Net Zero 2050.1 In that scenario, demand for ICE cars would fade and eventually cease as sales of battery-electric vehicles (BEVs) and fuel cell–electric vehicles (FCEVs) increased from 5 percent of new-car sales today to almost 100 percent by 2050 (Exhibit 1). Fuel cells are less common than batteries in passenger cars, partly because hydrogen is now expensive to produce and hard to transport. Still, several manufacturers have produced fuel cell cars, and fuel cells are being tested in trucks, buses, boats, and a range of other vehicles. Depending on the region, current evidence suggests that fuel cell technology will probably be most prominent in trucks with significant range requirements.
Along with the switch to zero- or low-emission cars, a net-zero transition for mobility could entail other decarbonization actions, including a shift in consumer behavior to reduce the total mileage of private vehicles through increased use of public transport and the greater adoption of alternative forms of mobility, such as car sharing. Automakers are also considering how to reduce life cycle emissions associated with materials and how to decarbonize the manufacturing process—potentially through collaborations. One idea would be for a coalition of OEMs to harvest high-grade aluminum from end-of-life vehicles.
A universal transition
The transition to net-zero emissions will need to be universal, involving all economic sectors and countries. In mobility, structural changes must accompany the technological transition. For consumers, upfront capital spending would increase, but the total cost of vehicle ownership would fall. New employment opportunities will open up, even as jobs are reallocated across activities.
As a result of these trends, companies throughout the mobility system—including OEMs, suppliers, manufacturers, and operators of EV-charging infrastructure—will face transition risks. But there will also be opportunities to introduce new products and service lines. Consider capital spending on low-emission vehicles. In the net-zero scenario analyzed here, spending by companies and consumers on new vehicles—cars, trucks, buses, and two- and three-wheelers—would probably average $3.4 trillion a year for the next three decades (Exhibit 2). An additional $100 billion a year would go to new EV-charging networks and hydrogen distribution and fueling systems.
Today, depending on the country and the size of the vehicle, the upfront cost of a BEV is generally about 30 to 90 percent more than that of an ICE car.2 In the Net Zero 2050 scenario, we estimate that after 2025 in Europe and after 2030 in the United States, the total cost of ownership of passenger EVs would be lower than that of ICE vehicles (Exhibit 3). Upfront costs would remain higher, though we expect the gap to narrow as battery prices fall over time. Lower-income households would naturally be more affected by the relatively high cost of acquisition and would recoup it only over the life of the vehicle. In the commercial market, medium-duty battery-powered trucks, which travel 200 to 300 kilometers a day, are expected to reach total cost parity with ICEs by around 2025. Heavy-duty long-haul trucks are expected to reach parity by 2030 in Europe and later in other regions.
The industry’s shift from ICE-based vehicles to EVs could create risks for communities and workers closely involved with the production of ICE parts and vehicles. Today, the broader automotive industry employs about 34 million workers across the passenger car value chain.3 In the Net Zero 2050 scenario, we estimate that approximately 13 million direct ICE-related operations and maintenance jobs would be lost by 2050, though a gain of about nine million in direct operations and maintenance jobs in EV manufacturing would partly offset redundancies. (The relatively higher manufacturing productivity of zero-emission vehicles largely accounts for the difference.) By 2050 there would also be around three million new jobs associated with capital investment for new factories and charging operations. In all, the industry could face a net loss of 14 million jobs by that year (Exhibit 4).4
On a positive note, prior McKinsey analysis suggests that the shift to low-emission vehicles could create opportunities for companies across the automotive value chain.5 These opportunities include manufacturing EV batteries and fuel cells and producing the materials needed to make these essential components; building, making, and operating infrastructure for charging BEVs and refueling FCEVs; and creating digital solutions to integrate the new vehicle energy infrastructure with the power grid. The net-zero scenario could also involve a rise in e-hailing and in micromobility services (including e-bikes and scooters).6
Capitalizing on these opportunities and managing the costs and risks associated with the transition would probably require coordinated responses by stakeholders. OEMs are already investing in innovation and working closely with new and existing suppliers to wind down production of ICE vehicles and ramp up production of EVs. They could also act to reduce supply chain emissions, perhaps through collaboration. Governments could consider using financial support and regulatory mechanisms to encourage R&D and capital spending. They might also provide workers with various forms of assistance, including help relocating and retraining, as they make the shift in skills needed to work with EVs rather than ICE vehicles.
Mobility is essential to social interaction, commerce, exploration, and self-expression—and now it must be decarbonized to limit the buildup of physical climate risks. The transition to low-emission mobility requires not just a move away from ICE technologies but also the reengineering of value chains. Coordinated responses by the private and public sectors can ease this transition, so that stakeholders can benefit from the opportunities and weather the risks it will bring.