For global rail OEMs, the passenger rolling stock industry has reached a junction. Demand for trains keeps rising, but growth is concentrated in Asia, where local-content rules, entrenched domestic incumbents, and national certification requirements make stand-alone entry economically difficult. Meanwhile, many more established markets (especially in Europe and North America) are focused largely on replacing trains instead of enlarging fleets, which can shift the profit pool from new vehicles to after-sales—an area where incumbent OEMs have genuine strengths to build on.
In this environment, volume alone will no longer protect the bottom line. The combined effects of these developments—coupled with lower-cost competition from new entrants—could reduce margins for established OEMs by 1 to 2 percentage points by 2035. The question for established passenger rolling stock OEMs is not how fast the market will grow, but which portion they can capture and how they can credibly expand. Advantage could go to OEMs that can focus on more profitable market segments where they hold incumbent advantages and can offer an end-to-end service package, including long-term maintenance, software updates, and fleet performance guarantees.
This article maps where the global market for passenger rolling stock could be headed over the coming decade, which trends could most influence established OEM margins and revenue, and how these OEMs can act with confidence to defend margins while selectively pursuing new opportunities.
A growing market—but largely beyond reach
McKinsey analysis projects that the global passenger rolling stock market could grow by about 3 percent per year from 2025 through 2035, when it could reach roughly €135 billion. But two-thirds of that 35 percent expansion could be propelled in large part by macroeconomic trends (such as increased global GDP per capita, rising populations, and urbanization) that are out of manufacturers’ hands. And much of the growth will occur in Asia, which is expected to grow about 4 percent annually over that period and could account for roughly half of the global market by 2035 (Exhibit 1).
Much of projected growth in the global market for rolling stock will come from Asia.
Note: Excludes infrastructure, system technologies (eg, train control and signaling, electrification, and passenger information systems), planning and consulting, and construction work. Also excludes freight wagons and cars, all diesel locomotives, and 50% of electric locomotives. Figures may not sum to 100%, because of rounding.
The majority of Asia’s growth could occur in markets that are essentially inaccessible to foreign OEMs. Although these markets are not legally closed to foreign competitors, local-content rules, entrenched domestic incumbents, national certification requirements, network-specific homologation (meaning local standards and approval requirements), and local price expectations can make stand-alone entry economically infeasible. For example, India, one of the world’s largest new-build markets, projected to grow by roughly 7 percent a year through 2030, requires about 75 percent local content and domestic final assembly. And China—the world’s largest market overall, at roughly €19 billion in 2025 and projected to grow by about 4 percent a year—is served almost entirely by domestic manufacturers, leaving little room for outside suppliers in mainstream tenders.
Meanwhile, the accessible portion of the global market for established OEMs—the part that can actually be reached and served, given current products, resources, and geographic constraints—is not expected to grow as fast. The CAGR for the accessible portion of the market could be roughly 2.5 to 3.0 percent through 2035 (compared with roughly 3.5 to 4.0 percent for the inaccessible portions of the market), mainly driven by shifts in Europe and North America that could see the balance tip from new builds toward replacement in coming years.
In Europe: Slower growth, a shifting revenue pool, and increased foreign competition
Annual growth in Europe could be even more muted. McKinsey analysis indicates that it could average about 1.5 percent a year.
European OEMs’ home markets could also see higher growth in after-sales revenue than in manufacturing revenue. After-sales growth could average about 2.5 percent per year, while new-build growth could average about 1.0 percent per year. After-sales tends to deliver margins that are three to four times higher than those on new builds. As a result, value could shift from vehicle manufacturing to the service and maintenance offerings that follow.
Established OEMs could also face heightened competition and compressed margins as Chinese entrants gain ground in European markets. In recent contested tenders, Chinese OEMs have bid 15 to 25 percent below typical established price levels in core markets and as much as 40 percent below them in peripheral markets. China’s CRRC, a state-owned manufacturer, acquired the locomotive business unit of the German rail company Vossloh in 2020. CRRC has also begun localizing freight wagon production in Hungary through a partnership.
Industry trends are reshaping the market for rolling stock
The composition of the market for rolling stock is changing, and value is shifting. Seven important trends are driving that shift, and they fall into three groups: trends that add revenue, trends that move the revenue mix, and trends that erode margin.
Three trends add revenue, and all three reward OEMs that can sell more than just a vehicle:
- Increased life cycle and total cost of ownership (TCO) contracting. In long-term service deals, OEMs are paid not simply to sell a train but to guarantee its performance over 15 to 35 years. This can provide decades of high-margin service revenue along with a continuous flow of operating data that can open up further business. Such agreements are increasingly standard for high-speed and multiple-unit trains.
- EU decarbonization funding. EU programs subsidize the replacement of diesel trains—increasingly with battery electric vehicles—and help electrify regional lines, pulling forward demand for higher-priced propulsion technology. Because new trains are competitively tendered at standard market prices, the additional demand lifts revenue more than it lifts margin, since developing trains with new technology comes at a higher cost for OEMs.
- Smart trains and improved digital experience. Rolling stock equipped with sensors and software can enable predictive maintenance, remote updates, and a better experience for drivers and passengers (including real-time travel information, onboard connectivity, and coach-level occupancy displays). Passenger and operator experiences are becoming genuine differentiators, and both open up new high-margin revenue streams.
Two trends shift the revenue mix rather than expand the overall market:
- The retrofit wave. Tighter budgets and longer certification timelines for new assets are pushing operators to extend the lives of existing fleets. About half of Europe’s fleet is more than 20 years old, and roughly a quarter is in the typical age window for a midlife overhaul. The retrofit shift trades low-margin new-build work for high-margin aftermarket work, but only if the OEM keeps that work. Independent maintenance providers compete for the same contracts, making early capture of long-term service agreements crucial. The after-sales market share could rise to about 55 percent by 2035.
- The rising share of leasing companies. Rolling stock leasing companies such as Alpha Trains, European Locomotive Leasing (ELL), and Railpool buy trains and lease them to operators. These companies can specialize in a certain product (for example, locomotives) or can be diversified lessors. They are generally backed by asset management private investors seeking reliable financial returns, and they account for a growing share of purchases. This can consolidate orders among fewer, larger buyers with stronger negotiating positions and push the market toward greater standardization.
Two trends quietly erode margins—and neither shows up in a revenue forecast:
- Rising R&D and homologation complexity. Approval is becoming harder and more expensive worldwide as interoperability, cybersecurity, and broader regulation add to requirements. These barriers cut both ways: They can slow foreign entrants, but they can also raise the cost of every new design and constrain engineering capacity, making a lean, reusable platform strategy more attractive.
- The localization push. Requirements to use a minimum share of local content and to complete final assembly locally are spreading across global markets. These requirements can raise costs, leave European manufacturing sites underused, and force major investments in new locations even where revenue holds steady.
Four moves can help established OEMs protect today’s margins and target tomorrow’s growth
Established OEMs can consider the following four actions. Two protect the margins that exist today. Two reset growth for the decade to come. None is, in isolation, likely to be sufficient, but together they could help mitigate the projected 1 to 2 percent drop in EBIT margins that could occur by 2035 if no action is taken.
Reshape the portfolio by knowing where to play
The 2035 new-build pool could be worth about €60 billion. But segment growth across it could vary from 1.5 to 4.0 percent a year, so the choice of segment matters more than the headline market rate. OEMs can map opportunities by segment and region against their fit with existing platforms and the installed base, the depth of the certification moat, and the credible competitive threat (Exhibit 2). High-speed and highly engineered platforms could be more defensible because the required three to five years of national certification per market could discourage new entrants. Standardized metro vehicles and electric locomotives could be more exposed and need a cost-based answer rather than a focus on premiums.
Global rolling stock growth could vary widely by segment.
1Revenue pools include OEM and after-sales markets.
2Diesel locomotives out of scope.
3Freight wagons and diesel locomotives out of scope.
Entry into fast-growing markets can be conditional. For instance, India’s requirements for local content and domestic final assembly mean the choice is between establishing a durable local business and forgoing mainstream tenders. Partnerships, joint ventures, and acquisitions can, in some cases, provide a quicker and easier route to entry.
Lock in after-sales margins before they erode
This window opens only once per fleet because life cycle and TCO contracts run for 15 to 35 years. Whoever holds the service agreement today will likely hold the value pool for a vehicle generation. After-sales can earn margins of 15 to 20 percent versus 4 to 5 percent on new builds. In Europe, after-sales and retrofit together could account for more than two-thirds of market growth.
The pool is already contested by leasing companies, operators bringing maintenance back in-house, and OEMs that are serving the fleets they supplied while also expanding into new services in digital asset management and smart maintenance for both rolling stock and infrastructure. Three actions matter most: Expand the spare-parts share of wallet; develop new service products, such as upgrades and advanced services; and run after-sales as a business with a dedicated profit-and-loss statement, its own KPIs, and remote diagnostics.
Improve operational cost competitiveness
Cost is the lever that does not depend on negotiating with a customer. Much of the value is still carried by conventional levers such as life cycle costing, platform standardization, bundling of purchased volume, and footprint. Procurement typically accounts for 55 to 65 percent of total OEM project costs, so platform modularization and standardization and best-cost-country supply chain sourcing could result in significant platform cost reductions of 2 to 3 percent. Make-versus-buy decisions will remain important for value chain control and competitiveness, and OEMs can implement selective vertical integration of critical subsystems such as traction and power electronics. Optimizing the engineering and manufacturing footprint can also enable significant cost efficiencies.
That said, AI could emerge as the single most important factor in cost competitiveness over the next decade. AI deployment could disrupt and accelerate value capture not only through cost efficiencies but also by enabling shorter time to market, faster tender cycles, and innovation in new products and distinctive client interfaces. Although the application of AI is currently in its initial stages at many OEMs, it could eventually result in a double-digit percentage reduction in the cost base. Significant impacts have already been observed in domains such as engineering, design, software, and procurement.
Invest in future technologies to ensure competitiveness
Between 2035 and 2040, the basis of competition could shift from selling trains to guaranteeing fleet performance, and the defensible position could move away from hardware (which is likely to commoditize under price pressure) and toward products that only an installed base and its operating data can feed. Established OEMs can consider these approaches as they formulate strategy for future technologies:
- Reinforce existing advantages, such as strength in modular platforms. Instead of being taken for granted, these strengths can be actively defended.
- Scale proven assets. For instance, AI-enabled maintenance is already deployed with quantified results; expanding on successes like this can be prioritized.
- Close the software gap with urgency. Rolling stock is becoming more software-defined and service-based, and emerging entrants are advancing quickly in this area.
- Build or partner deliberately to differentiate in areas where emerging competitors may already be creating some durable advantages. Silicon carbide power electronics and manufacturing automation are two areas where new entrants are using scale and vertical integration to gain strong footholds.
Next steps for rail OEM leaders
Established OEM leaders can ask themselves a few important questions as they navigate this new landscape:
- Have you clearly identified which segments you can most effectively defend? Is your capital allocated accordingly?
- Is every deal you make built to capture a service relationship? If not, is there still time—and a tactical plan—to make that shift?
- Is your cost base disciplined enough that there is room to fund your strategic priorities?
- Are you prepared to make a decision between building yourself or partnering with a leading tech company in technology segments where you trail today and in adjacent markets for rail signaling systems (such as ports, airports, and infrastructure for autonomous vehicles)?
In the near term, established OEMs can defend margins against price pressure from emerging competition. In the longer term, they can target selective growth by expanding into carefully selected segments, services, and markets. New-train sales volume alone is unlikely to protect profitability, and the window to act before service offerings become commoditized could be narrow.
The path forward for established rail OEMs is a strategic recalibration. Accessible growth that moves the bottom line could go to organizations that can choose segments deliberately rather than chasing volume where the economics do not add up, secure after-sales contracts before third parties do, take costs out through AI and conventional levers, and build the technology positions that will shape the next decade. Established OEMs that move on all four of these fronts now could be positioned not only to defend today’s margins but also to help define the terms of tomorrow’s market.
