DOI: 10.1002/fuce.

200600040

H. G. Dsterwald1, J. Gnnewig1*, and P. Radtke1

1

McKinsey & Company, Inc., Magnusstrasse 11, Kln 50672, Germany

Received October 2, 2006; accepted January 17, 2007

Abstract
The automotive propulsion technology market is likely to
experience significant change over the next 10 to 15 years,
with todays incumbent internal combustion engines (ICE)
coming under attack from a multitude of alternative technologies. In the short term, these will mainly be hybrid drive
trains. In the longer term, fuel cells may emerge as the strongest challengers. New fuels like natural gas, biodiesel, and
hydrogen will challenge the current dominance of oil-based

fuels. The McKinsey DRIVE study assesses the perspectives

of conventional and alternative power trains and their world
market potential over the next 15 years, deriving implications for OEMs, suppliers, and the fuel industry.

Keywords: Automotive Application, Drive, Fuel Cell, ICE,

PEM

1 The DRIVE Project

The independent DRIVE project was carried out by McKinsey & Company in cooperation with the Institute of Automotive
Engineering at Aachen University and the
Energy Systems Group at Berlin University
of Technology. No confidential client data
was used.
Information to specify and verify the
input parameters for the DRIVE model was
gathered from extensive interviews with
experts in the automotive and energy industries, public bodies, and R&D institutions in
Europe, North America, and Asia. Over 300
experts were asked to assess the current state
of the industry and to explain their expectations for the future in face-to-face interviews
or an online survey. Data on consumer
trends was gathered from around 10,000 consumers in online surveys (Figure 1).
Fig. 1 External information gathered from experts and consumers.
Three groups of power trains, incumbent
ICEs, alternative fuel ICEs, and new power
train technologies, were assessed.
intervention, and the available infrastructure. The drivers for
The DRIVE model incorporates multiple forces and their
change, energy and environmental concerns, and technologiinteraction. The total cost of ownership (TCO) is the hard
cal developments were factored into both sides of the equadimension, representing the rational side of consumer decisions. The total cost of ownership for the present and future
(up to 2020) were modeled. The soft factors are no less impor
tant: consumer preferences, industry interests, government
[*] Corresponding author, Jochen_Gunnewig@mckinsey.com

FUEL CELLS 07, 2007, No. 3, 183189

2007 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim

183

ORIGINAL RESEARCH PAPER

DRIVE The Future of Automotive Power:

Fuel Cells Perspective

ORIGINAL RESEARCH PAPER

Dsterwald et al.: DRIVE The Future of Automotive Power: Fuel Cells Perspective
tion. Three scenarios were postulated over the next 15 years
to account for the complexity.

2 Drivers for Change

Alongside technology developments that define the
options available to OEMs, energy security, e.g., availability
of conventional oil (including geopolitical uncertainties) and
environmental concerns are the principal forces that will
shape the power train market in the coming years (Figure 2).
The growing awareness of the environmental impact of

vehicle emissions is driving stricter emissions regulations,

while energy security concerns and high fuel prices are
promoting improved fuel consumption technologies and
greater use of alternative fuel. Fuel taxes and financial incentives are also significantly influencing the competitive balance between power trains.

3 Three Scenarios to Account for Uncertainty

A set of scenarios to account for a range of possible future

conditions were defined, from an ICE (Internal Combustion
Engine) Age future, with status quo emissions legislation and low oil prices, to a progressive Green World scenario, assuming
high oil prices and stricter environmental
regulations (Figure 3).
A whole range of boundary conditions
was modeled for each scenario, including oil
price, taxes, and regulations in the different
regions. In the ICE Age scenario, it is
assumed that the price of oil falls from the
present level to USD 30 per barrel, while fuel
taxes and environmental regulations remain
at current levels. In the Intermediate scenario, the oil price returns to the level of
USD 50 per barrel, which dominated the first
half of 2005, fuel taxes remain at present levels, and emission regulations are tightened.
The Green World scenario sees oil prices
rising to USD 100 per barrel and environmental regulations and taxes on hydrocarbon-based fuels are doubled, as governFig. 2 Energy security and environmental concerns are key drivers for future power train
ments attempt to promote alternative power
development.
trains and increase the security of their
energy supplies. Emission standards close to
zero are adopted worldwide and more efficient fuel consumption standards are mandated.

4 Total Cost of Ownership Today

Fig. 3 Three scenarios were defined to assess the potential future development.

184

2007 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim

The total cost of vehicle ownership was

calculated using a quantitative model as a
function of investment, taxes, and running
costs, specified as net values excluding inflation. The value loss at resale after four years
represents the initial investment for a vehicle
in our calculation. Running costs mainly
depend on fuel costs.
Cleaner and more fuel-efficient alternative power trains are currently more expensive to produce than their conventional
counterparts. A standard 80 kW gasoline
power train, consisting of an engine, batteries, gearbox, fuel tank, and exhaust gas sys-

www.fuelcells.wiley-vch.de

FUEL CELLS 07, 2007, No. 3, 183189

Dsterwald et al.: DRIVE The Future of Automotive Power: Fuel Cells Perspective

Fig. 4 Currently, more fuel-efficient power trains are more expensive.

Fig. 5 By 2020, power train total cost of ownership will converge.

FUEL CELLS 07, 2007, No. 3, 183189

www.fuelcells.wiley-vch.de

A consumer traveling the average European mileage of

13,200 km per year incurs annual fuel costs of EUR 1,230.
Combining annual fuel costs with power train value
depreciation and average European taxes leads to a TCO for
the same standard-class vehicle of EUR 3,750, including the
OEM margin.
Our analysis shows that diesel vehicles can achieve a TCO
advantage at mileages significantly below 10,000 km p.a. The
precise value varies depending on the pricing of individual
models and the local tax regime.
Environmental regulations determine
the power train modifications necessary
in each scenario. If particle filters became
compulsory for diesel power trains, for
example, this would add about EUR 500
to their cost, including the required
adaptations.
Interestingly, it has been found that
TCOs will converge over the next
15 years (Figure 5). Obviously, future
power train costs will be greatly influenced by component development costs,
which will decrease due to continuous
improvement. From industry benchmarks, a 5% cost reduction p.a. can be
expected for new power train components that become mass-market products
and 2.5% p.a. for standard engine components. No cost improvements are
expected for standard exhaust gas system components due to the need to comply with emission regulations.
Taking the TCO calculation as a starting point, the potential of different
power train technologies was analyzed.
The likely stages of development build
on each other. The current gasoline and
diesel world is progressing to include
hybrids and CNG, and will open up for
H2 power trains (Figure 6). This investigation was driven by key questions for
each technology against this backdrop.
For fuel cells, the issue is whether the
transition to hydrogen fuel will occur,
and whether the economics of hydrogen
technologies permit a breakthrough to
the mass market before 2020.
It is important to note, before fuel cell
technology is specifically addressed, that
the gasoline ICE still has a high optimization potential (Figure 7). A number of
engine enhancements have been developed to address the technologys disadvantages, some of which have already
been implemented in high-end models.
Their introduction as standard features

2007 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim

185

ORIGINAL RESEARCH PAPER

tem, currently costs around EUR 2,800 to produce, which is

EUR 850 less than the least expensive competitor, the diesel
power train (Figure 4). The higher production costs generally
lead to a higher sale price, which may dissuade some consumers from choosing a specific power train, particularly in
low-income, price-sensitive, segments.
Our standard-class ICE gasoline-powered vehicle with an
80 kW engine consumes 7.6 liters of gasoline per 100 km,
resulting in a fuel cost, in Europe, of EUR 9.3 per 100 km.

ORIGINAL RESEARCH PAPER

Dsterwald et al.: DRIVE The Future of Automotive Power: Fuel Cells Perspective
ciency, higher system costs, and significant technological challenges. The onboard conversion of gasoline or methanol
into hydrogen requires complex chemical
reactors, leading to packaging, weight,
and thermal management issues, as well
as insufficient dynamic behavior and
problems with system start up.

5.1 Inadequacy of a Massive Cost

Reduction

Fig. 6 Future shape of the power train landscape along 3 horizons.

Fig. 7 Technical improvements will make conventional power trains more

expensive.

will be determined by how market drivers develop, particularly emission regulations.

5 The Fuel Cell System

This analysis focuses on fuel cell vehicles with an on-board
hydrogen storage system. The mass-market introduction of
fuel cell power trains with on board processing of gasoline or
methanol is not expected, due to their reduced system effi-

186

2007 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim

Reduced emissions and fuel consumption as well as the chance to gain independence from crude oil are the benefits
of fuel cells mentioned most frequently.
However, projected fuel cell system costs
are still prohibitive. Assuming that
technologies suitable for mass production are available, an 80 kW fuel cell
power train would cost an estimated
EUR 30,000 today. The cost of current
fuel cell power trains in demonstration
vehicles is around ten times higher.
There are two key reasons for this.
Firstly, core fuel cell components (e.g.,
membrane, catalyst) are intrinsically
expensive. Furthermore, basic research is
required to find new lower-cost fuel cell
materials. Secondly, current fuel cell
stack design is not suited to high-volume
production. Adjustments to the design
characteristics to address mass-production needs are ongoing.
A very optimistic cost reduction path
of 7% p.a. would still result in costs of
EUR 10,500 for an 80 kW fuel cell power
train in 2020 (assuming mass production
of fuel cell systems) (Figure 8).
A closer look at TCO shows that fuel
cell power trains will remain an expenfuel efficient and more
sive option for reducing fuel consumption even if OEMs manage to cut costs
dramatically by 2020, overcome technological hurdles, and fuel-efficient power trains receive state
subsidies. Even in the Green World scenario in 2020, the
TCO for a fuel cell power train will still be around 20% higher
than for the diesel hybrid power train and 10 to 15% higher
than the conventional gasoline ICE (Figure 5). An average
consumer will not see financial benefits from owning a fuel
cell power train in 2020, and even Toyotas declared objective
of offering a series-production fuel cell car for about
EUR 50,000 by 2015 seems very ambitious from todays perspective.

www.fuelcells.wiley-vch.de

FUEL CELLS 07, 2007, No. 3, 183189

Dsterwald et al.: DRIVE The Future of Automotive Power: Fuel Cells Perspective

Natural gas steam reforming is the

most feasible large-scale solution for the
short-term introduction of hydrogen as a
fuel. This is a proven technology based
on fossil energy. Fuel costs for hydrogen
generated from natural gas are currently
twice as high as gasoline from crude oil,
excluding tax (based on fuel energy
content). The drawbacks of the method
are that it would not lead to independence from fossil oil and gas reserves,
often considered a key benefit of the
hydrogen solution. In addition, the
method is not CO2 neutral, as it uses fossil fuels, and the greenhouse gases
emitted during hydrogen production
must be accounted for when considering
the overall environmental impact of the
fuel cell.
Overall, greenhouse gas emissions are
Fig. 8 Even a quantum leap in cost reduction of fuel cell power trains would still result in production
still
expected to be significantly lower
costs far above those of conventional power trains.
than for comparable ICE or even hybrid
ICE power trains, due to the high efficiency of fuel cell power trains. Current studies suggest a
5.2 Significant Technical Hurdles
greenhouse gas advantage of around 25% for fuel cell power
trains, compared to hybrid diesel, and about 47% compared
While the innovative and environmentally friendly image
to the conventional gasoline power train, with further develof the fuel cell may be sufficient to encourage some consuopment potential (Figure 9).
mers to purchase fuel cell powered vehicles, a number of
The DRIVE studies fuel supply cost comparison shows
problems remain. These include technical immaturity, lack of
that, initially, only hydrogen production from natural gas
an economically viable, genuinely CO2 emission free, hydroapproaches cost competitiveness with gasoline from crude oil
gen supply, and the lack of a fuel supply infrastructure.
5.2.1 Technical Immaturity
It is crucial to develop suitable vehicle
hydrogen storage and to solve the issue
of the systems high weight. The system
cold start time also needs to be cut from
up to a minute to less than a second and
better fuel cell stack power performance
at low temperatures is vital. The thermal
management also requires optimization.
Currently, fuel cells have to be operated
at around 80 C, which requires an enormous cooling airflow through the vehicle
radiator due to the low temperature difference between the fuel cell and surrounding air. It is essential to develop
innovative heat exchange concepts or
enable a higher polymer electrolyte fuel
cell membrane (PEM) operating temperature. Additionally, a reliable technology
that ensures sufficient fuel cell power
train lifetime for vehicle operation still
needs further development.

FUEL CELLS 07, 2007, No. 3, 183189

Fig. 9 Well-to-wheel calculations show the fuel cells power train advantage, regarding primary
energy use and CO2 emissions.

www.fuelcells.wiley-vch.de

2007 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim

187

ORIGINAL RESEARCH PAPER

5.2.2 Hydrogen Generation and Supply

ORIGINAL RESEARCH PAPER

Dsterwald et al.: DRIVE The Future of Automotive Power: Fuel Cells Perspective
(Figure 10). The use of renewable solar or wind energy to
generate hydrogen via electrolysis requires radical cost reduction and/or high state subsidies to be feasible. However, there
are insufficient indications of the required investment or commitment by industrial or governmental players that would make
hydrogen generation from renewables likely. Therefore, it is
considered that natural gas steam reforming is the most likely
method of hydrogen generation in the coming decades.
5.2.3 Distribution Infrastructure
The most common delivery method
for hydrogen as an industry gas today is
the trucking and shipping of compressed
gaseous hydrogen (CGH2) and liquid
hydrogen (LH2). Hydrogen pipeline networks also exist in certain chemical
industry clusters. However, demand for
hydrogen is relatively low. A cost- and
energy-efficient alternative for hydrogen
distribution would thus be needed if
hydrogen were required on a large scale.
At present, three distribution options
are on the horizon. Firstly, central hydrogen generation with distribution via truck
and ship. Secondly, central generation with
a hydrogen pipeline network, and thirdly,
on-site hydrogen generation at gas stations
via natural gas steam reforming.
Future hydrogen price projections for
end-user LH2 supply vary considerably,
ranging from a very optimistic EUR ~2
per kg [1] to more than EUR ~9 per kg
[3]. For our calculations, an LH2 end-user
cost of EUR 5.8 per kg is assumed in the
Intermediate scenario, consisting of
EUR 4.3 per kg LH2 wholesale and
EUR 1.5 per kg infrastructure (transportation and supply) costs. A dependence
of the LH2 wholesale price on CNG and
oil prices is assumed, as well as constant
infrastructure costs. It is therefore expected
that LH2 prices will increase to EUR 4.6
per kg in the ICE Age scenario and to
EUR 8.8 per kg in the Green World setting, equivalent to EUR 1.25 to 2.35 per
liter gasoline equivalent.
It is critical to also consider the capital
costs for infrastructure installation. Infrastructure installation costs are especially
high for pipeline hydrogen supply, while
equipment utilization will be very low.
At least for urban areas, hydrogen supply coverage must be in place for the
introduction of fuel cell powered vehicles, which means shipping and trucking

188

of hydrogen and on-site natural gas reforming are feasible

during the introduction phase.

6 Conclusion: Challenging Future, but Possible

Long-Term Gain with Sustained Effort
The authors are less than optimistic about the chances of
hydrogen technologies becoming mainstream by 2020, in
view of the hurdles for fuel cell commercialization outlined

Fig. 10 Fuel supply costs for alternative hydrogen production methods show that, initially, hydrogen production needs to focus on natural gas.

Fig. 11 On a global level, gasoline hybrids will be the most successful alternative power train in all
3 scenarios.

2007 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim

www.fuelcells.wiley-vch.de

FUEL CELLS 07, 2007, No. 3, 183189

Dsterwald et al.: DRIVE The Future of Automotive Power: Fuel Cells Perspective

in this article. Our projections suggest that hydrogen power

trains will mainly play a role in certain niche markets (e.g.,
vocational fleets) over the next 15 years. Even in a Green
World scenario, only 150,000 fuel cell passenger car sales are
expected (0.2% of global car sales in 2020). From a global perspective, gasoline hybrids will be the most successful alternative power train in all three scenarios analyzed (Figure 11).
Experts agree that the breakthrough of a new technology
should go hand in hand with a significant TCO reduction
to facilitate a switch. Even in a scenario projecting highly
optimistic decreases in fuel cell stack and system component
costs, production remains too costly for mass-market introduction. Technological hurdles also remain, as do unresolved hydrogen supply issues.

References
[1] Spiegel online, June 23, 2005.
[2] Prospects for building a hydrogen energy infrastructure,
LH2 central distribution, Princeton University.
[3] A Realistic Look at Hydrogen Price Projections, Doty Scientific Inc., Columbia SC, LH2 long term projection 2025.

______________________

FUEL CELLS 07, 2007, No. 3, 183189

www.fuelcells.wiley-vch.de

2007 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim

189

ORIGINAL RESEARCH PAPER

Fig. 12 Development paths towards the fuel cell.

In the longer term, however, it is possible that fuel cell power trains and hydrogen may come to dominate the power train
market. Todays trend towards hybrid
power trains can be seen as a first step
in the transition, as OEMs expand their
knowledge of electric power trains
(Figure 12). Even before hydrogen-powered drive trains become a mainstream
option for passenger cars, substantial market segments for automotive fuel cells may
arise, for instance in public transportation,
city-based fleets, or, potentially, as auxiliary power units (possibly SOFC if not running on hydrogen).
OEMs and suppliers have an interest
in maintaining a presence in technology
development to enable them to have the
opportunity to capture some of what
might, in the long term, develop into a
lucrative market. This is complicated by
the fact that the breakthrough of the fuel
cell onto the mass market is likely to be a
long and uncertain way off, and it is not
yet clear which of the technologies will succeed. Choosing
which technology to back is no simple task, but OEMs must
ask themselves whether they can afford not to invest in a
technology that many expect to dominate the worlds power
train market at some point in the future.