September 2024 China Brief The Truth About Chinese Consumption Daniel Zipser, Leader, Asia Consumer & Retail Practice Looking back over the past few months since our last China Brief update in April, not much has changed. China's GDP grew at a steady 5 percent during the first half of the year, while retail sales ticked modestly upward by 3.7 percent during this period. We see few signs that this picture of single-digit growth in consumption will change for the foreseeable future. Indeed, some observers are ...

Investment Rating - The report indicates a strong potential for the autonomous trucking industry, projecting a market size of approximately $600 billion by 2035, with significant growth opportunities driven by technological advancements and economic factors [1][15]. Core Insights - Autonomous vehicles (AVs) are expected to address critical challenges in the trucking industry, such as driver shortages and rising transportation costs, although their widespread adoption may be delayed by about a year [2][3]. - The report outlines two primary use cases for autonomous trucking: constrained autonomy (hub-to-hub operations) and full autonomy (direct distribution center-to-distribution center operations) [5][7]. - The total cost of ownership (TCO) for autonomous heavy-duty trucks is projected to decrease significantly, with potential savings of up to 42% per mile for long-distance routes [13][14]. Summary by Sections Industry Overview - The autonomous trucking market is projected to reach $616 billion by 2035, with significant contributions from China, the United States, and Europe [15][19]. - The U.S. is expected to have the fastest adoption rate, with 13% of heavy-duty trucks being autonomous by 2035, driven by high driver salaries and long distances [18][20]. Economic Factors - The U.S. faces a shortage of over 80,000 truck drivers, a number expected to double by 2030, while Europe anticipates a shortage of 745,000 drivers by 2028 [3][4]. - Transportation costs have risen significantly, with logistics costs as a share of GDP increasing from 7.5% in 2020 to 8.7% in 2023, creating a financial incentive for the adoption of autonomous trucking [3][4]. Technological Requirements - Autonomous trucks require advanced hardware and software, including sensors, high-performance computers, and AI-driven decision-making systems [4][24]. - Major challenges include the need for reliable detection systems and the availability of essential components like LiDAR and redundant braking systems [4][24]. Use Cases and Adoption - The report identifies two overlapping use cases for autonomous trucking: constrained autonomy for hub-to-hub operations and full autonomy for direct routes between distribution centers [5][7]. - The transition to full autonomy is expected to occur gradually from 2027 to 2040, with initial operations focusing on highways and geofenced areas [6][8]. Financial Implications - TCO benefits will vary by route length, with significant savings expected for longer routes (over 1,500 miles) due to reduced driver costs and optimized operations [12][13]. - The report suggests that as technology matures, the cost of autonomous systems will decrease, further enhancing TCO advantages [14][20]. Market Dynamics - Two emerging business models for autonomous trucking are identified: Driver as a Service (DaaS) and Capacity as a Service (CaaS), each offering different operational and financial implications [21][22]. - The report emphasizes the need for collaboration among OEMs, technology developers, and infrastructure providers to facilitate the successful deployment of autonomous trucks [23][24].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The complexity of board roles and responsibilities has increased significantly, with two-thirds of surveyed directors acknowledging this trend [4][6] - Effective collaboration between boards and CEOs is crucial for enhancing organizational value, yet only one-third of respondents report effective collaboration [7][23] - Directors are increasingly prioritizing collaboration with management teams to navigate growing complexities [6][23] Summary by Sections Board Complexity - The business environment is more unpredictable, leading to an expansion of topics on board agendas, including technology trends, cybersecurity, and net-zero transitions [5][4] - The average number of days directors dedicate to board-related activities has increased from 25 in 2019 to 30 in 2023 [6] Collaboration Tactics - 59% of directors are strengthening collaboration with management teams, while 52% are dedicating more time to board work [6] - Effective collaboration is linked to higher perceived impact on long-term value creation, with effective collaborators being twice as likely to report high impact [11] Enhancing Collaboration - Establishing efficient board processes is essential, with effective collaborators being 2.4 times more likely to report efficient meeting management [16] - Prioritizing communication between boards and CEOs is critical, as misaligned agendas and poor information sharing are major barriers to effective collaboration [20][21] - Fostering a culture of trust and respect within the boardroom enhances collaboration, with effective collaborators more likely to engage in team-building activities [22]

Investment Rating - The report does not explicitly state an investment rating for the industry Core Insights - The report discusses the significant volatility in commodity markets, particularly in energy, metals, and polymers, with sharp price increases observed from the end of 2021 through 2022, followed by price decreases in 2023 and 2024 [4] - Purchasing organizations are now required to adjust commodity and component prices back to a "fair price" level based on actual raw material costs and energy price developments [4] - The introduction of a spend digital twin is highlighted as a transformative tool for procurement, enabling buyers to gain a clear and real-time view of fair market prices [4][5] Summary by Sections Spend Digital Twin Overview - A spend digital twin allows for a comprehensive analysis of spending, enabling detailed examination of cost drivers at the category level and assessing market developments over time [4] - This tool helps establish a fair market price index that can be compared against actual price progression to identify negotiation points [4] Applications of Spend Digital Twin - Identifying negotiation potentials by comparing fair market price indices with actual price changes [7] - Preparing for supplier negotiations by calculating clawback opportunities and fair price adjustments [7][8] - Supporting the derivation of indexation contracts by analyzing historical price developments relative to fair market indices [8] Performance Measurement and Stakeholder Communication - A spend digital twin aids in measuring purchasing performance and separating market movements from negotiation performance [9] - It facilitates sharing information with cross-functional stakeholders, particularly the sales department, to inform pricing strategies based on cost developments [9] Implementation and Value Capture - Setting up a spend digital twin can take several weeks to months, depending on the model's complexity, but even a basic setup can provide valuable insights [9] - The report emphasizes that leveraging a spend digital twin can enhance procurement strategies, drive cost efficiencies, and sustain competitiveness in fluctuating market conditions [9]

Global Economic Overview - Global economic uncertainty remains elevated due to the high-interest rate environment impacting households and companies [3] - Consumer confidence has declined as high consumer prices continue to affect consumers [5][7] - Deceleration in consumer spending continues across the board, with the exception of Brazil [6][11] Business and Industry - Manufacturing sector tips into contraction for the first time in 2024, while services continue to grow steadily [6][14] - Manufacturing growth stalls in China and the US for the first time in 2024, with the sector remaining in contraction in the eurozone [6][17] - Services sector remains the brightest spot on the global economic map, with main economies continuing growth in July [6][20] - Economic growth is accelerating, driven primarily by increases in industrial production and capital markets [6][23] Trade and External Factors - World trade volumes increased by 0.7% in June, driven by growth across all trade flows in advanced economies [6][26] - Global supply chain markets continue to normalize as the pressure index reaches historical average value in July [6][28] - In June, trade in the United States saw an increase, whereas China and Brazil experienced a decline in exports [6][31] - Container Throughput Index remained steady at around 130 points in June, but port trade activities showed a decline of 3.5% compared to May [6][35] - Total port trade experienced a decline in June 2024 compared to the same period in 2023, primarily driven by decreases in activity within Asian economies [6][41] Employment and Inflation - Unemployment rate in both the US and China continued to rise in July, while Brazil has shown a downward trend since April [6][43] - Inflation continues to ease among developed economies, with deflation still present among producers in the eurozone [6][46] - Consumer inflation in developing economies remained stable in July, with only Russia seeing an acceleration [6][49] - Most commodity prices continued to decline in August but remain significantly higher than pre-pandemic levels [6][53] Financial Markets - Equity markets experienced a troubled August, with most stock exchanges experiencing losses [6][73] - Volatility showed a slight upward trend in August but remains within controlled levels historically [6][76] - The cost of capital was stable in August, given stabilization in inflation and a wait-and-see approach from markets regarding interest rate decisions [6][80] - Interest rates continue largely unchanged in 2024, with increasing expectations around cuts and their magnitude [6][82] Commodities and Food Prices - Metal prices edged down slightly due to slower demand in global commodity markets [6][61] - Food prices remained broadly unchanged in July, still presenting a 19% increase compared to pre-pandemic levels [6][67] - The end prices that consumers pay for commodities dropped significantly in 2024 but remain relatively high compared to pre-pandemic levels [6][70]

Investment Rating - The report does not explicitly provide an investment rating for the heavy-duty trucking industry in China. Core Insights - The Chinese heavy-duty truck (HDT) market experienced a significant decline in 2022, with sales dropping 45 percent year over year, but began to stabilize in 2023 with sales rebounding to approximately 900,000 trucks, including exports [2][4] - Key trends influencing the market include the emergence of new powertrains, partnerships exploring autonomous driving, increased exports, and customer pressure on pricing [2][4] Market Overview - In 2023, the domestic market achieved 616,000 truck sales, benefiting from the recovery of key sectors such as logistics and a GDP growth rate of 5 percent [4] - The market is projected to stabilize at around 800,000 trucks excluding exports, due to slowing economic growth and a shift towards rail logistics [4] - Exports accounted for about 30 percent of the total market in 2023, with 269,000 trucks exported, indicating a strategic shift by Chinese OEMs towards global markets [5] Powertrain Trends - Non-diesel powertrains are gaining traction, with CNG and LNG trucks accounting for 25 percent of the market share in 2023, while battery electric vehicles (BEVs) made up about 5 percent [10][11] - The average transaction price of domestic HDTs rose by approximately ¥42,000 (about $5,800) from January 2018 to August 2023, driven by the increasing share of CNG/LNG and BEVs [13] Market Dynamics - The top five OEMs dominate the market, holding about 88 percent of the market share, and are expected to continue gaining market share at the expense of smaller players [13][15] - The report highlights the importance of battery swapping technology, which is anticipated to account for 60 to 70 percent of BEVs in China by 2030 [15] Strategic Implications - Chinese HDT OEMs are actively pursuing export opportunities, particularly in price-sensitive markets, and are localizing production in Southeast Asia [16] - The report suggests that OEMs should focus on emerging trends such as electrification and autonomous driving to adapt to new market realities [17]

Investment Rating - The report does not explicitly provide an investment rating for the electric truck charging infrastructure industry. Core Insights - The expected global mass rollout of electric trucks necessitates a dense charging network, with McKinsey estimating that over 300,000 charge points will be required in Europe by 2030, up from approximately 10,000 today [2] - A total capital investment of around €40 billion will be needed to build this infrastructure by 2040, with €7 billion required by 2030, of which less than a quarter has been publicly committed [2][29] - The charging infrastructure will be energy-intensive, consuming 20 terawatt-hours of electricity annually by 2030, which is about 0.5% of Europe's total electricity demand [2] Summary by Sections Charging Infrastructure Development - The first phase of charging infrastructure will be installed in private fleet depots or semi-public hubs, with over 90% of installations expected to be near major industrial sites or logistics hubs by 2030 [12][13] - Public charging infrastructure will develop more slowly, with only 4,000 public charging points for slower overnight charging and 12,000 fast-charging points expected by 2030, requiring a total investment of €1.5 billion [15] - By 2040, a total of 100,000 public charging points are anticipated to be installed along European highways, providing 45% of the total electricity used by electric trucks [15] Use Cases and Fleet Operations - The first wave of commercial electric trucks will primarily be used for single-day travel, covering more than 50% of electric trucks in Europe by 2030 [7] - Fleet operators will need to navigate trade-offs in vehicle specifications, balancing battery size, charging infrastructure, and operational flexibility [9] - The development of depot-based infrastructure offers a solid business case for fleet operators, with an expected EBIT profit pool of €200 million between now and 2030 [14] Market Opportunities and Challenges - The electric truck charging market presents significant opportunities due to the lack of established players, allowing new entrants to shape the ecosystem [3] - Public fast chargers are expected to be the most profitable type of infrastructure, with a profit pool valued at €500 million between now and 2030 [15] - The report highlights the need for integrated solutions that include financing, electricity access, and hardware implementation to support the electrification of fleet hubs [31] Strategic Recommendations - Fleet operators should develop electrification and charging infrastructure roadmaps well in advance, considering grid upgrades and potential delays in approvals for charging stations [19][24] - Collaboration among various stakeholders, including utility companies, charging hardware providers, and fleet operators, is essential for successful infrastructure deployment [21][26] - The report emphasizes the importance of understanding market dynamics and customer needs to create differentiated offerings in the charging infrastructure space [31][32]

Mc Company Healthcare Practice Reimagining healthcare industry service operations in the age of AI Healthcare payers, care delivery organizations, and governments have many opportunities to improve consumer experiences and bolster service efficiency using AI solutions. by Sameer Chowdhary with Avani Kaushik, Sagar Soni, and Vinay Gupta September 2024 As the healthcare industry continues to evolve, operations leaders face a complex set of challenges, including high administrative costs and employee attrition ...

Automotive & Assembly Practice How batteries will drive the zero-emission truck transition Battery electric vehicle technology will be key to reducing road freight emissions and achieving global climate targets. by Jakob Fleischmann with Lena Bell and Patrick Kroyer Road freight vehicles1 account for a significant share of global CO2 emissions. Hence, minimizing their carbon footprint is a vital step toward achieving global climate targets. Over the past decade, governments, fleet operators, and truck OEMs ...

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The industry is undergoing a transformation driven by generative AI (gen AI), which is reshaping talent strategies and software development processes [2][5] - Companies that effectively leverage gen AI can significantly enhance productivity, with reported improvements of up to 40% in product management and 30-40% in software development [4][10] - The current adoption of gen AI in software engineering is limited, with only 13% of companies using it systematically, indicating a substantial opportunity for growth [4][5] Summary by Sections Talent Strategy - Companies need to rethink their talent strategies by focusing on skills rather than traditional roles to adapt to the evolving demands of software development [2][5] - The skills required for software engineers and product managers are changing, necessitating a shift towards higher-value skills such as user story development and effective communication [11][12] Generative AI Impact - Gen AI is expected to impact every phase of the product development life cycle (PDLC), improving efficiency in tasks such as requirement definition, coding, testing, and documentation [6][10] - The technology is particularly effective in content-heavy tasks, suggesting that its integration can lead to faster development cycles and improved code quality [6][10] Skills Development - A strategic workforce plan centered around skills is essential for companies to identify and nurture the talent needed for future success [15][18] - Companies should treat skills as data, enabling the use of AI to analyze and prioritize skill development needs [16][18] Apprenticeship and Upskilling - Developing apprenticeship capabilities is crucial for effective upskilling, allowing employees to learn through hands-on experience and mentorship [19][22] - Companies should create incentives for participation in apprenticeship programs, integrating them into performance evaluations to ensure success [22] Leadership and Oversight - Leadership must focus on standardizing skills and capabilities across the organization to manage the integration of gen AI effectively [13][14] - Clear guidelines and expectations regarding the use of gen AI are necessary to mitigate risks and ensure responsible adoption [13][14]