What is an EV?

If you’re driving a car that needs to be fueled up, chances are your vehicle runs on an internal combustion engine (ICE), which is powered by either gasoline or diesel fuel. Electric vehicles (EVs), by contrast, use a battery instead of a gasoline tank and an electric motor instead of an ICE.

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Andreas Tschiesner and Anna Herlt are senior partners in McKinsey’s Munich office; Andreas Venus and Dr. Ruth Heuss are senior partners in the Berlin office; Kevin Laczkowski is a senior partner in the Chicago office; Philipp Kampshoff is a senior partner in the Houston office; Srikant Inampudi is a senior partner in the Detroit office; and Yogesh Malik is a senior partner in the Washington, DC, office.

But not all EVs are created equal. There are several types of EVs, each of which is powered a bit differently:

Hybrid electric vehicles (HEVs) have both an ICE and an electric motor, which assists only at low speeds. The battery is charged either by the combustion engine or through recuperation when braking. Honda’s Accord line, for example, features an HEV model.
Plug-in hybrid electric vehicles (PHEVs) are powered by an electric motor as well as a small combustion engine. They have an all-electric range from 20 to 60 miles per trip and can be charged at a regular EV charging station. Toyota’s Prius line includes a plug-in hybrid.
Extended-range electric vehicles (EREVs) are sometimes included in the PHEV category, but there are key differences between the two. Whereas PHEVs use a parallel electric-motor and ICE powertrain configuration, EREVs typically include a small ICE-powered generator that recharges the battery pack. EREVs and PHEVs can both be charged at EV charging stations, and their ICE engines can be refilled at traditional gas stations. EREVs also offer a longer driving range: usually between 100 and 200 miles, compared with 20 to 40 miles for PHEVs.
Battery electric vehicles (BEVs) rely solely on their battery for power. They produce no tailpipe emissions, have no combustion engine, and can typically drive between 200 and 500 miles before being recharged. The Tesla Model 3 and the Chevy Bolt are examples of BEVs.
Fuel cell electric vehicles (FCEVs) use only electric motors. Their electricity is generated in fuel cells and can be stored in a small buffer battery. Fuel cell vehicles use hydrogen (which is compressed into tanks) as fuel. Toyota’s Mirai and Hyundai’s Nexo are examples of FCEVs.

The automotive future is electric—McKinsey projects that worldwide demand for EVs will grow sixfold from 2021 through 2030. Annual unit sales could go from 6.5 million to roughly 40 million over that period. In the first part of the decade, the COVID-19 pandemic, the war in Ukraine, and the push toward achieving net zero have accelerated the momentum of sustainable mobility. Understanding EVs and e-mobility can illustrate how these vehicles are transforming the industry and helping to decarbonize the planet.

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Are there other EVs aside from cars?

The popularity of electric bikes and scooters, due to their affordability and ease of access, represents a new chapter in micromobility. McKinsey estimates that the global micromobility market will reach about $360 billion by 2030, up from about $175 billion in 2022 (Exhibit 1), mainly driven by e-bike sales.

The global micromobility market is expected to reach a value of about $360 billion by 2030.

On the opposite end of the EV spectrum are eTrucks. Demand for them is booming in response to a regulatory push to reduce emissions in the logistics and transport sectors. The European Union has some of the world’s toughest emissions regulations: a 43 percent reduction in sales is required for new medium- and heavy-duty trucks by 2030 and 90 percent by 2040, which will be enforced by hefty fines for noncompliance.

Today, eTrucks are becoming more economical for manufacturers to produce and for consumers to purchase and own. As a result of improvements in electric powertrain technology and declining battery costs, McKinsey predicts that within the next few years, the total cost of ownership for many eTrucks—depending on the specific use case—will be similar to or better than that of traditional ICE trucks. Toward the end of this decade, McKinsey expects that fuel cell electric trucks (which are powered by hydrogen) will also enter the commercial-vehicle industry, especially in heavy-duty applications and long-haul use cases, where pure battery electric powertrains might have limitations given battery size and weight.

And in the broader world of mobility, electric aircraft are also on the horizon. Some have predicted that electric vertical takeoff and landing (eVTOL) aircraft could be flying above cities as soon as 2030, although predictions are notoriously difficult to make in the autonomous space.

What is the range of EVs?

The range is how far an EV can go before recharging. Range anxiety, or the unease drivers feel about an EV’s limited driving distance, is a major concern for consumers considering the purchase of an electric vehicle, along with the price tag. For prospective owners who live in apartments or other types of homes without access to overnight charging, as well as those who would take long-distance trips, the scant number of public charging stations can be a concern. And while most drivers have a daily commute of less than 50 miles, others have to drive much farther to get to and from work. Currently, the minimum acceptable range is now about 500 kilometers (310 miles), but a 650-to-700-kilometer range (400 to 435 miles) would help differentiate an EV from competitors. For those consumers with range anxiety, EREVs stand to quell their concerns and may boost EV sales all over the world.

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What is fast charging for EVs?

There are two types of EV chargers:

Alternating current (AC) slow charging (3 to 22 kilowatts) provides energy for, on average, 30 miles for an hour of charging. This type of charging is found in public charging stations and in private homes and can be installed easily.
Direct-current (DC) fast charging (50 to 300 kilowatts) provides, on average, at least 1,500 miles for 20 minutes of charging. This type of charging is available only at public charging stations and requires a significant investment to install at home.

Fast chargers are a considerable expense—as of 2022, the hardware alone for a 300-kilowatt charger costs from $50,000 to $100,000, and installation can be just as pricey. The costs could drop by about 40 percent over the next few years as demand for fast charging increases to reflect the expanding EV customer base. The greatest opportunity in the EV-charging value chain will come from on-the-go charging, which allows drivers to pay a premium to charge within an hour.

Accelerating the rollout of charging infrastructure will be a crucial enabler for EVs to go mainstream. At present, there are about 1.15 million public charging stations in China, around 340,000 in Europe, and roughly 100,000 in the United States. The European Electric Vehicle Charging Infrastructure Masterplan, developed with industry associations (including the European Automobile Manufacturers’ Association, or ACEA, and Eurelectric and WindEurope), forecasts that approximately 7,000 charging stations must be built every week until 2030 to sustain e-mobility’s ramp-up.

Governments, utilities, and charging companies will need to consider several questions as they build out the charging infrastructure. For instance, where should charging stations be located—bearing in mind accessibility, convenience, and equity? What charging speed is essential? And what’s the best way to balance profitability and convenience?

Do consumers want to buy EVs?

According to the 2025 McKinsey Mobility Consumer Pulse Survey, EV uptake continues, although sales vary by country and have slowed in some regions. In China, one in every four cars in 2023 was a BEV, and 50 percent of vehicles sold in China in 2024 were EVs. What’s more, China is exporting its EVs to key emerging markets: In 2024, one in every five Thai cars was electric, and 75 percent of those EVs came from Chinese brands. By contrast, EVs accounted for only 21 percent of vehicles sold in Europe and 10 percent of those sold in the United States.

To move forward with their intent to switch from ICE vehicles to EVs, many consumers say they would require public-charger availability to be equivalent to that of current gas stations. The 2025 McKinsey Mobility Consumer Pulse Survey also showed that battery driving range and charging speed were among the top purchase criteria in all regions. Wary consumers may forgo EV purchases if their concerns about charging availability, battery charging speed, and range persist.

Despite the sales dip, the auto industry’s future is becoming more electric. Sixty-two percent of respondents to another recent McKinsey Mobility Consumer Pulse survey say they are beginning to change their transportation habits due to sustainability concerns, and 42 percent say they want their next car to be an EV (Exhibit 2). Digital connectivity and assistance features, such as automatic braking, are also increasingly important purchase considerations.

Many survey respondents are interested in electric vehicles--and also want other sophisticated features.

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How do EVs affect the electric grid?

As the mobility market continues to shift toward EVs, many observers are considering the effects on global energy grids. Generally, electrical capacity will need to expand to support the growing number of EVs on the roads. But analysis suggests that growth in e-mobility will not drive substantial increases in power demand in the short to medium term.

McKinsey’s research on EVs in Germany—where the government set a target of 15 million EVs on the road by 2030—suggests that most of charging will take place at single- or multiunit homes, with the rest happening in a range of locations, including places of work, highways, public stations, and retail destinations such as shopping malls. The greatest opportunities for growth will be at van or truck fleet hubs, which will need to evolve to meet both heavy demand and the need for fast charging.

One solution to help mitigate EVs’ impact on electric grids is “managed charging.” This approach includes incentives for customers to charge their vehicles during off-peak times and enables utilities to turn charging on and off for certain areas or individuals, based on real-time use. Vehicle-to-grid (V2G) technology can facilitate managed charging.

How does the rise of EVs affect natural resources?

Ecological concerns are central to the shift to EVs—for consumers as well as regulators.

The rise of EVs has direct implications for the supply chain of raw materials. The greater demand for EVs in recent years has meant greater demand for raw materials and EV inputs, including metals and ores such as cobalt, lithium, and nickel. Demand for lithium carbonate, for example, could rise to three million to four million metric tons in 2030, from 500,000 metric tons in 2021. As for nickel, McKinsey predicts a shortage in the middle of this decade. Exploding demand for nickel, as well as its use in several industries (such as steel production), is likely to drive this shortage.

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Of course, fewer ICE vehicles in operation means less demand for oil and natural gas.

More broadly, when it comes to sustainability and the mobility industry, much attention is paid to bringing down tailpipe emissions—understandable, since they account for 65 to 80 percent of the emissions automobiles generate. But it’s worth noting that over time, efforts to reduce material emissions will be crucial to realizing the potential of the zero-carbon car. Mobility’s longer-term net-zero transition entails both opportunities and risks, and coordinated responses from the public and private sectors can help ease the shift.

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Is the automotive future electric?

Simply put, yes. Mainstream EVs will transform the automotive industry and help decarbonize the planet. There is essentially no other solution to decarbonize passenger transport. Hydrogen will probably not play a significant role in passenger mobility as EV-charging speeds and ranges increase and green hydrogen remains too expensive for the average private BEV owner. Other options have different limitations: Synthetic fuels are too expensive, while biofuels are not abundantly available—and both release emissions.

Regulation. National and municipal governments have introduced new regulations and incentives to accelerate the shift to sustainable mobility. In Europe, regulatory targets aim for an EV share of 50-plus percent by 2030. A number of countries, including those in the European Union, have gone further and announced accelerated timelines for ICE sales bans in 2030 or 2035. Many national governments are also offering EV subsidies.
Consumer behavior. People are more accepting than ever of alternative, sustainable mobility options. In 2021, the number of inner-city trips with shared bicycles and e-scooters rose by 60 percent year over year. Interest in EVs reflects this consumer shift: More than 45 percent of car customers in 2021 considered buying an EV.
Technology. Automotive-industry players are accelerating the development of new concepts of mobility, including electric, connected, autonomous, and shared vehicles. These technology innovations will help reduce the cost of EVs and make shared electric mobility a real alternative to owning a car.

Are EVs profitable? How can companies boost the profitability of EVs?

At best, EV profitability remains slightly above breakeven for current models, although three-quarters of EVs analyzed show negative profit margins. This is mainly the result of high battery costs and expensive R&D efforts over still relatively low volumes.

But the market share for EVs is rising. McKinsey’s analysis forecasts that if this trend continues, the average EV profit level will gradually improve thanks to cost reductions and economies of scale.

For now, companies have ways to boost the profitability of EVs. These include incremental measures to spread industry best practices (such as direct-to-customer sales or design-to-value processes) to optimize costs. Automakers can also make more radical adjustments to their business models—for instance, by incorporating EV/battery-as-a-service offerings.

Reducing battery costs (despite increasing raw-material costs) through economies of scale, innovations in battery technology, and a better charging infrastructure (to avoid always-increasing range requirements) will all help improve the cost position of electric vehicles.

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How are chip shortages affecting the EV market?

The ongoing shortage of semiconductors, also known as chips, is affecting the vehicle market—electric and otherwise. The shortage is the result of a complicated confluence of events, including struggles during the COVID-19 pandemic, a lack of new capacity, geopolitical tensions, limited stock, and contract terms that are unique to the auto industry. The scarcity lowers car production and is responsible for billions of dollars of lost revenue.

Given the shortage and resulting losses, automotive EV-component manufacturers will need to rethink how and when they order semiconductors to meet the growing demand for EVs.

What can EV manufacturers do to appeal to potential EV customers?

Here are a few strategies that both automotive incumbents and EV start-ups can consider:

Improve the customer journey. Manufacturers should adjust their typical strategies to attract customer interest and seal the deal. An omnichannel experience is important: customers in all regions prefer online interactions at certain points but want an in-person experience at other stages of the purchase journey.
Strive for a lower cost base. Potential EV buyers, along with many other consumers, can be price sensitive. Lower prices could help tip the balance in favor of EVs. To maintain healthy margins at lower average price levels, manufacturers will need to optimize their cost structures and strive to emulate the integrated value chains of Chinese EV manufacturers.
Develop strong portfolio strategies that consider the addition of EREVs. Adding EREVs to their portfolios could help auto manufacturers appease the range anxiety that many European and US consumers report.
Differentiate EVs through superior battery technology. Range and charging speed are among the most important purchasing factors for customers, and the average BEV on the market does not meet their requirements. Some manufacturers have announced significantly faster charging capabilities. As these new products come to market, customer expectations could adjust.
Differentiate through advanced driver assistance systems. As new players enter the EV market, capturing consumer attention could become more difficult. Manufacturers that offer strong advanced driver assistance systems could gain an edge.

How can ICE businesses stay competitive?

The automotive industry’s past hundred years are known as the ICE Age: when vehicles with internal-combustion engines dominated the roads and the skies. While most vehicles on today’s roads are still powered by ICEs, EVs are slowly replacing ICE vehicles, especially in the European Union, China, and the United States. However, emerging markets will still use ICE vehicles into the 2040s, and aftermarket components will still be used through the 2050s and beyond.

To stay competitive, ICE suppliers will need to explore ways to navigate the energy transition—and revisit their portfolios—as electric mobility continues to grow.

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