How technology creates new opportunities across asset classes

1. Copyright © 2020 McKinsey & Company. All Right Reserved.
November 2020
How technology creates new opportunities across asset classes
New horizons in
transportation: mobility,
innovation, economic
development and
funding implications

2. McKinsey & Company 2
Today’s speakers
Steffen Fuchs
Senior Partner,
Dallas
Vik Krishnan
Partner,
San Francisco
Paul Jacobson
Senior Expert,
Washington DC

3. McKinsey & Company 3
Today’s technology is creating a new paradigm for infrastructure
assets through six trends
Assets will be
operated and
monetized real
time through
data analytics
and connectivity
The automation
of systems is
accelerating and
expanding
Consumers are
shifting to new
mobility options
Logistics seeing
demand for
speed and
transparency
Cybersecurity is
becoming one of
the biggest risks
and threats to
asset operations
Environmental
changes will
require assets
to be flexible,
resilient and
sustainable
Energy
continues to
transition to
sustainable and
decentralized
systems
18%
CAGR in global
smart highway
systems 2020-
2025
15%
Of all new
vehicles in
2030 could be
autonomous
5-10%
CAGR in
modular
construction
market 2018-
2023
$575B
In cybercrime
cost in 2016
74%
Increase in
ride-sharing
from 2019-2023
3-4x
Increase in
energy storage
capacity 2019-
2024
Source: Markets and Markets; Woodmac Power & Renewables Datahub; McAfee; McKinsey analysis

4. McKinsey & Company 4
The impact across all asset classes could be significant
80%
Of cars equipped with
connectivity by 2030
$50B
Investment in charging
stations by 2030
6%
Forecasted PAX miles
travelled by robotaxis in
2030
Transport
$600B
Of additional transmission
investments needed to
accommodate
electrification
~26%
O&M savings on T&D
infrastructure from
digitization
3.6x
Total global installed
energy storage capacity
by 2024 from 2019
Energy
+$1B
Smart water meter base
by 2022
$27B
Global desalinization
market by 2025
15-25%
Savings from leakage
detection and control
Water
3.4B
Tons of projected global
waste generation by 2050
$520B
Global waste
management market by
2025
20-40%
Decrease in vehicle and
labor requirement for
collection
Waste Telecom
4.1%
Decline in # of midsize
data centers in U.S. by
2022
2.5x
Increase in percentage of
service provider data
centers vs. in-house
3.1x
Increase in global mobile
data traffic by 2023
Source: Smart Energy (smart-energy.com); Woodmac Power & Renewables Datahub; GlobalData; Analysys Mason DataHub; IDC; McKinsey analysis
Focus of today

5. McKinsey & Company 5
Transport-projects could attract $80bn in investment to meet public
needs, drive economic development, and make financial returns
Archetypes – projects that could
quickly lead to economic activity
Resilience of infrastructure3
Development of underutilized city and
state assets
5
Maintenance blitz of STIP roads and
bridges
2
Upgrade, operate, maintain or add
capacity of STIP roads and bridges
1
Drives
economic
development
Monetizing the curb4
Attractive for
private
investment
Can be
completed
quickly
Great
investment
need
National
portfolio
size, $bn
7.0bn
55bn
6.7bn
3.4bn
9.3bn
There is a role for private finance alongside existing public financing models
Source: McKinsey IPAT database; Statewide Transportation Improvement Program reports; MAPA Association; FHWA National Bridge Inventory, 2019; Announcements by selection of major US cities;
EPA website, City of Kansas City Missouri Smart Sewer website; IndyParking deal with city of Indianapolis; McKinsey analysis

6. McKinsey & Company 6
Certain capabilities may benefit interactions between the public
and private sector
Ability to prioritize
projects that meet
investment needs
Ability to determine if
investments are
feasible and
appropriate for the
investor
Ability to engage with
public sector entities
(e.g., DOTs, elected
officials) to build
support for the project
and the value private
investment would bring
Ability to analyze and
identify investable
opportunities that
support economic
development and
addresses public
sector needs
Ability to deliver
against designed
commitments and
meet established
milestones
Ability to develop
innovative
engagement models
and pursue a fast-
tracked procurement
model
Steps
Capabilities
Identify
opportunities
Prioritize and
evaluate
projects
Fast track
procurement
with innovative
models
Engage public
sector
Delivery
Process and capabilities towards partnering with the government

7. McKinsey & Company 7
Deep Dives
Intermodal ports: reshaping
rail, road and port operations
through automation
Smart highways: the potential
of digitization
Urban air mobility: the
emergence of skyports
1 2 3

8. McKinsey & Company 8
1: Smart roads will likely include intelligent traffic systems and support
new modes of transport such as electrical and autonomous vehicles
Features of a Smart Road
Source: McKinsey research
K Connected vehicle technology
feeding real-time data
A Sensors and cameras
collecting traffic conditions
J Predictive maintenance
via drone monitoring
H Advanced pavement
materials illuminating
the roadway markings
M Solar roadways generating
electricity from heat
G Dynamic tolling setting
demand-based prices
F Dynamic road signage
updating based on road
conditions
D Shared mobility hubs
incorporating ride-
sharing platforms
N Micro mobility options
enhancing the road network
E Curbside monetization
flexing use or space
based on need
C Vertiports integrating air
taxis into the network
B Charging infrastructure
powering electric vehicles
I Autonomous vehicle lanes
enabling cars to travel
in sequence

9. McKinsey & Company 9
1: Global smart tech opportunity pool for tolled highways is ~$120B
Source: McKinsey IPAT database; McKinsey analysis; literature search
Investment potential for smart tech by road type
652
532
98
Total market
potential
Ongoing &
planned projects
Non-tolled
roads
Tolled roads1
Existing road
assets
120
22
1. Share of tolled roads estimated as the same proportion as the share of tolled roads from the ongoing and planned road infra capex of ~18% as estimated from a database of all ongoing or planned investments that include projects in bidding,
design and study, with an expectation to be awarded in the period 2020-2025
8.8
5.3
3.2
2.0
1.5
0.9
0.4
North America
China
Rest of Asia
Eastern Europe
Latin America
Africa
Toll roads
Middle East
Western Europe
India
<0.1
<0.1
Estimated tolled road smart tech investment potential by 20251 ($ billion, 2018 dollars)
Smart system investment potential for ongoing
and planned tolled road projects (only) by region

10. McKinsey & Company 10
1: Smart road tech packages demonstrate differing maturity states
and payback periods
Short-term (<5 years)
Medium-term (5-15 years)
Long-term (>15 years)
Unclear?
Estimated pay-back time
Proven today
<5 years
F. Charging infrastructure Autonomous vehicle lanes
Dynamic road signage
Fiber/broadband network
Intelligent traffic signals
A. Connected vehicle technology
Weigh-in-motion
Fraud detection
Road weather information system
VertiportsMicro mobility options Shared mobility hubs
Redevelopment of parking lots
Curbside monetization
? ??
?
?
Packages
Vehicle support
infrastructure
Intelligent
Transportation
Systems (ITS)
Reinvention of
mobility
Electronic tolling
D. Dynamic tolling
E. Congestion pricing
Application-based payment platform
Smart parking
?
?
Dynamic pricing and
new business models
Ecosystems and customer centricity
5+ years
B. Generated design
Recycled asphalt pavement
C. Advanced asset management
Precast concrete pavement
Permeable highway pavement
Light emitting pavement markings
Self-healing pavement
Solar roadways? ?
?
?
Technology-enabled
design / asset
management
G. Auto ecosystem
Source: McKinsey research; expert interviews

11. McKinsey & Company 11
1: Tech offers benefits to both the public and private sector
Source: DOT announcements; FHWA; expert interviews; McKinsey analysis
Public benefits
Case example, USA
Financial benefits
(IRR to owner)
Weigh-in-motion network
Traffic management/ITS
Predictive maintenance
Application-based payment platform
EV charging stations
Modular pavements
Air/water quality monitoring
Digital speed enforcement
LED lighting
Package
$1.3-1.5B
in public economic savings
including time, fuel, and
environmental and safety incident
reduction, including reduced
fatalities and injuries
Capacity and
reliability
$50-150M
decrease in environmental impact
Sustainability
$200-400M
reduction in safety incidents, incl.
reduced fatalities and injuries
Safety
Technology

12. McKinsey & Company 12
DescriptionArchetype
Autonomous
delivery vehicles
 Last-mile parcel delivery
trucks and vans
 Autonomous vehicle
locker / delivery droid
Autonomous long-
haul trucks
 Tractor-trucks on highway
in a platoon or individually
 Operated by carriers and
private fleets
Industry examples
 Fedex-Volvo
 VW- Ford
 Nuro, Einride
 Torc - Daimler
 TuSimple, Einride,
Embark
 MAN-DB Schenker
Autonomous
vehicles in
controlled areas
 Container handling in
yards and ports
 Airport transfers of PAX,
cargo and baggage
 Garbage collection or
mining sites
 Volvo
 MAN-port operator HHLA
 Groupe ADP, Heathrow
airport
Large, well-capitalized fleets
Constant speed, low vehicle traffic
Fixed route
Controlled environment
Low operating speed
AV tech. suitability ‘ingredients’
Large, well-capitalized fleets
Constant speed, low vehicle traffic
Fixed route
Controlled environment
Low operating speed
Large, well-capitalized fleets
Constant speed, low vehicle traffic
Fixed route
Controlled environment
Low operating speed
Source: Company website announcements; interviews; McKinsey analysis
Focus of discussion
2: Autonomous technology is most-suitable for deployment in
controlled areas (like ports)

13. McKinsey & Company 13
2: Airports offer many opportunities for the deployment
of autonomous vehicles
Passenger Bus
Runway inspectionDe-icer Runway cargo
Perimeter Inspection Land-side cargo
Road Maintenance

14. McKinsey & Company 14
2: In cargo handling, automation to unload the plane is challenging
with tug units being the most likely use case
In-aircraft handling Deplaning
 Cargo floor is not uniform
 Hold dimensions not consistent
 Highly regulated environment
(FAA)
 Oversized
 Not uniform
 Some dedicated units
(airboxes)
Airside cargo transfer
 No direct aircraft interaction
 Relatively simple autonomous
technology
Priority
Use
Case

15. McKinsey & Company 15
2: Many of these use cases could apply in other freight hubs
Rail Yards
 Rail will maintain its vital role in the cargo logistics
chain, but is likely to see increased demand for faster
delivery time and greater transparency on status
 Can be used to transfer shipping containers from
truck to train or train to train
Military
 Can be used in high-security areas to reduce
likelihood of security lapse
 Can be used overseas to reduce the number of
soldiers required

16. McKinsey & Company 16
2: BASF “tank containers” and “automatic guided vehicles” provide a case
study of technological innovation leading to operations disruption
What it is
BASF developed “tank containers”– transported on both railways and
roadways
BASF also designed “automatic guided vehicles” (AGV) ”– drive
autonomously with traffic on normal roads (payload of 78 metric tons)
Addresses efficacy and congestion issues in delivering tank cars from
BASF’s train station to one of the more than 150 loading stations at the
site, reducing time for delivery from 22 hours to one hour in some cases
Implications
Rail remains essential for long-haul delivery
New business and operating models for transport of chemicals,
petroleum, and agriculture in last mile delivery
Opportunities to invest ahead of trends to create differentiated
offerings
Source: BASF website
Case example

17. McKinsey & Company 17
2: In commercial trucking, while driver shortage persists, Autonomous is
going to be one of the key levers counterbalancing the supply gap
1. Baseline scenario, no larger adoption of driverless trucks in the medium term
Trends leading to a declining pool of truck
drivers …
… causing a persistent and increasing
supply/demand gap
Truck driver shortage projections1 , Millions
Source: FDA, Business Monitor, ATA Driver Shortage Report (2019)
Regulation on working hour restrictions and
background checks
Regulatory
factors
Yearlong pre-training requiredEducational
factors
Historically flat wages
Regular longer term separation from families
Unpredictable schedules
Job
attractiveness
Slow growth in overall labor poolDemographic
factors
0.02
0.06
0.11
0.16
0.23
0.44
0.64
0.01
2028E2013 18 2023E

18. McKinsey & Company 18
100%
9%
Today
1%
Stage 2Stage 1
10%
Stage 3
>25%
Stage 4 Total TCO
<55%Total-cost-of-
ownership (TCO)
Source: McKinsey Quarterly - “Route 2030 – the fast track to the future of the commercial vehicle industry,” September 2018
Constrained platooning of trucks Constrained autonomy Full autonomy
2: Driven by TCO savings, automation can unlock significant value
Stage 1:
Driver in each truck
SAE Level 2 Autonomy
Stage 2:
Driver in leading truck
SAE Level 4 Autonomy
Stage 3:
Driver for pickup and drop-off
SAE Level 4/5 Autonomy
Stage 4:
Driverless
SAE Level 4/5 Autonomy
Platooning only on interstate highway
between dedicated truck stops with 2
trucks, with single driver in leading
vehicle
Drivers drive individually on non-
interstate highway
Autonomous trucks drive individually on
all highways and in platoons of 2 or
more trucks
Driver involvement eliminated
throughout the journey
Autonomous trucks ride on interstate
highway without drivers (platooning 2 or
more trucks when possible)
Drivers drop off trucks at dedicated truck
stops
2 drivers platoon 2 trucks on interstate
highway
Drivers drive individually on non-
interstate highway
Equivalent to SAE Level 2 Autonomy

19. McKinsey & Company 19
3: Forces influencing the development of Skyports
The air transport industry is already being shaped by
New business models
Cross functional optimization, gains &
information sharing across the ecosystem
New technologies: Robotics
 Autonomous vehicles on the airside and landside
Advanced Analytics using unprecedented levels of data
 Unprecedented levels of data on airplanes and customers
 Accessed more easily through data lakes
 40x increase in processing power between 2010-2016
 Solve large-scale traffic management problems in near
real-time
 Digitizing maintenance processes, airway bills, etc.
Digitizing paper based processes

20. McKinsey & Company 20
3: There is a considerable amount of activity in the ecosystem
Purchased by Geely/Volvo
Raised $30M from Daimler
Raised $100M in 2018
Funding from Larry Page
A3 / Project
Vahana
Uber
partnership
Pursing VERT
project
HorizonX
Source: Company website announcements; Forbes; CNBC; Expert interviews, McKinsey analysis
Activity by traditional playersNew entrants
$750M+
Investment in small
autonomous vehicles
$250M+
Investment in personal
air vehicles
Capital inflow Media coverage
Dubai is towards a future
with… flying taxis by kicking off
Volocopter trials.
Lilium raises $90M Series B
for all-electric flying taxi to fund
its 5-seat, electric jet taxi.

21. McKinsey & Company 21
3: Consequently, there are four markets emerging for consideration

22. McKinsey & Company 22
3: There is a great degree of uncertainty on the economic potential
across these markets
Source: Company website announcements; Forbes; CNBC; Expert interviews, McKinsey analysis
30
300
2010
200
80
22
Aggressive case Base case
Operational efficiencyAerial logisticsSmall last mile deliveryPersonal air mobility
 Regulatory enablement
BVLOS (beyond visual
line of sight) and Ops over
people
 Electric propulsion
 Operating costs
 Regulatory enablement
BVLOS (beyond visual
line of sight) and Ops over
people
 Electric Propulsion
 UTM
 Infrastructure density
Key driver
Illustrative
players
2030/40
Market
potential,
$B
Use case

23. McKinsey & Company 23
Low High
3: A clear set of unlocks will likely have to be achieved to see these
markets launch and scale
Source: Uber white paper “Fast-Forwarding to a Future of On-Demand Urban Air Transportation” (October 27, 2016), Press research
CriticalityUnlockPillar
RegulationRegulation
Certification process
Physical infrastructureInfrastructure
Unmanned traffic management
Technology Battery technology
Autonomy
Customer acceptancePublic
acceptance
Noise / Emissions
EconomicsEconomic
drivers

24. McKinsey & Company 24
Thank you
Read related literature
Steffen Fuchs
Senior Partner, Dallas
Steffen_Fuchs@mckinsey.com
Paul Jacobson
Senior Expert, Washington DC
Paul_Jacobson@McKinsey.com
Vik Krishnan
Partner, San Francisco
Vik_Krishnan@mckinsey.com
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