Public-transportation ridership is growing across Europe as more consumers seek greener, low-cost transportation options for both local trips and long-distance travel. This trend has been accelerated by updated city policies that encourage greater use of public transport. Many bus and coach OEMs are vying to win business in this critical market, and the landscape is evolving as new companies enter the fray. Although European bus and coach OEMs still hold the majority of the local market, new businesses, including overseas companies, have made significant inroads and could expand their presence.
In parallel with the growth in ridership, a transition to zero-emission (ZE) buses is underway. Many public-transportation organizations are issuing more tenders for ZE city and intercity buses to comply with local and regional sustainability guidelines. Of all the new companies entering the market, Chinese OEMs have most successfully positioned themselves with their ZE bus offerings, which are mainly in lower price ranges, and now hold a 21 percent share of this segment.
Another big disruption—and potentially the most impactful—is looming for the mid to long term. The autonomous transport of people could change urban mobility to a significant extent. Robo-shuttles and autonomous city buses will change the required form factors of vehicles, as well as underlying product strategies for OEMs. New mobility and tech players are already leading the market for robo-shuttles—small-to-medium-size autonomous vans and buses that are now being piloted in some European cities—and some have recently announced plans for large-scale deployment.
Municipalities are eager to decarbonize their fleets of city buses, but many electric buses cost twice as much as a bus with an internal combustion engine (ICE), making such purchases economically challenging. European OEMs must therefore strive to improve efficiency and reduce costs to remain competitive in the ZE market. They must also begin investigating the potential to incorporate autonomous vehicles into their fleets or expand existing pilots.
To assist fleet operators, we analyzed trends, interviewed leaders of Chinese OEMs to identify success factors, and conducted a survey of bus and coach buyers across five European markets to capture customer insights and determine which trends would have the most impact. We then focused on identifying the best strategies for OEMs that manufacture city buses, since they represent an important segment. Three critical steps will be essential for them: improving unique selling propositions (USPs), competing to win by optimizing costs, and pursuing innovative partnerships. European OEMs that hesitate to adjust their strategies may lose their edge to lower-cost competitors, particularly in the ZE segment, and become bystanders in the transition to autonomous buses and robo-shuttles.
A shift in transportation preferences and an evolving market
Many people are now reconsidering their long-term transportation habits. In urban and rural areas in Europe, public transport accounted for about 15 percent of passenger kilometers traveled (PKT) in 2023, of which more than half were traveled by bus. By 2035, the public transport share of PKT is expected to increase slightly to 17 percent, according to the McKinsey Mobility Market model (Exhibit 1). The same scenario predicts that private-car use will decrease yearly by 0.4 percent until 2035, with the share of PKT dropping from 75 percent to 68 percent. Private-car use will decrease mainly because people are using more shared-mobility and micromobility options. In addition, many city regulations now disincentivize private-car usage and favor other modes of transportation. Between 2023 and 2035, shared mobility is projected to rise four times more in urban settings than in rural areas, mostly taking away share from private vehicles.
Growing demand for zero-emission buses and coaches
Sustainability concerns are also shaping the market. Consumer preferences have been shifting to greener forms of transport, and public sector leaders have also been attempting to curb emissions through regulations, including the European Green Deal, which specifies that the continent should strive for carbon neutrality by 2050. Similarly, the European Commission has a goal of reducing emissions for new city buses by 90 percent by 2030, compared with 2019 levels, and this target will increase to 100 percent by 2035. In response, OEMs are widely incorporating ZE powertrains into their product portfolio. (For a discussion of the best ZE powertrains for coaches, city buses, and intercity buses, see sidebar “Options for moving toward zero emissions”).
Options for moving toward zero emissions
Optimal powertrain choices across city, intercity, and coach segments are determined by route predictability and operational requirements. Battery electric vehicles (BEVs) are the leading choice for urban and intercity routes because they are well suited for fixed, predictable schedules and have an increasingly competitive total cost of ownership compared with diesel buses. BEVs are also feasible for longer urban routes if drivers have opportunities to charge during breaks on the route. Hydrogen is deployed selectively for routes that exceed battery range or lack charging infrastructure (exhibit).
For coaches, the choice between BEVs and hydrogen depends on specific use cases. BEVs are viable when charging infrastructure is accessible (for example, tourist destinations), while hydrogen is better suited for long, variable routes with limited charging opportunities. Infrastructure development remains a critical enabler across all segments.
Note that compressed natural gas and hybrid powertrains are in use in some countries, including France and Italy. These technologies can serve as bridge solutions to lower emissions, but they are unlikely to gain long-term traction, given current regulatory trends.
For city buses alone, McKinsey estimates that annual ZE sales must increase twofold by 2030—from 9,000 today to between 18,000 and 21,000—to meet emissions targets (Exhibit 2). Sales for ZE intercity buses and coaches are expected to follow a similar trajectory. By 2035, ZE sales of city buses would have to hit 22,000 to 24,000 annually to comply with regulatory targets. The OEMs that will capture the most ZE market share over the next few years are still unknown, and the race for leadership remains wide open. Note that the implied sales volume for buses and coaches is based on the current European Commission policy for tailpipe emission reduction, but this is under discussion and could be revised during the formal review period, which is scheduled for 2026.
Although ZE buses and coaches benefit sustainability, their price—often twice as high as that of ICE buses—may discourage some potential buyers and give low-cost Chinese providers an advantage. According to the McKinsey Center for Future Mobility (MCFM) Bus Buyer Survey, 50 percent of operators are familiar with leading Chinese bus brands. Of the respondents, close to 60 percent would consider switching from an EU bus or coach brand to a Chinese one if the price of the latter were at least 10 to 20 percent lower (see sidebar “McKinsey Center for Future Mobility Bus Buyer Survey”).
McKinsey Center for Future Mobility Bus Buyer Survey
The McKinsey Center for Future Mobility’s 2025 European Bus Buyer Survey gathers insights from 213 purchasing professionals to understand their perspectives on current industry trends across five European markets: Germany, Italy, Poland, Sweden, and the United Kingdom. Questions include those related to electrification, procurement, and the evolving role of new technologies. Among other findings, the survey highlights the top concerns and priorities of fleet operators. For instance, the survey revealed that respondents are most likely to cite battery lifetime, low charging-network density, and range limitations when asked about the main barriers to zero-emission bus adoption (exhibit).
Chinese OEMs have been expanding their presence in Europe, but their share of the ZE bus and coach market has plateaued at 20 to 25 percent over the past five years, with BYD and Yutong accounting for most of the sales. For 2024, the most recent year, Chinese OEMs had a 21 percent share (Exhibit 3). The ZE bus market is still highly competitive, however, and this share could potentially increase or decrease as other companies undertake growth strategies.
Based on McKinsey analysis of the European market, the top three OEMs for all powertrains accounted for 60 percent of all European bus sales in 2024. The top three OEMs in the ZE market accounted for less than 40 percent of sales.
The rise of autonomous vehicles in public transportation
Public transportation is facing multiple challenges, including frequent delays, driver scarcity, and high costs for end customers. Consequently, many operators are unprofitable or facing losses. Autonomous vehicles can help alleviate some issues and reduce costs by eliminating the need for drivers. On-demand and fixed-route robo-shuttles enable more flexible deployment, higher service frequency, greater access, and thus improved convenience. Autonomous vehicles also come in many sizes, providing operators with new offerings that go beyond those traditionally found in bus OEM portfolios. Going forward, operators will be more likely to find vehicles that suit their specific route requirements, including those that can help them deal with demand spikes during commuting hours and other times. At present, however, bus OEMs rarely offer such vehicles.
Europe’s urban transport economics will not improve without a step change, and autonomy is the one lever that can reshape how capacity is delivered. The sector is now at an inflection point, having moved from vision to reality. Self-driving software systems are commercially available, and operators are already generating sizable revenue. For instance, Waymo provides more than 250,000 paid rides per week in the United States. The challenge has now shifted from proving the technology to scaling it profitably, as most operators today still have negative unit economics. With public transportation, however, autonomous vehicles could potentially help operators to break even—something unheard of in heavily subsidized public transit.
Autonomous urban mobility for the commercial transport of people will likely follow three paths, all of which involve ZE or electric vehicles:
- Robo-taxis. These on-demand, pooled autonomous cars can accommodate up to four passengers on variable routes and are hailed via apps. They will mainly complement or replace today’s ride-hailing services and offer an alternative to private cars, rental cars, and car-sharing solutions. Waymo, which now operates in several cities in the United States and has announced plans for international rollout, is one example of a robo-taxi service.
- Robo-shuttles (mini and midi buses). These vehicles come in two types:
- Fixed-route robo-shuttles, which can accommodate ten to 20 passengers, serve as higher-frequency substitutes for traditional buses or trams on defined routes, improving the unit economics for the operator and increasing customer satisfaction through higher frequencies. Based on a sample route, we estimate cost savings for the operator of up to 55 percent compared with a city bus, with the gains resulting from the removal of drivers and the smaller vehicle size. HOLON, for example, has developed a purpose-built robo-shuttle in this segment and is currently testing it in Hamburg and Jerusalem.
- On-demand, pooled robo-shuttles, which can accommodate up to eight passengers, are hailed via apps and make multiple stops to take riders to their chosen destination. They allow passengers to make faster, more direct trips and will complement public transport. On-demand, pooled robo-shuttles will shift the mobility mix, mainly by reducing private-car trips, because they provide consumers with a lower-cost alternative; they will also reduce the mobility share for public transportation because they offer higher convenience. MOIA is now the only European company operating on-demand, pooled shuttles.
- Autonomous city buses. These vehicles, which can accommodate 20 or more passengers, will initially travel on fixed routes or digitally managed corridors. They will replace traditional city buses by offering significantly lower costs and more flexibility (for instance, higher-frequency trips during rush hour and less capacity in off-peak hours). These buses will help public transit authorities (PTAs) improve their economics and increase customer satisfaction.
As autonomous vehicles gain ground, the fleet mix will shift. City buses with 25 or more seats will remain an essential backbone for high-capacity routes. However, in the European market, PTAs are expected to shift their fleets to robo-shuttles (most likely for fixed routes) and autonomous city buses because such vehicles significantly improve unit economics while offering a higher service quality.
In Europe, interest in buying autonomous vehicles is sizable. According to the MCFM Bus Buyer Survey, more than 30 percent of operators would consider purchasing an autonomous bus within the next five years, and more than 30 percent cite advanced driver-assistance systems (ADAS) as a top buying criterion in upcoming tenders. Interest is especially strong among operators that already run electric buses and among midsize fleet owners of 30 to 100 vehicles. These results signal a clear willingness to adopt autonomous solutions in the coming decade. For example, the public transportation operators of Berlin, Hamburg, and Munich, Germany, plan to deploy up to 2,000 autonomous vehicles by 2035.
Over the next five years, as the ZE transition accelerates and cost pressures rise, competition in this space may grow intense as other companies, such as Yutong, try to capture market share. Over a five-to-ten-year horizon, autonomous vehicles will grow in scale, with tens of thousands of robo-shuttles and hundreds to thousands of autonomous city buses on the road. While some municipalities will be early movers in implementing autonomous city bus routes, others may be laggards, meaning full-scale adoption will take more than ten years.
The road forward for European city bus OEMs
Margins in the European bus and coach sector have been volatile over the past few years. Companies only attained an average profit of 2.5 percent from 2019 to 2024, although a few saw more positive results in peak years, with margins between 8 and 10 percent. Increased market competition could further erode profitability, but OEMs may not only survive but thrive—achieving top margins if they rethink their strategy and implement three critical steps related to USPs, costs, and partnerships. These moves can deliver different benefits, depending on the type of OEM involved. This section illustrates their value to city bus OEMs, since this is an extremely important segment. Other bus and coach OEMs might benefit from other strategies.
Improving unique selling propositions
Bus purchasers’ priorities and concerns are increasingly diverse, shaped by factors such as vehicle type, fleet size, and specific use cases. For bus OEMs, a clearly articulated and differentiated value proposition is no longer optional; it is essential. Operators today are not merely seeking vehicles, but are demanding integrated solutions that encompass charging infrastructure, autonomous-vehicle technology, value-added services, and beyond.
While demonstrating the lowest total cost of ownership (TCO) remains a critical factor, the competitive landscape is shifting. Differentiated features, particularly those tied to safety, driver assistance/autonomous driving, and sustainability, are gaining prominence. To stay ahead, OEMs need a forward-looking road map that incorporates customer insights and progresses toward autonomous operations. Moreover, access and availability have become decisive factors in winning market share. The compelling USP must translate into tangible benefits, such as rapid fleet delivery, flexible financing models, and visible pilot programs. These elements will determine who captures market share and who slides into commodity status.
Consider a few critical strategies that might help create a better USP:
Total cost of ownership. Organizations that offer public transit services tend to operate on tight budgets. According to survey insights, TCO remains a priority purchase criterion for 18 to 20 percent of operators, depending on the bus type.
Network and brand strengths. Vendors that can demonstrate a regional connection, such as a production site in Europe or a local partner, may have an advantage. Our survey results indicate that EU bus brands lead in safety, durability, and premium quality, while Chinese brands differentiate on price, value, and warranty offering. To sharpen the USP, EU brands should emphasize uptime guarantees, ADAS, and certified battery life. They can counter price-driven competition by demonstrating verified TCO savings, offering warranty parity, and ensuring fast-response after-sales support to optimize vehicle uptime. In addition, EU brands should prioritize long-term value creation to secure a competitive advantage and drive customer loyalty.
Up-front costs. Some operators lack the funds required to purchase an entire fleet, but flexible-financing options may make it possible. Depending on the bus segment, 20 to 25 percent of operators require financing plans from OEMs.
Autonomous driving and new form factors. The sales volume of traditional city buses (12 meters, 25 or more seats) will decrease, possibly significantly, as autonomous vehicles gain traction. OEMs must have an offering in this space that ideally involves different form factors, such as robo-shuttles and autonomous city buses, autonomous-driving technology (most likely via partnerships with tech companies), and an end-to-end solution offering. The latter is helpful because operating an autonomous robo-shuttle or bus involves several new processes, compared with traditional or even zero-emission buses.
Value-added services. Managing a ZE bus or coach fleet is difficult. Operators are increasingly demanding end-to-end solutions that extend beyond the vehicle, mostly to derisk ZE bus operations. Key expectations include specialized software, analytics to optimize charging schedules, and pilot programs to validate range. Our MCFM Bus Buyer Survey data about upcoming electric-bus tenders underscore this trend, with more than 40 percent of respondents prioritizing battery management, vehicle maintenance, and charging infrastructure as critical services, followed by driver training and fleet management solutions.
A recent review of 30 bus tenders in Germany shows the growing importance of value-added services. In 2020, these services were thought to account for about 25 percent of the total when scoring the importance of different characteristics (Exhibit 4). By 2024, value-added services represented 40 percent of the total importance score in tenders. Meanwhile, purchasing cost significantly declined in importance.
The MCFM Bus Buyer Survey also reveals that value-added services are gaining popularity across Europe, with 64 percent of operators planning to request quotes for additional services in their upcoming tenders for electric buses. Respondents are primarily interested in services related to battery management, charging-infrastructure planning and installation, and vehicle service for fleets.
Competing to win by optimizing costs
To remain competitive while preserving profitability, European OEMs need to lower costs and consider potential price reductions. If they emulate efficient, low-cost Chinese OEMs, they could potentially reduce total costs by up to 50 percent in multiple areas for battery-electric-vehicle (BEV) city buses (Exhibit 5).
Product costs. This lever presents the greatest opportunities, with total possible savings within the cost category between 40 and 50 percent. Cost-cutting measures might include integrating drivetrain systems and chassis, optimizing battery packaging and space utilization, using zonal electronic and electrical architecture, improving design through AI, absorbing R&D unit costs (for example, by conducting leaner programs), and developing better procurement strategies for raw materials.
Battery technology could be a major driver of cost reduction. Chinese bus manufacturers such as BYD and Yutong have embraced cost-effective lithium iron phosphate (LFP) battery technology, which is well suited for the shorter routes and duty cycles typical of densely populated urban areas in Chinese cities. Supported by a robust domestic supply chain, LFP batteries are also safe and durable. In contrast, European OEMs favor lithium nickel manganese cobalt mixed oxide (NMC) batteries, which align with the longer routes and higher energy demands of EU transit systems. This regional divergence reflects the need for tailored electrification approaches driven by differing operational profiles and infrastructure. Although LFP batteries are not as suitable for European bus routes, local manufacturers could emulate Chinese OEMs by optimizing battery packaging or integrating batteries into the chassis of their vehicles to improve space efficiency and reduce costs.
Manufacturing. Companies could potentially reduce costs in this category by 20 to 25 percent. Footprint optimization is the greatest lever for cost reduction in manufacturing, followed by smart-factory approaches (for instance, greater digitization) and AI- and robotic-powered automation. One company created quantitative scenarios to compare costs in different locations, benchmark costs of relocation, and assess the potential for local partnerships. With this perspective, the company was able to identify footprint optimization opportunities that had the potential to reduce operational and labor costs by up to 80 percent—significantly more than average.
General and administrative services. Improvements in this area, such as using call center agents in human resources, could reduce costs by 15 to 20 percent. Agentic and gen AI could also help improve these functions, such as by creating job postings and prioritizing applications. Some companies have also created AI copilots to review contracts, identify differences from prior versions, and summarize information.
Sales and services. Cost-cutting initiatives might involve using AI in ordering processes and piloting after-sales call centers. As with general and administrative services, cost reductions in this category would be in the 15 to 20 percent range with additional upside potential. Beyond cost reductions, OEMs should also attempt to improve tenders. One company created a win room for this purpose and developed performance dashboards and a sales database to encourage collaboration. These efforts helped the company double its rate of winning tenders. From a technology perspective, greater use of gen AI and agentic AI can help companies find the right customers at the point when they are most likely to make a purchase, potentially uplifting revenues.
Exploring partnerships and new go-to-market strategies
Another strategy common across industries is finding new partnerships or buying companies that might provide synergies. Horizontal mergers, which unite two companies in direct competition, can result in a large and very skilled business that has a better chance of thriving. For instance, the recent acquisition of a European OEM by an Asian OEM marks a transformative step in reshaping the global commercial vehicle landscape, and it will put the company in a stronger market position across Europe, India, and the Americas.
Vertical moves can help companies gain strength along the entire value chain, potentially eliminating supply chain issues that can slow production. Such partnerships might include the joint development of a zero-emission bus architecture, a software-defined vehicle platform, and autonomous capabilities. A European bus OEM and a supplier are advancing next-generation electric-bus designs, while a joint venture of two leading global OEMs is setting new standards for digital-vehicle platforms. Complementing these efforts, a global OEM’s acquisition of a new company’s battery business highlights how bus OEMs can secure critical R&D and manufacturing capacity for their electric-bus program.
Partnerships with technology companies are critical for OEMs that want access to autonomous systems for bus fleets because it can be both difficult and expensive to develop them in-house. For best results, they should begin creating a clear partnership strategy now, before the market gains greater scale. As they craft their plans, OEMs should focus on city buses and robo-shuttles because the mass adoption of autonomous coaches is unlikely over the coming decade. Some partnerships are already in effect, including one between a European OEM and a company with autonomous-technology expertise, which involves developing ADAS solutions for autonomous buses.
Technology companies usually own the autonomous technology stack. If OEMs want to use their products, their vehicles must be configured to allow easy integration. At the same time, OEMs must also decide what designs and dimensions their autonomous shuttles and buses will require, as the sales volume of traditional city buses will decrease as sales of autonomous vehicles rise. OEMs should remain stack-agnostic, meaning choices about city buses should be separate from decisions about autonomous technology. In other words, OEMs should not tailor city buses to suit a single vendor’s autonomous software and hardware; instead, their design should allow them to tap into an ecosystem of autonomous providers. If OEMs build buses where the self-driving system can be swapped or dual sourced, they will gain an edge during the tender process.
Rethink your route: Strategies for capturing new business
The European bus market was volatile for many years, with fluctuating orders and profits resulting in thin margins. Over the past two years, however, performance has improved and profits have peaked. Many European OEMs now have full order books and low capacity, but the market is changing, and new challenges are emerging.
The questions that bus and coach OEMs must ask before moving forward vary by segment. To manage the uncertainty, European city bus OEMs should consider the following questions as they chart their course.
- Unique selling propositions. Three questions matter here: Who are the core customers, and which segments should be the focus? What USP differentiates a product from the competition? Does an OEM need to expand the product range with digital services and autonomous-driving offerings? These questions might be easy to answer for traditional offerings, but OEMs may need to start from scratch in the ZE sector.
- Competing to win by optimizing costs. The questions to ask here are basic: How does the product offering become cost competitive? And what share of cost savings should OEMs pass to customers? Once those issues are settled, OEMs should consider a third issue: How can they optimize tender rates in the current sales organization? The answer may involve leveraging data-driven tools and consistently evaluating all future tenders using the same criteria and creating feedback loops to maximize success.
- Exploring partnerships and new go-to-market strategies. Is a partner needed to enhance USP, reduce costs, or enter the autonomous space? And do the business model and go-to-market strategy require adjustment? If so, what are the resulting strategic moves?
- Investigating opportunities with autonomous vehicles. How quickly and aggressively should OEMs enter the autonomous space? Which vehicles will be on the road? What role should OEMs play in the development of the autonomous technology stack: build, buy, or partner?
It was only a matter of time. Electric-vehicle sales have accelerated in the passenger car segment, and ZE buses and coaches could soon become the norm, especially in Europe, where bus and coach transit is highly integrated into the transportation network. For European OEMs, the opportunity to pursue new market opportunities is partially tempered by the strong showing of Chinese OEMs, which offer quality vehicles at lower prices. Autonomous vehicles will introduce even more disruption. If OEMs have not been preparing for this, they need to make strategic decisions now. To remain competitive, European OEMs should intensify their efforts to appeal to customers, reduce costs, and gain a technological edge—and the best time to start is now.
