Innovative business model to support EV evolution

Creating an innovative BM will be critical to the mass expansion of EV. New BM is likely to support a new individual transportation system that should be quite different from the one we are currently familiar with. In order to do so, it will be necessary to overcome the status quo barrier and move towards innovative offerings of products and services that are capable of providing new solutions, capturing aggregate values, attracting investments to the electrified transportation business, capturing new players and adequately remunerating current and future enterprises.

Indeed, changes are already occurring. Some automakers are investing in car-sharing and other electrified and connected transportation activities. Vehicle manufacturers are probably realizing that the source of profitability of the auto industry business should shift from profit from car sales to car services (i.e. CaaS). Some automakers already prefer to rent and not sell their cars. Volvo, for example, suggests that if the customer likes one of their models, they should not buy it but lease it. Volvo began to promote the Care by Volvo program in Germany in October 2018. The brand wants to lease the cars to the customers for a fixed monthly amount (the "subscription") instead of selling the vehicle to the customer (Nicola 2018).

Innovative BM is likely to influence how electric mobility will work in the future. The problem is that the innovations have been slow perhaps due to the still low EV market share. It is hoped that the advancement of electric mobility could further boost the new BM.

In addition to infrastructure, innovative BM must find fertile ground in connection to renewable energy sources driven by electric mobility. The photovoltaic market has expanded considerably and stakeholders linked to electric mobility reveal interests in the expansion of this market segment. Several European projects seek to identify new solutions using EV with photovoltaic panels and innovative new BM for electric mobility, as shown in Appendix A, Tab-A2.

Among the innovative designs of BM for EV and EV infrastructure, are:

i) Amsterdam ArenA – Developed under the coordinates of the SEEV4-City project. The project is exploring how to harness Information and Communication Technologies (ICT) to structure the energy system; i.e. the EV is charged by locally produced energy from photovoltaic panels and energy is stored in the car batteries.

It was built at the Amsterdam ArenA, the largest sports stadium in the Netherlands, a system with more than 4,000 photovoltaic panels installed on the stadium ceiling with a minimum capacity to generate 3 MWh. The generated energy is stored in electric car batteries (63 Leaf used batteries and 85 new Nissan Leaf batteries). In addition to increasing the penetration of renewables in the grid, the project will help manage peak electricity demand, ensuring stability in the region's electricity distribution

ii) Riversimple – This is a UK vehicle manufacturer working in partnership with a research laboratory in Wales to expand a hydrogen-powered fuel cell electric vehicle (FCEV) market system. The Riversimple mission statement is: "To pursue, systematically, the elimination of the environmental impact of personal transport." (Riversimple 2018)

Riversimple is developing a new business model called "Whole System Design". The model is to support the cost-effective development of car factories created for small-scale production (5,000 cars per year). The design is challenging because the BM of traditional manufacturers requires large-scale production to be profitable.

Riversimple designs energy-efficient cars and currently has two models: Morgancar and Riversimple Urban Car. Several elements are considered during each phase of the project, including a hydrogen fuel cell light carbon fiber composite material, open source design and development, leasing instead of car sales, manufacturing distribution focused on small companies and broad corporate ownership.

Riversimple's BM consists of offering the monthly car subscription to customers, such as cell phone plans, in which the value charged covers everything – the car, the maintenance, the insurance, and the fuel (Riversimple 2018). Riversimple's BM is flexible, accessible, and collectivist (e.g. car-sharing) and is a socially-framed initiative. To be successful, this BM relies on more service-intensive sales and good governance to ensure low operating costs (Wells 2018).

iii) Tesla Motors – This is an American automotive and energy company based in California, USA. Tesla Motors proposes to manufacture EV in the luxury segment of the industry like its main competitors Mercedes-Benz, BMW, Audi, and Lexus. The luxury car market has an average price of around $44,000. In comparison, Tesla's Model S P85D all-wheel drive retails for a price of around $128,000. To thrive in a conservative, ICE-driven segment, Tesla Motors had to abandon centennial concepts in the automotive industry and innovate its business proposition (Tesla Motors 2018) as described below.

Traditional automobile industry business model

Since it was created, the auto industry has its BM focused on the sale of vehicles. Therefore, the more units sold, the greater the opportunities to profit.

Business model proposed by Tesla Motors

The innovative BM proposed by Tesla Motors takes into account the aspects of such a high-end product with a high level of innovation adaptation – Tesla Motors realized that EV is simpler to produce and maintain than ICEV. The number of moving parts of EV is reduced drastically, as the drive shaft, fuel tanks, transmission, and internal combustion engines are all removed. With the vehicle needing less maintenance and being simpler to maintain than the ICEV, Tesla Motors realized that it would not be necessary to have a network of franchised dealerships, which provides a financial reduction of around $2,000 per vehicle sold (Team 2015).

High integration of information technology into many aspects of EV business model – the mechanical parts of the ICEV have been replaced by information technology. This allowed Tesla Motors to sell the car online, monitor the maintenance of the vehicle, and offer some services over the internet. The value saved with these steps is transferred to Tesla Motors, which holds control of all steps of the production process (from the production to the sale of the car). While traditional automakers, in order to maintain sales volumes, need to make large investments with the launch of new models of ICEV every year, Tesla Motors only updates the software of their cars online (e.g. updates on Model S was priced around $10,000, and can be done by internet), generating additional revenues and avoiding investments for the production of new annual car models.

Tesla Motors own a sales network that provides the benefit of having its teams trained for the new concepts of EV. Tesla Motors prides itself on its smart technology and different approach to consumers if compared with ICEV – which provides some competitive advantages such as customer satisfaction and incentive programs; i.e. In 2018, Tesla Motors launched a program that allows Model S owners to refer a Tesla Motors vehicle to someone for a $1,000 credit at service or rebate to a new car. In addition, the network itself avoids conflicts of interest. For example, the franchise car dealers (usually multi brands) could prioritize the sale of the brand that was more convenient; i.e. when we buy a phone at a dealer like Best Buy or Amazon the product that will be highlighted will be the one that is of greater interest of the dealer (Team 2015; Chen & Perez 2018).

iv) Vertical integration from EV manufacturing (battery software and battery manufacturing) – Tesla Motors performs all production’ processes (batteries, car and software). The advantage is that scaling up will lead to reduced costs. Currently, costs are high due to the low sales volume and the complexity of production logistics; i.e. the raw material for the battery arrives in the USA from South America. After initial processing it goes to Asia for the final processing of the parts of the battery, and returns to the USA for installation of the battery in the vehicle. In the future, reducing operating costs and shortening the production time of the EV should change this logistics. In addition, improving the use of renewable energy could reduce production costs and at the same time reduce the carbon footprint in the production of battery, car and vehicle components; i.e. in 2019, Tesla’s Gigafactory 1 in Nevada was planned from the start to be a fully self-sustaining facility, with a combination of rooftop solar, nearby wind turbines, and, of course, Tesla Power packs for energy storage (Field 2018).

Tesla Motors has developed its own charging network for its electric models so it can monetize infrastructure investments in the product price. In addition, it will have more flexibility to perform upgrades, pays a considerable attention to reduce range anxiety by a high performance supercharger station network and high capacity batteries, and negotiates the purchase of wholesale energy (or

However, achieving success in a new BM is not an easy task. The electric mobility sector has revealed attempts that did not thrive; i.e. Better Place attempted to innovate with a "battery exchange" BM by establishing service stations to process battery replacement as quickly as fueling a fossil fuel vehicle (Christensen et al. 2012).

The BM considered, among other factors, trying to solve the problem of consumer range anxiety and optimize the process of charging the electricity with the lowest possible cost, since the user could choose the best time to charge them and would have greater bargaining power to buy electricity in large volume, in addition to being able to charge the batteries with renewable energy (e.g. photovoltaic panels), reducing the transport carbon footprint (Granovskii et al. 2006; Hawkins et al. 2013). The Better Place BM failed due to lack of scale in the production of vehicles equipped with the swap system (only Renault made huge investments).

Another example of the difficulties faced by the new BM in the electric mobility sector was experienced by the car-sharing system Autolib (subsidized by Paris public authorities and strengthened by the federal government's support), which became the second largest car-sharing program worldwide (after Hangzhou, China). Started in 2011, and operated by the Bolloré industrial group, Autolib was a pioneering car-sharing scheme intended to serve the city of Paris and 18 surrounding communities with a car-sharing system. By 2017, Autolib had around 4,000 operational vehicles, more than 3,000 parking spots, around 1,100 self-service docking stations across the city, and more than 100,000 subscribers. Services were closed in July 2018 due to high financial deficits and operational failures (McPartland 2018). After all, the main elements of a successful BM, whether from an accounting or strategic perspective, are the positive financial flows and profits that ensures the return on investment (Chesbrough 2010). The unsuccessful attempts are described in Table 2.12.

Table 2.12: Some new electric mobility businesses model that did not thrive

Example Value creation Value capture Value context Rydek Design concept only Separate body EV with

batteries; split public / private ownership

Pre-dated support for EVs

Think Modular assembly in micro- factories. Internet sales plus mobile service support. Later outsourced assembly

2 seats urban EV Multiple trials and experiments e.g. Think@bout London Better Place Infrastructure of recharging

stations and swaps stations; tie in with Renault for initial supply of 100,000 cars. Retain ownership of battery

4-seat Renault Fluence EV. Separate ownership of battery

Sought support in specific locations e.g.

Denmark; Israel Autolib EV car fleet; parking spots;

charging stations; subscription managing system

Bolloré Bluecar is a small four-seat, three- door battery electric car

Car-sharing service in Paris, France and 18

surrounding communities

Research may support the regulatory framework that allows the power sector to make its BM more flexible in order to encourage decentralized energy production, as well as allowing individuals and

companies to market electricity outside the distribution network. This would, for example, allow anyone to set up a mobile charging station (e.g. in a truck’s bodywork) and sell the energy where it is convenient; i.e. large events such as exhibitions, seminars, and fairs.

The market for green wash vehicle services can illustrate the potential of new BMs. Anyone in any country can purchase green wash equipment and sell vehicle cleaning services at a client’s home. Changes in the regulation of the generation and commercialization of electricity could provide the emergence of an innovative BM to offer, for example, recharging services for EV in the client’s homes and workplace spaces as well. Another sector that reveals opportunities for the exploration of a new BM is smart charging for the EV. The system can help in the management of the electricity distribution network in addition to providing a back-up to the variability of renewable energy sources, as an intelligent network manages the charging of the vehicle.

In addition, other complementary services reveal potential for EV development as well as being a facilitator in the transition to electric mobility. Moreover, innovative BM with EV expansion may find fertile ground in activities including: navigation packages for charging services, payment system access, registration services for EV, charging installation and maintenance services for charging stations; battery swapping technologies, and smart grid applications. For example, EV drivers could look for an EVSE compatible with their car, using a set of applications that can facilitate the identification of a suitable EVSE, and manage the reservation system for charging, associated or not with a payment system, and tariff control (Waller 2011; Mitchell et al. 2010).