Business Model Innovation and the Evolving Market for Electric Vehicles

Much has been written in recent years - both about business model innovation and electric vehicles. One of the Cambridge Service Alliance PhD students, Claire Weiller, has been studying the evolving market for electric vehicles - looking at the business models adopted by Better Place in California, TEPCO in Japan, Autolib' in Paris and Move About in Norway. Claire's just finished her PhD thesis and I thought it was timely to create a short summary of her research insights. Of course if you want the full story you'll have to: (i) talk to Claire, (ii) read her thesis and/or (iii) have a look at the various reports available on the Cambridge Service Alliance website. For the sake of efficiency, however, here's a short summary of Claire's key findings...

There's no uniform business model for electric vehicles...

The first thing that the research shows is that there is no uniform business model for electric vehicles. The different firms studied adopted different models - ranging from battery swapping (Better Place), fast charging (TEPCO) through to mobility as a service (Autolib' and Move About). Clearly there are different pros and cons to each of these business models.

Battery swapping as a business model...

The battery swapping business model is based on the premise that the cost of the battery is a significant deterrent to customers buying electric vehicles. So Better Place experimented with a model where customers bought cars, but then leased batteries from Better Place. The idea was that when the battery was running out of charge you could call into a battery swapping station and replace the discharged battery with a fully charged one in less than five minutes. Customers pay a monthly fee for the privilege of using Better Place's services, as well as a charge "per mile".

Better Place filed for bankruptcy in May 2013 despite having raised $850 million investment. The fundamental flaw in the model was the failure to create a standard battery adopted by multiple auto manufacturers. Because the Better Place battery was not widely adopted it became impossible to efficiently manage the range of inventory - different batteries for different makes of vehicle. The battery swapping model could still work, but it requires coordination across the ecosystem, with the vehicle manufacturers agreeing a standard for batteries that would simplify the challenges of logistics and distribution.

Fast charging as a business model...

One of the barriers to consumer adoption of Electric Vehicles is the issue of range anxiety - the fear that the car won't go as far as you need it to. Couple with this is the time taken to refuel the car (or recharge the battery). If it takes too long and you have to recharge frequently then clearly Electric Vehicles offering significantly worse performance than regular cars. To address these concerns an alternative business model is fast charging - firms like TEPCO (Tokyo Electric Power Company) are investing in technologies to speed up the time taken to recharge batteries. Today's fast-charging technology allow a 100-mile electric vehicle with 24kWh of storage to fully charge in less than 30 minutes. Even 20 minutes gives an 80% recharge. TEPCO - through its CHAdeMO fast-charging connector - have been trying to shape an international standard for fast-charging technologies. They appeared to be making good progress, but were blown off course by the Fukushima tsunami that severly damaged four of TEPCO's six nuclear reactors. The subsequent clean up costs and the decision to shut down nuclear reactors in Japan have put an enormous financial burden on TEPCO and so their efforts recently have been diverted.

Mobility as a service...

The final business model studied concerned mobility as a service. Both Move About (Norway) and Autolib' (Paris) were examples of this. Under the mobility as a service business model customers do not take ownership of the product, but instead pay for the right to use the product - through a monthly subscription fee - supplemented by a time-based usage fee. The context for both Autolib' and Move About is interesting. Autolib' is heavily supported by the Marie de Paris and focuses its service on Paris and the surrounding 63 municipalities. Bolloré, an industrial conglomerate with activities in transport, infrastructure and logistics, won the contract to support Autolib' and provides the cars, as well as the charging infrastructure. The density of Paris - 105km² versus London with 1,570km² - means that a car with a 250 km range covers almost 100% of daily drivers needs. Move About, based in Norway, also benefit from natural resources that make electric vehicles more appealing. In Norway's case there is a significant over-capacity in hydro-electric power. This means that spare electricity is relatively cheap and so the costs of operating electric vehicles drop significantly.

Fit between business model, ecosystem and environment is the key to success...

One of my key take aways from this research is the importance of the fit between the business model, the ecosystem and the broader natural environment. Autolib' and Move About's relative success are a function of small and dense distances for travel - e.g. Paris and its immediate surroundings - coupled with cheap (or subsidised) and plentiful energy supply. Better Place failed because it didn't engage its ecosystem partners - it could not create the standard battery. TEPCO failed because of a natural disaster which diverted attention elsewhere. Without these interesting experiments and forays into new business models we'd never learn which worked best, but without alignment between the business model, the ecosystem and the broader environment, it’s clear that firms struggle to survive.

First Electric Vehicle Project in the World for holidaymakers in Okinawa, Japan, struggles to make a profit

Researchers at the Cambridge Service Alliance at Cambridge University, have suggested new ways of increasing the uptake of electric car usage. They have just published a new paper on a pioneering Electric vehicle rental service for holidaymakers in Okinawa Japan, and found that low usage has led to a loss for the car rental companies. It is one of the first EV rental projects of its kind in the World and aims to help improve the environmental sustainability of tourism on the island of Okinawa, Japan. 

The search for alternative fuels to reduce car CO2 emissions is an important part of the climate change challenge. In Japan 18 per cent of total CO2 emissions are caused by road transportation, in the EU it is around 12 percent. In China car usage is expected to rise from 43 cars per 1,000 in 2010 to 320 cars per 1,000 in 2035, thereby increasing the pressure to find alternative sources of fuel.  

The paper called: 'Electric vehicle rental services: Project in Okinawa, Japan', written by PhD researcher Claire Weiller, in collaboration with the Department of Systems Innovation, University of Tokyo, concludes:

“The Okinawa EV rental service at the end of its first three-year operational phase in 2013, missed its initial targets. Low usage rates mean rental companies are making a loss. Customers worry about insufficient recharging infrastructure. Sales of used rental cars are low.”

Ms Weiller suggests an ecosystems approach, favoured by the Cambridge Service Alliance, whose partners include BAE Systems, Caterpillar, IBM, and Pearson says this could help turn around the project for others wanting to introduce similar schemes in the future. She continued:

”By adopting an ecosystems approach we can look at all the companies that are involved in providing this service and that affect the outcome of this service, for instance we found there was a lack of information sharing between them all.“The information was broken down into all the different components. They were keeping the data to themselves so Nissan kept information about the battery in the car, the travel agents keep information about the customers who book their holidays, but the charging company on the Island, for example, doesn’t have this information, it doesn’t know if the user is just one person or a family. Therefore it was difficult to tailor the service or improve it for the customer.“If the customer worries about whether they will be able to drive from the airport on the South of the Island to the beaches on the North of the Island, and there is no-one in the value chain able to answer that question they will not feel reassured about the rental service. An ecosystems approach can change that. ”    

Professor Andy Neely, Director of the Cambridge Service Alliance said: 

“An ecosystems approach could be beneficial to those involved in the EV scheme in Okinawa, in Japan. All the partners involved need to think about how to capture value from the information they have in order to serve the customer better.”

In a Podcast Interview on the Alliance website Ms Weiller adds: 

“It is very conceivable that this type of rental service with electric vehicles will be offered by more and more countries, including in the UK where there are plans to develop the charging network to 70,000 stations by 2020.“Electric vehicles really are a great option for the transportation of the future, for environmental reasons to reduce greenhouse gas emissions, and also for economic reasons. This makes them attractive because they have so much lower operating costs than gasoline vehicles. Electricity is cheaper and the fuel is more efficient.“Electric vehicles are a great option for rental car companies, or taxi fleets, as well as for private users such as commuters or for people who want to sign up for car sharing schemes.”