New Business Models for Electric Cars

Author: 
Williander, M., Stålstad, C.
Type of publication: 
Conference item
Abstract: 

EVS27 Symposium
Barcelona, Spain, November 17-20, 2013
New Business Models for Electric Cars
Mats Williander1, Camilla Stålstad
1Viktoria Swedish ICT, Lindholmspiren 3A, Gothenburg, Sweden, mats.williander [at] viktoria.se

Short Abstract
Electric vehicles are ascribed the potential to contribute significantly to the development of society. Despite this potential, commercialization of electric cars remains sluggish. Private households have difficulties finding electric car offerings sufficiently attractive despite significant governmental subsidies.
One should read the modest electric car sale outcomes as that the value of the electric car, as the business model provides it, is small, maybe even negative relative to a comparable ICE car. 
The purpose of this paper is to examine how the commercialization of electric cars can be improved through alternative business models, given the current electric car attributes.
There are two general issues for customers when considering new technologies: 1) The value proposition’s attractiveness relative to the dominant ICE technology; 2) The business model’s distribution of risk (where a traditional transaction-based business model transfers all risks to the buyer after the warranty period, i.e. operational-, financial-, technology-, functional-, and esthetical risk).
The research project has developed four business models that address the above two general issues, and deal with the risk issue not only by redistributing the various risks but by finding means to reduce or even eliminate them.
The results suggest that today’s dominating business models for car sales are not suitable for the sale of electric cars. Three common characteristics of the four alternative business models are a) elimination of financial risk; b) elimination of up-front payment; and c) they also open up for reduction of operational and technology risks. In addition, two of the business models address the fact that if an electric car should be viewed as a 100% replacement of an ICE car, it needs bundling with solutions that address its limited range.
The research study was done in Sweden and designed around an entrepreneurial procedure suggested by serial entrepreneurs as Blank et al.
1 Introduction
Electric vehicles are ascribed the potential to contribute significantly to the development of society by drastically reducing local emissions, help making the vehicle fleet fossil free, reducing dependence on foreign oil, reducing the transport sector’s impact on climate change and increasing the energy efficiency of transports.
Despite this potential, the commercialization of electric cars remains sluggish, and most electric cars sell below manufacturers’ prognoses. Private households seem to have difficulties finding electric car offerings sufficiently attractive, even when significant governmental subsidies are included. Several car OEMs postpone their electric car plans, which may be a sign that they don’t see electric cars as profit and cash flow generators.
Simultaneously though, considerable efforts are put into development and innovation of electric vehicle related technology such as battery chemistry and technology, charging infrastructure, inductive charging etc., which may indicate a general belief that if only technology can be improved, electric cars will become competitive. That may be true, but there are alternatives to technology innovations that should be explored in parallel.
The notion innovation is most often associated with technology innovation, sometimes with process innovation but more recently also with business model innovation. The researchers Chesbrough and Rosenblom [1] stated that:
The inherent value of a technology remains latent until it is commercialized in some way; obviously, the extent to which its value is realized is contingent upon the manner in which that takes place.
This statement clearly shows how important a role they view the business model to play for a technology’s final perceived market value.
Today, electric cars are mainly sold by using the business model used for selling traditional ICE cars. One should read the modest electric car sale outcomes as that the value of the electric car, as the business model provides it, is small, maybe even negative relative to a comparable ICE car. It must also be read as that the value is small or negative both for the customers and for the car manufacturers.
The purpose of this paper is to examine how the commercialization of electric cars can be improved through alternative business models, given the current electric car attributes.
2 The research
This research project aims to identify and obviate business model barriers for a fast commercialization of electric cars. There are two general issues for customers when considering new technologies:
• The value proposition’s attractiveness relative to the dominant technology (i.e. the attractiveness of an electric car compared to an ICE car)
• The business model’s distribution of risk (where a traditional transaction-based business model transfers all risks to the buyer after the warranty period, i.e. operational-, financial-, technology-, functional-, and esthetical risk)
This project’s focus has been to find business models that address at least the above two general issues, and deal with the risk issue not only by redistributing the various risks (f.ex. internalize the risks to the seller or manufacturer) but by finding means to reduce or even eliminate them.
Based on others’ investigations on consumer attitudes and behaviors related to electric cars, an array of potential business models was developed. From these, four were selected based on the research team’s perception of their business potential relative to the traditional car sale business model. These four business models were then tested in customer and actor interviews along the lines of the customer development procedure [2, 3, 4, 5].
The value of a business model is context dependent. Therefore, the project has also briefly looked into the public sector’s alternatives to support the electric car commercialization in more economically sustainable and reasonable ways than today, and finally, the project looked into if any enabling technologies were missing but required for any of the business models to function.
3 Research method
Alternatives to the current dominating business model for car sales are difficult to find and hence to research. To overcome this, traditional social science research approaches such as observation-based studies had to be dismissed. Instead, it was deemed necessary to design the research study around an entrepreneurial procedure [2, 3, 4, 5]. By this means, potential but non-existing business model alternatives could be evaluated. The research has revolved around business model innovation and validation activities and on understanding important contextual issues such as target customer segment rationales for car selection and use, governmental incentives, taxes and so forth.
4 Research results
The results from this study suggest that today’s dominating business models for car sales may work in a more than 100 years old and established market and for a well-known and well-proven technology like the ICE based on petrol and diesel, but less so for a novel market and novel and expensive technology like electric cars. The traditional transaction-based business model transfers all types of risks from the seller to the buyer (some risks after the warranty period), and this seems currently not acceptable among car buyers but for a few early adopters.
Further, the study reveals some alternative business models that may mitigate or even eliminate not only the risk issue but also the issue of the significantly higher up-front cost for an electric car due to its higher price. Three common characteristics of these business models are a) elimination of financial risk, b) elimination of up-front payment, and c) they open up for reduction of operational and technology risks. In addition, two of the business models address the fact that if an electric car should be viewed as a 100% replacement of an ICE car, it needs bundling with solutions that address its limited range.
5 Limitations
The study has been made in Sweden and builds on a Swedish context in terms of market and competition, governmental incentives and taxes, established car financing and so forth. This limits the possibilities to generalize the study’s results, for instance the business models, onto other countries and markets. However, we believe our analytical generalizations may be useful also in other contexts.
Acknowledgments
We would like to thank the Swedish Energy Agency for funding this project with project number 35035-1.
References
[1] H. Chesbrough et al., The role of the business model in capturing value from innovation: Evidence from Xerox Corporation’s technology spin-off companies, Industrial and Corporate Change, ISSN 0960-6491, 11(2002), 529-555
[2] S. Blank, The four steps to the epiphany: Successful strategies for products that win, ISBN 0-97647-070-5, Pescadero, Lulu.com, 2006
[3] E. Ries, The Lean Startup: How Constant Innovation Creates Radically Successful Businesses, ISBN 0-67092-160-2, Viking Press, New York City, 2011
[4] N. Furr et al., Nail It then Scale It: The Entrepreneur’s Guide to Creating and Managing Breakthrough Innovation, ISBN 0-98372-360-5, Provo, Nisi Institute, 2011
[5] S. Blank et al., The Startup Owner’s Manual: The Step-by-Step Guide for Building a Great Company, ISBN 978-0-9849993-0-9, Pescadero, K&S Ransch Press, 2012
[6] M.W. Johnson, Seizing the white space: Business Model Innovation for Growth and Renewal, ISBN 978-1-4221-2481-9, Boston, Harvard Business School Publishing, 2010
[7] R.G. McGrath, Business models: A discovery driven approach, ISSN 0024-6301, 43(2010), 247-261
[8] S.D. Sarasvathy, Casuation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency, ISSN 0363-7425, 26(2001), 243-263
Authors
Mats Williander has a M.Sc in electrical engineering from Chalmers University of Technology, an MBA from School of Business, Economics and Law at University of Gothenburg and a Ph.D. in Technology Management from Chalmers University of Technology. He has 30+ years experience from industry whereof 10 years from the automotive industry. His current research focus is applied research on business model innovation and eco-sustainable business models. Mats works as senior researcher at the research institute Viktoria Swedish ICT.

Camilla Stålstad has a M.Sc in electrical engineering from Chalmers University of Technology, and a background within product development for the automotive industry. She is now working as a project manager and researcher at the research institute Viktoria Swedish ICT.

Year: 
2013
Publication: 
PDF icon new_business_models_for_electric_cars.pdf
Official URL: 
http://www.evs27.org/
Location: 
Fira de Barcelona
Avenida Joan Carles 1, 64 L'Hospitalet de Llobregat
Barcelona
Spain
ES
Published in: 
Electric Vehicla Symposium and Exhibition