Offering EV Battery Swapping as a Service: EV Manufacturers or Battery Producers?

Abstract

To overcome the range anxiety that hinders Electric Vehicle (EV) adoption, battery as a service (BaaS; i.e., drivers swapping depleted batteries with fully charged ones at battery-swapping stations) has emerged as a promising alternative to the traditional EV ownership model. This business model requires investment and operation of battery-swapping stations, prompting us to examine a question: Should EV manufacturers or battery producers build and operate these battery-swapping stations? By constructing a game-theoretical model with one battery supplier and one vehicle manufacturer, we compare two BaaS operating models: under the manufacturer-operated BaaS model (Model-M), the vehicle manufacturer procures EV batteries from the supplier and invests and operates the battery swapping stations; under the supplier-operated model (Model-S), the vehicle manufacturer sells battery-free EV to customers while the supplier invests and operates the battery swapping stations. We find Model-S may induce a higher number of battery swapping stations being built; however, Model-M can always entice more customers to adopt EVs. Further, Model-M leads to a higher profit for the manufacturer and and the overall supply chain. Interestingly, Model-M is preferable to the supplier when the cost of building battery swapping stations is low or the cost of producing batteries is low, resulting in a win-win situation. Further, by extending our model to include two competing EV manufacturers, we highlight that the choice between these two models hinges on the degree of downstream competition: in a low-competition environment, it could still be socially optimal for the leading EV manufacturer to lead the BaaS effort under Model-M; However, as competition intensifies, the battery producer is in general at a better position to offer the EV BaaS. By identifying how different operational and economic factors affect the relative merits between the two BaaS operating models, our paper provides insights for industry leaders and policymakers when deciding who should lead the effort of investing and operating the BaaS model.

Keywords: electric vehicle, battery swapping, supply chain, business models, servitization, competition, sustainability