Wednesday, May 12, 2010

Electric Vehicles Need New Business Models

Although interest in electric vehicles (EVs) is growing, the automotive industry needs to develop creative and unconventional business models to combat the higher costs of production. The evolution of electric vehicles is offering new opportunities and challenges for business development, partnerships and integration.

The growth of EVs will introduce new entrants, intermediaries and new means of creating value at different points in the vehicle value chain. To cultivate this rapidly growing industry, flexible partnerships must thrive between diverse and cross-functional industries such as telecommunications, energy providers, manufacturers, suppliers and retailers.

Although EVs have yet to benefit from economies of scale, Nissan has advanced an ambitious business model. The Nissan Leaf offers an affordable price point to support mass production. Tesla Motors' business model involves the straight forward commercial production of a federally-compliant highway-capable electric vehicle. Although they have relatively low-volume ambitions, Tesla's basic strategy is to design, manufacture and sell high-performance fully electric vehicles and advanced electric vehicle powertrain components.

According to “Winning on the E-mobility Playing Field” written by global management consultancy Arthur D. Little, original equipment manufacturers (OEMs), utilities, infrastructure, leasing companies and service providers will all be competing for consumers’ mobility budgets and must identify the right business model to fully capitalize on the green market. All players in the value chain must identify the most viable business models. Arthur D. Little believes four predominant business models will emerge:

1. The Mega-OEM: The few that achieve technology leadership will lead and their products will be used under different brands. This will push smaller OEMs out of the picture.

2. Modular Packaging: Some large suppliers will offer OEMs a complete modular package of EV technology – from battery and power electronics to complete vehicle architectures.

3. Local Urban Clean Transportation: With regulations likely to spread in big cities, local authorities will cooperate with automotive OEMs to develop ‘clean’ transport alternatives such as electro-mobility.

4. E-mobility Provider: Rail, aviation, car rental businesses and new entrant service providers will actively seek opportunities to increase their share of affluent travelers’ mobility budgets. Their presence in major travel hubs worldwide will enable them to implement an electric vehicle infrastructure capturing this lucrative customer market.

Stefan Lippautz, Director at Arthur D. Little believes that success in the upcoming electro-mobility market requires more than new technology development. “Competition in e-mobility exists on a wider playing field beyond the traditional automotive value chain. Focusing on selected customer groups will help achieve a unique selling proposition. Companies should tailor mobility products, focusing on viable business models for a small target group rather than targeting the entire market,” Lippautz said.

Although it is often said that a rising tide floats all boats, the growing interest in EVs is likely to float some boats more than others. There are many business cases of companies that failed in their efforts to bring successful technologies to market.

In the electric vehicle sector, the challenge involves more than just new technology. No matter how promising the technology, a good business model is crucial to success in this increasingly competitive marketplace.
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