The Battle Of The EV Business Models

Consulting firm Accenture took a look at a number of EV pilot programs in hopes of gaining some insights into how exactly the rise of plug-in vehicles will change the automotive industry, the refueling infrastructure and the customer experience [ full PDF here], and came away with some interesting conclusions. First, the study finds that the market models for plug-ins will vary from region to region. That’s good news for the automakers, as it makes it less likely that they will be forced to comply with standards set by a single firm dominating a global market model. On the other hand, the regional variations in market models (more on the models themselves shortly) will worsen one of the major challenges of plug-in proliferation, namely scale. The study finds that scale, along with cost and grid control are the three factors that pilot programs can not provide insight into, and all three require “creative” solutions. And here’s where business-as-usual in the car business gets blown wide-open: the business models, rather than the vehicles themselves, are where the real competition is. So, what are the models?

Accenture identifies three basic models which, with some variations, are being tested around the globe: teh Public charging infrastructure, the private charging infrastructure and the so-called “end-to-end model.” The firm summarizes the pros and cons of each as follows:

In short, the public model is the government-led “investment in the public good” aimed at accelerating EV adoption, a model we’ve seen in a number of the US-based pilots. The private model assumes a return on investment purely on the charging infrastructure. Accenture found that both public and private charging infrastructures tend to have a higher grid impact, and because home recharging is expected to remain the main source of EV power, their impact will likely be limited. The “end-to-end model,” on the other hand seems to be the winning formula, by integrating vehicle, service and infrastructure costs (which frees pricing options), limiting grid impacts, and offering a convenient customer experience that is not dissimilar from the familiar cell phone model. One of the key advantages to this model is that it allows EV “service providers” to disaggregate the cost of the battery, lowering a key barrier to consumer acceptance (battery depreciation), using batteries more efficiently and charging a fixed fee for “mileage plans” not unlike cell phone plans where consumers purchase “minutes.”

Accenture concludes that the public model best addresses scale, while the private model best addresses costs and grid control, while “end-to-end” is the only model that addresses all three. This would seem to be a fairly ringing endorsement for the oft-dismissed (by the auto industry, anyway) Project Better Place, which is the only real player in the “end-to-end” model. Of course, Accenture hedges considerably by saying the models will receive varying levels of support by geography and that all three will continue to evolve, but it’s fairly clear that “end-to-end” shows the most long-term promise.

Unfortunately, the rise of “end-to-end” EV “service providers” would essentially spell the end of the auto industry as we know it. EVs generally present challenges to the product differentiation the industry currently competes on, but an end-to-end solution explodes every traditional value in the industry. After all, automakers will not only need to develop batteries, but infrastructure as well to survive as an “end-to-end service provider.” Dealers won’t be able to stay alive on the backs of their service departments. Consumers will be forced to think rationally about their vehicle usage in order to purchase a service agreement, destroying the prevalent consumer perspective that decades of marketers worked so hard to cultivate.

Electric vehicles are generating a lot of excitement, but the vehicles themselves are actually something of an afterthought. A refined infrastructure business model is what will take EVs from their early-adopter ghetto and into the mainstream, a task Project Better Place is currently launching in Israel. The exciting part: a year from now, we will have some idea of whether or not the “end-to-end” model really works in the real world (well, Israel, anyway). If it does, that infrastructure model could have a greater impact on the world of cars than any actual car. It’s a brave new world…