EIS – Mini Case: Electric Vehicles
Fabio Weiss Chaves, Frederico de Miranda, Roman Hughes
Electric Cars
1. Value Vision
The electric car currently competes in the market for short-distance mobility, given its limited mileage.
Within that market it competes against other cars (including cabs and rental cars), bikes and public
transports. Regular cars (or hybrids for that matter) additionally compete in the middle-distance
mobility market against rental cars and public transports (i.e. trains and planes).
For the sake of simplicity, we will compare the electric car only to its most direct competitor, the
internal combustion engine car. We ranked mature electric cars against conventional internal
combustion engine cars (ICE) from a customer perspective. We used a 1-5 rating scale, where 5 is the
best score. The value proposition of a mature electric car vis-à-vis the internal combustion (ICE) car is as
follows. :
5,0
ICE Car
4,5
4,0
3,5
3,0
2,5
2,0
1,5
1,0
Electric Car
0,5
0,0
Design
-
Handling
Reliability Total cost of
EcoAcceleration
ownership friendlyness
Security
Purchasing
cost
Top speed
Range
The electric car is superior to conventional ICE cars in:
o Design, because electric motors are more compact and hence allow designer more
flexibility to design more attractive and sporty cars
o Handling due to a better weight distribution, i.e. the batteries can be spread under the
car in a way that lowers its center of gravity and improves the balance
o Acceleration is superior since the torque is spread evenly across all speeds
o Reliability (an electric motor has ~6,000 moving parts, while an ICE motor has ~20,000+
moving parts).
o Total cost of ownership can be lower, since recharging a battery cost ~$4 as opposed to
~$60 in the US and $120 in Germany for an ICE car. This is especially true in cases where
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EIS – Mini Case: Electric Vehicles
Fabio Weiss Chaves, Frederico de Miranda, Roman Hughes
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governments provide financial incentives to customers and where fuel prices are high,
such as in Germany.
The electric car is inferior to conventional ICE cars in:
o Purchasing costs for an electric car can be ~$10,000 greater (price comparison between
Nissan Leaf and Ford Focus)
o Range and top speeds are inferior for electric cars. We attribute this to the extremely
high cost of batteries, which is driven primarily by speed and range.
The electric car is comparable to conventional ICE cars in security.
For a more detailed description of the value proposition (pros and cons) to the other members of the
eco-system, see the two following chapters.
2. Eco-System
The eco-system is comprised of the 10 players shown below: current suppliers (i.e. of breaks, seats,
metal, etc.), new tech suppliers (i.e. of batteries), car manufacturers, car dealers, garages, customers,
insurance companies, governments, oil & gas firms and electricity producing firms.
We identified four critical players in the eco-system: governments, car manufacturers, garages and
customers. Each of these players has a distinct set of benefits and concerns that surround electric cars.
Governments
Positives
 Less air and noise pollution
Concerns
 Have to pay for subsidies (some states even
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EIS – Mini Case: Electric Vehicles
Fabio Weiss Chaves, Frederico de Miranda, Roman Hughes



Image of an environmentally friendly
government
Creation of new jobs through new industries
to supply auto manufacturers
Reduced oil dependency


offer cash back)
Damage of relationships with Oil & Gas
companies, who tend to be considerable
government benefactors
Bear the risk of failure of the industry by
backing the wrong horse (i.e. Solindra)
Car Manufacturers
Positives
Concerns
 Higher price tag (Tesla - $109K, Nissan Leaf
 Competence-destroying innovation
$35K)
 Range offered by most electric vehicles is still
 Image of an environmentally friendly and
extremely low
technologically advanced company
 Need of new suppliers for a key component of
 Better performance (as measured in terms of
the final product (i.e. batteries)
acceleration, torque, etc)
 Opens market to new competition, as
 Heavily subsidized by government, in some
previous core competences matter little in
states, it even gets free parking and ability to
new market (i.e. Tesla)
use commuter lane
 Profit pool shifts from the car brands to
 Better reliability (not yet, but eventually…). As
battery suppliers
these cars have a fifth of the moving parts,
they are expected to break down less
 Eliminates risk of being left behind by industry
(Mitsubishi, Nissan, Chevrolet, Toyota, BMW,
Audi and Mercedes all have EV’s on the market
or coming out soon)
 Renewed life for the industry: as an industry
dependent on a finite good like oil, the car
manufacturers had an expiration date until
now.
Garages
Positives
Concerns
 Better margins
 Retraining of staff
 Smaller stock of parts in the long-run
 New equipment, new SKUs
 Less complexity (fewer moving parts)
 Fewer expected car breakdowns in long-run
 Same Change vs Repair argument we saw in
the Pax tires for Michelin
 Less time spend diagnosing due to PC
diagnostics
Customers
Positives
Concerns
 Eco-friendly
 Unproven technology, fear of breakdowns
 Innovative design (i.e. Audi e-Tron)
 Range limitations
 Fun to drive, great acceleration
 Significantly higher cost (CapEx)
 Inexpensive to fuel (OpEx)
 Availability of garage infrastructure
 Potentially subsidized by governments (i.e. tax
 Availability of charging infrastructure in cities
credits in France or Germany)
 Residual value of batteries
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EIS – Mini Case: Electric Vehicles
Fabio Weiss Chaves, Frederico de Miranda, Roman Hughes
We considered all remaining players as not critical:
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New tech suppliers: Not critical because car companies can leverage existing technologies (i.e.
Tesla uses laptop batteries in its cars). Further, the economics of batteries and the shifting profit
pools are likely to foster market entry by new players.
Car dealers: Electric cars do not affect the business of car dealers. At best it required little
additional training of the salesmen.
Oil & Gas industry: Even though these firms control fuel prices, we think it is unlikely that they
will significantly reduce their prices, given the slow adoption of electric vehicles. The bulk of
vehicles still use ICEs.
Current suppliers: Suppliers focused on components around the engine (i.e. transmissions and
engine components) are likely to have to re-align their businesses in the long-run. All remaining
suppliers are not going to be deeply affected.
Insurance: Similar to car dealers, electric vehicles have little impact on their business.
Electricity companies: Firms cannot directly control customer behavior. For instance the
introduction of TVs and air conditioners has driven up electricity demand and not affected price
of electricity significantly. Furthermore, since electric vehicles are charged through regular
outlets, electric companies cannot control who is charging a car and who is not. The only
exception may be in cases where a large fleet of electric vehicles is brought into a small charging
space. In such cases the unusually high electric burden may require upgrades to local utility
distribution networks.
3. Strategy to Align Actors
a. Governments
Governments constantly face the challenge of incentivizing different industries. However, given the
hype about sustainability and eco-friendliness, it is unlikely that governments will not subsidize electric
vehicles. Additionally, it makes sense to lobby governments to provide incentives beyond subsidies, like
exempting electric vehicles from congestion charges.
Regarding the relationship with oil & gas companies, governments can also incentivize these firms to go
after clean-tech. Governments can also include vehicle charging units as part of the specifications in
building retrofits, opening up a new market for electric utilities and or general contractors.
In order to ensure that governments are not “betting on the wrong horse”, it is critical for them to study
the economic viability of firms in great detail. Additionally incentives can be structured to improve the
odds of success, i.e. incentives get paid out when key product development milestones are completed.
It is also important for car manufacturer to provide governments with good arguments to investments in
clean-tech and electric cars to the public:
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Investments reduce high dependency on volatile oil prices ad oil price shocks
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EIS – Mini Case: Electric Vehicles
Fabio Weiss Chaves, Frederico de Miranda, Roman Hughes
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More than 70% of the oil the US consumes goes into transportation fuels
Given the reduction in US manufacturing jobs, such investments may be marketed as job
creating investments
Given the global warming, it makes sense to market electric vehicles as part of a broader
sustainability strategy
b. Car Manufacturers
Electric cars represent a competence destroying innovation – many car manufacturers see the motor as
one of their core competencies. This means that manufacturers need to start developing first cars with
electric motors to build knowledge. Alternatively, manufacturers can form joint ventures to explore the
technology.
The very limited range of electric cars means that manufacturers must target these cars at customer
segments that do not value high ranges. Over time manufacturer need to work closely with battery
suppliers to increase ranges to reach other customer segments.
Given the criticality of batteries, it is critical to monitor the advances of different battery technologies. It
is also important to partner with different suppliers to reduce uncertainty of working with “start-ups”.
With regards to new competitors, like the Tesla, it is important to leverage the dealer network,
economies of scale and scope. This will increase the barriers to entry for new entrants.
With regards to profit pools shifts, it is imperative that car companies foster competition among battery
suppliers. Additionally it might make sense to lobby governments to incentivize the creation of new
battery suppliers.
c. Garages
The only retraining necessary for clerks relates to electric motors and batteries. Given that electric
motors have fewer moving parts than ICEs, we do not anticipate this being a problem. Electric motors
used in cars will not be substantially different from electric motors used in other industries or fields.
Further, by using computed-based diagnostics, it will be easier to detect which parts need replacement.
This allows garages to increase throughput by reducing the time to diagnose and repair problems. The
problem with batteries lies not with diagnostics or replacements, but with the ownership of working
capital, since batteries are the most expensive component of electric vehicles. We expect car companies
to foot this bill for garages.
We do not believe that garages will need substantial investments in new equipment, but in working
capital, since they will need to carry parts for conventional cars, hybrids and electric vehicles. For car
manufacturers this means going after bigger garages first, since they might either have more available
space or can expand more easily. To incentivize garages, it might make sense to offer vendor managed
inventory, that is, garages only pay for it when/if it is used.
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EIS – Mini Case: Electric Vehicles
Fabio Weiss Chaves, Frederico de Miranda, Roman Hughes
Even if electric cars offer a prospect of fewer breakdowns in the long-run, they are very likely to have
more breakdowns in the short and medium term.
d. Customers
Snails
• Higher mileage range
• Higher speed
• Low cost/ total cost
• Storage space
Sprinters
• Higher mileage range
• Higher speed, fun drive
• Sporty design
• Storage space
Bargain Hunters
• Lower mileage range
• Lower speed
• Low cost/ total cost
• Small car, easy to park
Show-Offs
• Lower mileage
• Higher speed, fun drive
• Sporty design
City Hopper
Mileage
Commuter
Given the very specific characteristics of electric cars vis-à-vis ICE cars, it is important to target the
customer segments that are right for this type of vehicle. We segment potential customers into 4
categories along the dimensions mileage and willingness to pay. Each customer segment has slightly
different needs.
Low
High
Willingness to Pay
Given the current mileage range and more importantly the extremely high cost of batteries, it makes
more sense for electric vehicle manufacturers to focus on “Bargain Hunters” and “Show-Offs” with two
different kinds of electric cars. Bargain hunters would be attracted to a simpler car, for instance an
electric Mini (from BMW), while Show-Offs would be more interested in a Tesla or an Audi e-Tron.
In order to reduce the uncertainty about the technology and its reliability, it might make sense to push
electric cars to car rental companies. The effect is that first, customers will see more of these e-cars
circulating in their cities and more importantly, customers will be able to try them out. Additionally it
also makes sense to push these cars for use in private and public fleets for a number of reasons:
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EIS – Mini Case: Electric Vehicles
Fabio Weiss Chaves, Frederico de Miranda, Roman Hughes
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For vehicles with predictable routes (i.e. buses), batteries can be right-sized to minimize excess
battery capacity and reduce the upfront CapEx
The higher utilization of the fleets mean that fleet operators can recoup the high upfront cost
quickly due to the very low operating costs of electric vehicles
Fleets also have the advantage of using central parking to charge or exchange batteries quickly
without depending on public infrastructure
Electricity rates for commercial and industrial consumers are often significantly lower than rates
paid by private consumers, which reduces operating expenses even further
Stable energy prices provide operator with a high degree of certainty regarding operating costs,
which makes budgeting/planning easier
Additionally, innovative payment models, such as paying per monthly mileage. This cost could
include the CapEx as well as the charging costs and infrastructure
For cabs, which can travel up to 100,000 miles per year, battery swapping services would have to be in
place in order to make electric cars economically feasible.
Given the higher cost of purchasing those cars, it might make sense to lobby the government to provide
subsidies to customers who purchase more energy-efficient cars. Many US states offer tax breaks
ranging from $500 to $7,500 and other benefits like car pool lane access and free parking.
Regarding the availability of garages and the charging infrastructure, it makes sense to avoid the
problems that Michelin faced with its PAX tires. We propose that car manufacturer measure garage’s
increases in revenues and profits due to servicing electric cars. This data can then be used to convince
other garages to join.
Regarding the availability of the charging infrastructure, we believe that either electric utilities or other
firms will start developing this infrastructure. Charging an electric car at a standard US outlet (110V,
12A), can take up to 15 hours. Level II charging facilities will be able to shorten charging times to 3-7
hours. Level III charging facilities will reduce charging times even further, to around 20-30 Min.
Additionally it makes sense to market electric cars as a phenomenal innovation, especially for high end
customers, because this may well convince customers that this is an entirely different product category
(i.e. like a new line of processor for Intel). The result would be that car companies could create a new
and higher reference price for this category, as compared to their traditional ICE cars.
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