1. Is Better Place Really Better?
Buket AVCI
(with Karan GIROTRA and Serguei NETESSINE)
INSEAD 1

2. Electrical Vehicles: 100 hundred years of Failure
Electric vehicle model by Ányos Jedlik, the inventor of an early type of electric motor (1828, Hungary).
German electric car, 1904, with the chauffeur on top.
East German electric vans of the Deutsche Post, 1953.
Thomas Edison and an electric car in 1913.
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3. Electrical Vehicles…. Buket AVCI The Nissan Leaf
The Henney Kilowatt, a 1961 production electric car based on the Renault Dauphine
The Nissan Leaf
GM EV1
Tesla Roadster
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5. Better Place v/s Conventional Electric Vehicles
1) Cost of Ownership
BP does not sell batteries to customers, instead charges per mile usage.
EV Car + Battery
Battery Cost
(c) K
ce/mi
Total Cost of Usage
Initial Purchase
Years 1 to T
EV Car K
I may remove this slide.
Better p/mi
Total Cost of Usage
Initial Purchase
Years 1 to T
2) Range Anxiety
BP installs a network of battery switching stations.
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6. The Business Model Battery Customer Switching Station Electricity
Leased by BP
Limited Range
Cost
Payment Plan
Per-mile price
Subscription fee
Inventory of batteries
Service Level
Charging Spots
Electricity
Paid by BP
Home or Work
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7. Can Better Place succeed where Conventional Electric Vehicles fail?
Research Questions
How should Better Place decide on pricing and stocking quantities at switching stations given the current business model?
How do the advances in battery technology affect environment and optimal adoption of Better Place?
Can Better Place succeed where Conventional Electric Vehicles fail?
Which one can achieve a higher adoption?
Which one is environmentally better?
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8. Customer Behavior
N potential customers
Customer maximizes the expected utility based on the following utility and cost elements:
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9. Economics of Better Place
Single Switching Station
Stocks Q batteries at the station  In stock probability r
BP leases the battery  Per-mile price contract (p) with subscription fee (S)
Firm’s decision variables: per-mile price (p), subscription fee (S) and number of batteries to stock (Q)
Repairable Inventory System
Customer Demand for Switching
M/G/∞ queue
-Average charging time τ
-Electricity cost: ce per miles
Number of
customers
Probability of
going to station
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10. Economics of Better Place
Timeline
Profit and Emissions are realized
Customers decide to buy a BP or a gasoline car
Adoption is
realized
BP offers per-mile price contract with subscription fee
BP decides on the number of batteries to stock
Driving is realized
Subscription
Fee
Profit from
Miles Driven
Battery
Investment
Stocking
Cost
Service level constraint
Customer optimizes over miles driven
Customer’s reservation utility is Ugas
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11. Literature Review 1) Repairable Item Inventory Planning Literature
Sherbrooke (1968, 2004)
Muckstadt (2005)
2) Principal Agent Literature
Bolton and Dewatripont (2005)
Van Mieghem (2000)
Kim et al. (2007)
3) Green Operations Literature
Chocteau et al. (2011)
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12. Model Solution Customer’s driving decision is set such that
BP’s stocking quantity solves
Per-mile price solves
No benefit of stocking
more batteries than required
Cost of
Electricity
Cost of Battery
Switching Service
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13. Results: Better Place
Optimal customer adoption and optimal driving are strategic complements.
implies
Variable
Price
Adoption
Driving
Cost of battery ↑ ↓
Range
Population Size
Advances in battery technology increase the adoption of Better Place vehicles, but they will also increase driving!
Adoption and driving increase with the population size due to the economies of scale in inventory.
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14. Total Expected Carbon Emission
Carbon Emissions
Total Expected Carbon Emission
where and are per-mile emission from electric and gasoline vehicles.
Adoption and Driving affect in opposite directions:
Emission from
Gasoline Vehicles
Electric Vehicles
vs. ?
Are Better Place vehicles more effective than Conventional Electric vehicles in reducing emissions?
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15. Economics of Conventional Electric Vehicles
CE sells the customer an electric vehicle including a battery.  Fixed price contract
Customer pays ce per mile.
Firm’s decision variables: Fixed Price (F)
Timeline
Customers decide to buy a CE or a gasoline car
CE Adoption is realized
CE offers fixed price contract
Driving is realized
Profit and Emissions are realized
Profit per
customer
Customer optimizes over miles driven
Customer’s reservation utility is Ugas
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16. Numerical Study - Parameters
Technology-related parameters are obtained from Better Place website.
Customer utility parameters are calibrated using daily driving data from EPA website.
Parameter R τ c ce
cgas r
Value
100 miles
6 hours
$ 13,500
¢ 2.5
per mile
¢ 10.9
99%
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17. As battery price decreases
Comparison of BP and CE
As battery price decreases
Adoption (A)
Usage (e*) BP ↑ CE -
Today the dual policy objectives of increasing electric vehicle adoption and reducing greenhouse gas emission are aligned.
We expect that these two goals will not be aligned in the future, when battery costs go down as forecasted !
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18. Conclusions
First stylized model on an Electric Car Model with Switching Stations.
Assuming that the electricity comes from the same typical mix, Better Place will have more CO2 emissions than Conventional Electric Vehicles in future even it achieves a higher adoption.
Technological advances in battery cost and range may hurt the environment.
Misguided policy actions will lead a misalignment in the dual objectives of increasing EV adoption and reducing carbon emissions.
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