Electric Vehicles (EVs) have a lower operational cost than conventional vehicles; however, the cost of electric vehicles is higher. The higher acquisition cost of EVs is associated with the cost of batteries used in these vehicles. The cost of a battery of an EV constitutes around 30 - 40% of the overall vehicle cost. Concerns such as high battery cost, longer battery charging time, and shorter-range are a few challenges faced by the electric vehicle market. Amid the challenges mentioned above, the emergence and subsequent adoption of the Battery-as-a-Service (BaaS) model will help the EV market in terms of sustainability.
Battery-as-a-Service model allows customers to lease batteries as a separate component from cars. Leasing the battery saves the upfront purchase cost of an electric vehicle. This new service provides battery swapping options that offer a solution to address shorter range issues of an EV. Also, battery swapping is less time-consuming and requires minimum infrastructure compared to a charging station making this model almost a viable option driving future adoption.
The owner of an electric vehicle, instead of buying a battery pack with the vehicle, can opt for leasing or subscribe to a battery subscription plan providing the vehicle owner a cost-effective alternative. The Battery-as-a-Service approach provides leverage to the customer in buying just the vehicle shell outright and agreeing to pay only the rental fees for the batteries. This also enables the customer to replace the battery with a new battery in the same car shell.
Research suggests that a customer can lease an electric vehicle battery for eight years at a price equivalent to the purchasing cost of a new electric vehicle battery pack. Hence, leasing a battery pack is a better option for customers who do not use their vehicles frequently. Moreover, leasing and renting of battery packs provide additional benefits such as free/warranted replacements, a timely inspection of battery residual values by the service provider, and assistance from service providers in the event of a breakdown. Shared logistics, mobility, and delivery companies with large fleets are expected to gain cost benefits with such a leasing models covering service, repair, and replacement cost of batteries.
The impact of COVID-19, however, has drastically changed the business scenario for 2020 with a negative impact on sales as well as production in the overall automotive sector. The economy worldwide experienced a massive setback due to the COVID-19 outbreak. In the first half of 2020, electric car sales globally were on average 15% lower compared to that in 2019. The decline in the sales of electric vehicles affected the proliferation of the Battery-as-a-Service model negatively. However, with economic revival and governments gradually lifting lockdown restriction is expected to favor future market adoption.
Europe remains the major market for Battery-as-a-Service model owing to the high penetration of electric vehicles in countries such as Norway, Sweden, and the Netherlands. Asia Pacific is expected to witness an increased adoption over the next few years with growing investments in the electric vehicle sector. China is working aggressively towards EV adoption which is further expected to drive the demand for Battery-as-a-Service model over the forecast period. For instance, NIO, an electric car provider in China, is encouraging its efforts in expanding the battery-as-a-Service (BaaS) operation under its NIO-Power business unit. The company will offer charging as well battery swapping to electric vehicle owners.
The key industry participants include NIO; Global Technology Systems, Inc.; Epiroc; Contemporary Amperex Technology Co., Limited; KST Mobility Co., Ltd.; and Octillion among others. Mergers & acquisitions, along with strategic collaborations or partnerships by key vendors in the electric vehicle space will help in market consolidation. For instance, in February 2021, Hyundai Motor Group signed an MOU with South Korea's Ministry of Trade, Industry and Energy; KST Mobility; and LG Energy Solution. Under the MOU, all companies involved will explore a new innovative business model for EV battery leasing. Although, still at an early stage, the model has potential to revolutionize the electric vehicle market going forward.
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