Battery as a service versus complete vehicle sales : a perspective of consumer resale anxiety

Abstract

A Battery-as-a-Service (BaaS) strategy is viewed as a promising solution to alleviate consumer anxiety about the future depreciation of electric vehicles (EVs). This sales strategy involves leasing batteries rather than selling them outright, thereby mitigating the negative impact of rapid battery depreciation on vehicle value. This paper develops a game-theoretic model to investigate the impact of BaaS on competition between electric and fuel vehicles. The profit-maximizing EV manufacturer chooses between the Complete-Vehicle-Sales (CVS) strategy and the BaaS strategy. Our analysis yields three main findings. First, to enhance profits through BaaS over CVS, an EV manufacturer must ensure that the EV depreciation rate with BaaS is at least slightly lower than with CVS. Achieving higher EV sales under BaaS compared to CVS requires a further reduction in depreciation. Second, a win-win situation for both vehicle manufacturers occurs if the EV depreciation rate under BaaS is reduced to a moderate level. Considering additional battery acquisitions in BaaS can result in a mutually beneficial outcome for the three parties, including the battery supplier. Third, a lower depreciation rate can increase consumer surplus, but it does not always benefit the environment, as it may lead to higher overall vehicle purchases and usage in the market.