As a service or a product? A comparison of electric vehicle battery supply models

Abstract

In response to the challenges posed by high costs and rapid degradation of electric vehicle (EV) batteries, Battery as a Service (BaaS) is introduced as a new EV battery supply model, alongside the traditional model of Battery as a Product (BaaP). Under this background, how to choose a battery supply model is a major strategic problem. Through game theory approach, we analyze and compare the BaaS and BaaP models under a durable goods framework. Firstly, we find that the BaaS model is more profitable than the BaaP model when battery cost or degradation rate is excessively high. The firm under BaaS can relieve cost pressures by selectively retaining used batteries and reducing the price threshold for consumers to acquire batteries. Secondly, through premature disposal of used batteries, a firm can endogenously determine the quality of battery service, making the BaaS model more profitable when battery cost or degradation rate is excessively low. Thirdly, we show that the firm under BaaS always benefits from the decrease of battery degradation rate. However, a lower battery degradation rate may reduce the firm’s profit under BaaP because of the cannibalization effect from the secondary market.