Chapter 15 - The economics of a paradigm shift

Question 1

What is the value chain for BEVs?

Answer 1

1) Raw and processed materials
2) Cell component manufacturing
3) Cell manufacturing
4) Battery pack manufacturing
5) Electric vehicle manufacturing
6) Recycling

Question 2

What are the strategies of vertical integration for BEV manufacturers?

Answer 2

Typically:
US: compeltely outsourced cell and pack manufacturing (except Tesla and other startups)
EU: Cell/modules manufacturing outsourced through Tier 1 suppliers. In-house pack design and manufacturing. Though, VW in JV-plans with Northvolt
JP: Cell production through JV / subsidiaries. In house pack design and manufacturing.
CN: In-house manufacturing of cells, pack design and manufacturing

Question 3

What are the two main philosophies of recycling?

Answer 3

Volume driven: Large scale from early standardisation. Recovery of metals

Value driven: Dedicated processes for each battery chemistry. Recovery of compounds.

Question 4

How does renewables compare to fossil fuels in investments?

Answer 4

Winning 2:1 in 2014.

Question 5

How can cost reduction in renewables be explained?

Answer 5

Improvements in technology
Improvements in production technology
Value chain development
Margin reduction
Financial risk reduction
Project streamlining

Question 6

What is the virtuous cycle?

Answer 6

Co-evolution of technology, market and production

-> Lower cost -> Rising investments -> More innovation -> Lower costs -> Rising demand ->

Question 7

Give some examples of virtuous cycles

Answer 7

1) Petrol engine, oil extraction and roads

2) PC, mobile, internet

Question 8

What is TRL?

Answer 8

Technology readiness level. Scale from 1 to 9 of increasing readiness. Each new level requires wider competence base, more skills.

Question 9

What is the S-curve?

Answer 9

Evolution of development/adoption rates etc.

First exponential, then linear, then flattening out at saturation

Question 10

Why is the interest rate important when discussing adoption of technologies?

Answer 10

Because it determines the level of risk accepted in investment decisions. Too high interest rate could be unrealistic because investors learn the true risk of these projects with experience.

Question 11

What is net present value (NPV)?

Answer 11

A measure of future income or expense discounted according to an interest rate.

NPV = -C0 + sum Ci / (1+r)^i

C0 is initial investment
Ci is the cash flow for period i
r is the discount rate
i is the number of periods

Question 12

What are examples of some market failures?

Answer 12

• Externalities
• Patent horizon vs. time-to-market
• First mover vs. second mover
• Network effects, clusters
• Interest rates
• Competence
• Capital
• Endowment effect
• Political risk
• Lobbying power disparity
• Competition between unequal maturities

Question 13

What is the evolution analogy to the market?

Answer 13

Genes: IP, factories, competences
Mutations: Continuous improvement
Selection: Competetive markets
Nichemarkets: diversiviation (islands, valleys)

No planned development

Planned development: Breeding, domestication

Question 14

What are some principles for developing a solution?

Answer 14

1) It must be better and cheaper than existing options
2) Public funding should trigger private funding
3) Should have a global impact (= larger market, risk reduction)