Can the Volkswagen Group's dream of controlling the fleet of electric vehicles sold to control the battery become reality?

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Herbert Diess made a big splash when he spoke to journalists in Munich about a very serious line of work for his group which consists of seeking maximum control over the batteries installed in the vehicles it produces. To do this, leasing would concern not only the 'first life' of cars but also the second and third. When the time came to recycle, the group would remain the owner and would have complete freedom to organise the business in its own economic interests. This is an attractive scheme, but it also brings back a series of recurring 'revolutionary' ideas. The reasons why these revolutions did not take place remain quite clear and it is likely that the part of the real world that will be able to fit into Herbert Diess' 'strategic project' will remain a minority.

Automotive News recently reported the words of Herbert Diess, Chairman of the Volkswagen Group's Management Board, to journalists at the IAA Mobility show in Munich: referring to the fate of the batteries used in the vehicles that the group is beginning to sell en masse, he said that, given the value and durability of these batteries, remaining in control of them for their automotive uses in the first instance and being able to recycle them or organise another life for them was essential for a manufacturer and that his group was preparing for it. From his point of view, the standard life span that is emerging for these batteries is that corresponding to a thousand recharges.

Since each recharge should allow a journey of 350 km, a battery can do its job on a vehicle for 350,000 km. He concludes that 'the battery would probably live longer than the car' and, knowing how much the battery weighs in the 'manufacturing cost price' (MCP) and the difficulties that access to raw materials can represent, he reveals the strategic course he intends to take by announcing: 'We do not want to give the battery away'.

Thus, the plan imagined and mentioned to journalists would consist of VW remaining the owner of BEVs during their first, second or third life by offering them for rent to motorists: the desire of the manufacturer-renter group would then be "to offer a second lease and even a third lease, and to keep the car in our hands.
For this to make economic sense, Herbert Diess believes that, given their capacity to last 350,000 km, the batteries should retain a high value that will help to maintain the residual value of used electric cars above that of current combustion models. This would be the main reason to do with the BEV what no one has done before - or only at the margin -: as secondary leasing becomes more affordable due to the higher residual values, leasing these used electric cars rather than reselling them on the second-hand market would be the right thing to do.

Commercially, the manufacturer would make it easier to sell its production by reducing the rent offered to leasing customers during the three lives of the vehicle. It would capture a much larger share of the value and would thus be able to finance more easily the very large investment and research expenses that it has to make in order to achieve its transformation.
By preventing the customer-owner from reselling the vehicle at will and allowing the life of the vehicle to continue away from the manufacturer and its networks, as is the case today, the manufacturer would not see the question of recycling - of the batteries in particular - arise away from him: remaining the owner of the vehicle, he would be free to structure this business too. Diess mentions the possibility of using the batteries as a means of storing domestic electricity or as part of a fast-charging station and claims that the return on investment would then be much more interesting and even particularly lucrative. Diess concludes with this sentence, which has since been quoted extensively: "We would like to keep each of the batteries forever.

On paper, the reasoning is convincing and is in line with ideas that we have seen expressed repeatedly for many years now: manufacturers can no longer be satisfied with producing and selling vehicles that they allow to live out their lives in the fleet far from them very quickly in their long life cycles; they must take a greater interest in their uses and provide the services that enable said uses to be ensured and, if possible, improved. Selling mobility rather than cars, accompanying the transition from the era of ownership to the era of use, moving away from the manufacturing phase or even subcontracting it to embrace and master the vast movement of 'servicisation': these are all variations of the same idea that electrification is reviving with old arguments and possibly some new ones.

Since the idea is old and there have been many experiments in its implementation and their results are not very convincing, the reasons for these relative failures are fairly well known and the question is to know in 2021 if these reasons have disappeared and/or if the BEV radically changes the situation.
It should be noted in this respect that interest in the BEV became very strong again more than ten years ago almost everywhere in the world and in France in particular. It immediately led to these reflections in terms of new uses, new services and new business models by virtue of an idea according to which it would not be enough to replace thermal vehicles by BEVs and that it was therefore necessary to consider electrification as an opportunity to change the paradigm and to initiate new uses of the automobile developed within new business ecosystems and obliging the manufacturers to radically question themselves.

Typically, it was thought that, since the BEV was less versatile and expressed its potential better when vehicles were small and light, it would be necessary to accept vehicles that were no longer "Swiss Army knives", i.e. that were less versatile and more dedicated to specific uses. For this reason, buying kilometres rather than cars and then being able to cover these kilometres with a variety of vehicles supplied by one's service provider - whether a manufacturer or not - seemed a defensible model.

It is well known that this car-sharing/VEB coupling did not work out well in the end, just as vehicles such as the Renault Twizy or Citroën AMI appear today to be evidence of a time, now long gone, when these ideas were very structural: today the VEBs on offer are essentially multi-purpose vehicles offered by manufacturers to users who, although they often do not own the vehicles, are nonetheless the sole users during the three to five year period in which they or their employers pay the monthly instalments or rental.
More generally, all-inclusive offers concern new and recently used cars and if this is the case, it is because the rents offered are never low enough for the very large proportions of households that buy old second-hand cars and maintain them at a minimum and thus manage to insure their car for 2,000 euros per year (including fuel) per car to be able to afford them.

The current system, in which a very large and old fleet of cars ensures the self-mobility of all populations for extremely variable budgets, has many disadvantages, but it has put the improvement in vehicle reliability at the service of a reduction in car costs that will probably be very difficult to reverse.
Among other phenomena of major importance, it has enabled households to fuel peri-urbanisation through their residential strategies and to make it livable by multi-motorising at low cost. The services they needed for this are not those of the builders, but the current ecosystem has been able to provide them, and its diversity today gives it a resilience that is largely responsible for the relative failure of all the 'revolutionary' projects that have been planned for it.

It's a safe bet that electric doesn't change the case and that what VW dreams of is not what households want.
To take one example, one of the key elements of the reasoning of Diess and his teams consists in considering that the 350,000 km after which a battery would cease to render the services expected of it correctly correspond to mileages that exceed the life of a vehicle. Thus, when asked to clarify his boss's thinking, Scott Keogh, head of North America, said that 80% of the 6,230 ID.4s he had sold since March had been leased and announced: "We will have second leases; they are already planned.

He adds that the predefined residual values would allow EVs to be kept in the hands of customers for up to eight years, after which they would be returned, their batteries removed and the vehicle recycled into raw materials.
Knowing that the current thermal vehicles generate fleets which, in developed countries, are already systematically over 10 years old for annual mileage of less than 15,000 km, the world that VW is inventing is a world where the average age of vehicles would be divided by three so that VW can optimise its model. After 8 years, vehicles that have covered 150,000 km can live for another 8 or 10 years and it will be obvious to many households that, thanks to this, the cost of their car can continue to fall: a vehicle that covers 15,000 km per year takes a little over 23 years to reach 350,000 km. Therefore, buying it when it is 10 years old and keeping it for 10 years is an excellent way of using its features to minimise the cost of its mobility.

If we believe what has happened so far, if we take into account the difficulties that leasing has in becoming dominant on the used car market, and particularly on older vehicles, then, however interesting Diess' and VW's proposals may be, we have to face the facts: the work done to move in this direction will never be able to make the dream world of VW the real world. Other ways of looking at and dealing with these vehicles will emerge among households whose interest it is. Their garage and/or used car dealer partners will see it as their job to help them age BEVs properly. The resilience of the automotive and automotive services ecosystem is likely to show itself once again.

13/09/2021

The weekly column by Bernard Jullien is also on www.autoactu.com.

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