Potentials of increasing sustainability by means of economically attractive multi-life products - the example of lithium ion batteries

Abstract:

Purpose

If the sustainability of products is to be increased, it is helpful to extend product life cycles, because this leads to economical consumption of resources and accelerates the market ramp-up of new technologies as a result of improved cost distribution together with a longer life cycle. The volume-based linear development and production models prevalent today are reaching their limits due to increasing shortages of resources and rising internalization of external environmental costs into the products (e.g. Endres, 2011). For this reason, a variety of end-of-life strategies have been developed (e.g. Jiao and Evans, 2016) to increase products’ eco-efficiency. New second and third lives in new markets with strongly changing or new, i.e, multiple, business models for multi-life applications are rarely sought, partly because the do-minant innovation philosophy is based on new product development, the required knowledge and incentives for continued use are not in place, and also because customers prefer new products and up until now will pay more for them (cf. Acatech et al., 2020: 41).

Because, however, customers’ purchasing decisions are no longer made purely on the basis of economic aspects and ecological aspects are increasingly becoming decisive factors, and these factors increase the costs of resources such as energy, for example, business models have to be rethought and realigned (e.g. Takacs, 2020). One approach to this is multi-life products (e.g. Fischhaber et al., 2016), which can be used in multiple applications over several life cycles. An example here is batteries from electric vehicles which can be re-used as electricity storage devices in the home which are connected to photo-voltaic systems, for example, and then used again in fork-lift trucks. Because extending product life will significantly increase product and process complexity in product development and the supply chain, it is important for suppliers to collaborate on digital platforms where the cost-efficiency of the first life will be improved by the second and third.

These considerations form the basis of the research question as to whether collaboration on the development and sale of multi-life products via digital multi-life platforms will enable a reduction in emissions and at the same time be economically attractive. The issue here is to estimate the economic and ecological potential of multi-life products. Economically, this estimation of the potentials of newly arising business opportunities in uncertain environments corresponds to “narrowing the future“ (Dattée et al, 2018: 477), i.e. to the estimation of possible value co-creation by partner companies as a preliminary step towards the development of a blueprint for a network of partners (ecosystem, e.g. Adner, 2021). An ecological examination will be made as to whether multi-life applications increase sustainability. Batteries are considered to be the main green technology selected to decarbonize transports because they reduce CO₂ emissions in electric vehicles, thereby improving the air in urban areas in particular. However, they are also a highly pollutant industrial product whose greening properties can be contested. Therefore, the question also arises as to whether this paradox can be resolved by multi-life applications for batteries, i.e. whether the batteries’ life cycle analysis will be improved “well to third life“, and with economically attractive products to boot.

Design

As a basis for the study, explanations to answer the research questions will be sought first of all: these will initially be explanations of the reduction in costs and emissions arising from prolonged use of the resources. Explanations may be found for, on the one hand, a cumulative rise in the total cost of ownership (TCO) and falling residual values (Zapf et al., 2019), and on the other for the internalization of external impacts (Endres, 2011) which are free of charge when caused by unlimited emissions. Vehicle prices are increasing due to CO₂ limits which are forcing the transition to electric vehicles with battery. The price increase is even higher when the emissions are considered along the entire value chain (including that of battery production, which is highly energy-intensive). Explanations of the effects of digitalization are also helpful: the transaction cost theory (e.g. Williamson, 2008) is not the only explanation as to why digitalization is improving the interfaces between the partner companies’ value adding activities and therefore facilitating modularization as a technical precondition of value co-creation (cf. e.g. Jacobides et al., 2018). Economies of scope (Teece et al., 1982) can also explain why digitalization is enabling exchanges between complementary partners (Jacobides et al., 2018, Dyer et al., 2018) via platforms (e.g.  Cusumano et al., 2019).

As a basis for estimating the (cost saving) potentials of an increase in sustainability by means of multi-life products, the explanations of the cost and revenue reduction then have to be linked and the advantages of collaboration on platforms need to be added to these. Fig. 1a shows the increase in the aggregate total costs of a product over the life cycle (TCO₁) and the decrease in the residual value of this product after use (R₁). The ratio of costs to residual value deteriorates here over the life cycle. This can be counteracted by multi-life products, in this case a second life (R₂) and a third life (R₃), because the residual value of multi-life products is higher than the residual value if the first life (R₁) is retained without the costs rising on the same scale. If complementary partners collaborate via a digital platform, the value (residual value) may increase again as costs decrease (TCO). A measure of the economic attractiveness of a multi-life product is the indicator M (cf. Fig. 1b). It is calculated from the total cost of ownership (TCO) over the life cycles less the residual value at the end of the third life (R₃) divided by the duration (in months) of the total period of use. It also takes the digitalization effect into account. This indicator is likely to fall significantly in the event of a second and third life.

Using the indicator M, economic and ecological potentials for the EV battery as a multi-life product are then estimated and linked. This is an expansion of the method of potential analysis in controlling (e.g. Liessmann 1999), which is an ex ante assessment of the economic potential of a given strategy. This analysis is backed up by an investment theory based model to assess the economic impact in every detail (Lukomnik and Hawley 2021, World Economic Forum 2019).

A process with the following steps is carried out here: 1. Assess the economic potential of sales prices, TCOs and residual values of the Multi Life approach versus the single life, 2. Assess the value co-creation between the partner companies’ value adding activities, 3. Detail all cost and revenue curves for the batteries in each product life and quantify the regulatory parameters to generate NPV comparisons and emissions reduction and 4. Deduce the impact of the indicator M on the NPVs in a sensitivity analysis.

Findings

Using potential analysis, a discounted cost advantage of more than 30% and a reduction in emissions of approximately 40% can be identified for the example sketched here: (1st life: Car battery; 2nd life: electricity storage device in the home; 3rd life: fork-lift truck battery). The model will be validated and detailed even further in order to study the interdependencies with critical factors of influence of the new parameter M (economic attractiveness of a multi-life product) which was derived theoretically in the Design section. The results show that an economically very attractive basis for value co-creation exists.

Practical and theoretical implications

The potential analyses are therefore the starting point of a second step to concretize and empirically examine the blueprint of the multi-life ecosystem, containing a superordinate value proposition, operating model, value co-creation and governance. In a third step, modular multiple business models can be derived for the initiator/orchestrator and for partners which will contain the value proposition and value contribution which the various partners will contribute in the different multi-life applications and the value which they can appropriate with their profit model.

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