George Mason UniversitySchool of Business

Pay Per Mile?

Written by Jennifer Anzaldi on .

Can Companies Make Electric Cars More Affordable?

Professors Research an Innovative Infrastructure and New Business Model

What if saving the environment meant saving money? If doing the right thing for Mother Nature also saved a few dollars in our wallets, would we be more apt to take action? Assistant professors of information systems and operations management at George Mason University’s School of Business, Cheryl Druehl and Michael Naor, are researching one way that could make this a possibility and dramatically change the process of purchasing a car in the future.

Roadside battery stationDruehl and Naor are embarking on new research in the area of sustainability that has yet to be investigated. Their research examines the use of an innovative business model based on the notion of separating ownership of the car from that of the battery when purchasing an electric vehicle. In a similar fashion to the cell phone industry, when you purchase a cell phone device and then pay for the minutes as you go, customers would purchase the electric car and then pay for the lease of the battery and the cost of the electricity as they go. This model may reduce the barriers to adoption and dissemination of environmental friendly technology in the automobile industry.

The idea seems to be making folks think. After all, when you purchase a standard car, do you pay for all the gas you will use up front? Of course not, no one would be able to afford that. When you purchase an electric vehicle, why should you be forced to pay for the entire cost of the expensive battery up front?

So how realistic is this idea? Is it an easily adoptable model for car manufacturers? Naor says yes. “In order to make a car ‘battery-switchable,’ the car companies simply need to design the car with the battery on the bottom and make it accessible,” he says. Currently, the battery in electric vehicles is not easily accessible since it is usually located internal to the vehicle. In a standard gasoline-fueled car, batteries are often located under the hood of the car, which is accessible for changing when necessary.

Naor says, “Our goal in the research, still underway, is to understand the business and technological implications of this new industrial formation in the automobile arena. In doing this, we are building a bridge between the mass media coverage of the electric vehicle and the theories of academia.

“The area of sustainable transportation has received a lot of attention from the practitioner literature following attempts to develop environmentally friendly vehicles, yet little academic studies pertaining to it can be found in business administration.”

Electric vehicles were first introduced in the mid-19th century before gasoline became the preferred method for vehicles. During the last decade, interest in reviving electric cars has been spurred by increased public awareness over air quality and the concern over the environmental impact of emissions radiated from the use of gasoline. The increased cost of oil plays a major role in propelling the electrification of the automobile industry. In 2003, the first mass-produced hybrid gasoline-electric car, the Toyota Prius, was introduced worldwide. Nissan recently launched the Leaf, a 100 percent electric car, and other major auto companies have electric cars in development.

An important differentiation between electric vehicles and standard gasoline fueled vehicles is that the electricity they consume can be generated from renewable sources, such as tidal power, solar power, and wind power or any combination of those. Unfortunately, the benefits of owning an electric vehicle are still being superseded by consumer concerns such as price, travel range, battery charging time, battery lifespan, and overall energy efficiency. Druehl and Naor’s research examines how these concerns, or barriers, can be reduced through product and service design.Michael Naor and Cheryl Druehl

Druehl and Naor have connected with Inbal Fried, the environmental engineer from the Israeli company, Better Place, who will pioneer the innovative infrastructure for electric cars and has established a partnership with Renault-Nissan for manufacturing the electric cars. Better Place will launch this new business model in Israel, and afterwards disseminate it to other parts of the world like Denmark, Hawaii, and the San Francisco Bay area. Israel provides an ideal setting to examine the feasibility of the model on a countrywide scale due to its unique entrepreneurial culture evidenced by having the highest density of startups worldwide as well as its size, population density, and congested roads. Another unique factor in Israel is the generous tax incentives given by the government to encourage purchase of environmentally friendly vehicles.

Denmark has been selected as the next location where the leasing business model and the charging infrastructure are going to be deployed because of its well-developed, wind-generated power grid that will be utilized to charge the cars from a green renewable source of energy.

Did you also know that electric cars have higher energy efficiency than gas cars? So why haven’t electric cars overtaken the market already? Druehl explains, “Electric vehicles are believed to be less appealing to consumers due to their limited range (miles traveled) on a single charge. For consumers, the convenience of heading to the gas station allows you to fill a 10-gallon tank in just a few minutes, which would take hours to recharge with an electric car.

“Better Place came up with a new innovation to extend the electric vehicle range beyond 100 miles by building stations along the road in which customers can switch depleted batteries for fully charged ones, thus alleviating what is commonly called “range anxiety.” The switching process takes about 2 minutes, the same amount of time it would take to fill a gas tank. The battery charging and switching stations will offer advanced technology as it becomes available from progress in battery research. Thus, the proposed business model allows consumers to obtain the latest technology, reducing the tendency to wait for the next generation of technology.”

Electric vehicles also require less maintenance than that required for gasoline vehicles due to the absence of periodic oil changes and emissions checks that internal combustion cars require, and of course charging up at home means never going to a gas station.

Will customers be required to incur the costs of replacement and disposal? According to Druehl and Naor, that isn’t the case. As for disposal, the current batteries are Lithium-Ion, and can be recycled at the end of their life cycle. Because the consumer leases the battery, the company will recycle them for the consumer.

“Another innovative aspect that will be investigated in this project is the opportunity to use electric vehicle batteries as storage devices,” Naor says. “The ultimate goal is to establish a smart grid by having the car batteries act as storage for electricity in off-peak periods, and then feed it back into the grid during peak periods. This is called vehicle-to-grid connectivity. Our research will facilitate the understanding of the need for smart grid development and will hopefully spur the modernization of the electrical grid, which could have economic and technological implications for both power utility companies and battery manufacturers.”

So can the electric vehicle actually overtake the market from the internal combustion engine vehicle? Druehl, an innovation expert, hypothesizes, “Based on encroachment patterns for strategic market entry I have been investigating for several years in other industries, new products such as electric vehicles improve quickly and can often overtake the existing mainstream product in the long run.”

In other words, starting as a niche market, electric vehicles just may eventually creep up and take over the automotive market, similar to how cell phones conquered the market from land lines.


Read about more School of Business faculty research in the 2012 Dean's Report.