Make-or-buy strategies for electric vehicle batteries—a simulation-based analysis

Christian Huth, Karsten Kieckhäfer and Thomas Stefan Spengler

Technological Forecasting and Social Change, 2015, vol. 99, issue C, 22-34

Abstract: The electrification of the powertrain leads to fundamental changes in the automotive value chain. Thereby, original equipment manufacturers (OEMs) have to decide which manufacturing steps to perform in-house and which parts to source from joint ventures or suppliers. This decision on the make-or-buy strategy is influenced by manifold uncertain parameters like technology evolution and market development. Moreover, it has considerable financial implications. We present a novel approach for the financial evaluation of strategic make-or-buy decisions for newly introduced components using the example of electric vehicle batteries. The approach is based on a Monte Carlo simulation with which the net present value of different make-or-buy strategies can be evaluated. In the model, we explicitly take into account (1) the impact of volume uncertainty on the economies of scale, (2) the financial consequences of a technology leap, (3) joint ventures as a form of quasi-integration, and (4) the option to change the position in the value chain over time. The application of the model for sample OEMs shows that make-or-buy strategies for electric vehicle batteries differ fundamentally from a financial point of view, depending not only on the degree of vertical integration but also on the size of the OEM.

Keywords: Electric vehicle batteries; Automotive value chain; Vertical integration; Make-or-buy decisions; Monte Carlo simulation; Uncertainty (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:tefoso:v:99:y:2015:i:c:p:22-34

DOI: 10.1016/j.techfore.2015.06.027

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