automotive

Why OEMs should drive green energy expansion?

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Electric vehicles can help tackle climate change by reducing CO2 emissions. Or can they?

In the second blog of the eMobility series, my colleague Manuel Wiener and I (Philipp M. Haaf) examine the opportunity OEMs have with green energy to position themselves as providers of sustainable mobility.

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Electric vehicles are considered a “golden lever” for reducing CO2 emissions and thus helping to solve the global environment problem. However, one essential factor is often left out of the discussion or given too little attention: electric vehicles can only contribute to environmental protection if the electricity they run on is also generated in an environmentally friendly way. Electricity generated from coal, for example, merely shifts emissions from the transport sector to the energy sector. Electric vehicles may even have a negative impact on total emissions if the electricity mix focuses on fossil fuels.

Regenerative and emission-free power generation is thus the decisive factor in making electric mobility a complete and sustainable success. This factor is made more critical by the drastic increase in demand for electricity arising from the growing number of electric vehicles. At the same time, rapidly increasing public awareness of climate change has created pressure for environmental protection measures on the part of both companies and individuals.

With today’s power mix in Germany, generation of one kilowatt hour of electricity leads to an average of 472 grams of CO2 emissions(1). This means that as of today, electric vehicles emit around 95 grams of CO2 for every kilometer they cover. If Germany has 2.9 million electric vehicles in 2025, as projected(2), the use of green electricity (instead of today’s power mix) would save up to 4 million tons of CO2 per year.

This is why a successful breakthrough in electric mobility is strongly dependent on sustainable energy generation. Green energy offers significant business potential for companies and – in particular OEMs – which can use it to position themselves as providers of sustainable mobility solutions. But what exactly can OEMs do and how can they benefit from it?

What can OEMs bring to the table?

OEMs have an opportunity to actively engage in environmental protection and fight air pollution through their product and service offerings, working with a range of partners where appropriate. This can help the OEMs transform perceptions of their brand and position themselves as providers of sustainable mobility. OEMs have several options for achieving this eco-friendly position:

A) Produce green electricity

Firstly, OEMs can expand their product and service portfolio in the energy production area. This approach brings OEMs two sets of benefits. On the one hand, they can provide their customers with green energy and use it for their own production facilities, thus reducing the CO2 footprint of their cars. On the other hand, from a macroeconomic point of view, OEMs can address one of the decisive challenges of electric mobility: the generation and distribution of the large amounts of electricity needed for electric cars locally.

This is something that Tesla has realized on a small scale with its initiative on Kauai Island, which has led to the inclusion of solar panels and clean energy storage systems in its service portfolio. Tesla has underlined this strategy by giving itself a mission to “accelerate the world’s transition to sustainable energy.” In this instance, Tesla is building on its existing competence in batteries to create a combined system of solar plants and storage solutions.

B) Provide access to green electricity

Secondly, OEMs can provide access to green electricity tariffs for their customers as a means of proactively driving CO2 reduction. This can be done either directly or indirectly. In the direct option, an OEM can simply provide information and a link to a green electricity partner (e.g. an energy utility), who in turn provides an offering to the OEM’s customers – something that a lot of OEMs already do. The indirect option involves providing OEM-branded activities to offset the carbon footprint (carbon offset describes financial measures for reducing emissions in order to compensate for emissions made elsewhere).

Many OEMs have an ambition to offer their customers holistic 360° solutions that go beyond mobility aspects to provide sustainable energy solutions for all their requirements. Especially in European markets, a broad variety of examples for the direct option can be found: One example is the cooperation of Mercedes with German energy provider EnBW, which provides Mercedes customers with 100% green electricity derived from hydropower. Another example is Renault, which offers its customers green electricity in some European countries via local energy suppliers such as Enel (in Italy) or EDF Energy (in France, Germany, UK). Also, the Volkswagen Group has recently announced that with its newly founded subsidiary Elli (short for “Electric Life”) it now offers sustainable green energy throughout Germany.

C) Enable customers to produce their own green electricity

Thirdly, by offering customers a portfolio of solutions that enables them to produce and (ideally) store their own electricity, OEMs can give them the option to actively drive the energy transition themselves. This can be realized via the OEMs’ own solutions but is often achieved via partnerships.

In many US states, Tesla is offering installation of solar panels. BMW and Solarwatt (a German manufacturer of solar modules) are cooperating on the “My Green Energy” product, which enables customers in many European countries to produce their own green energy with photovoltaic systems. Nissan has come up with a revolutionary model for buyers of the new Nissan LEAF in Japan, based on a partnership with Ecosystem Japan (a Japanese utility company): LEAF buyers can get free installation of a solar energy system, with a discounted electricity plan and the option to own the solar system after the end of a 20-year contract.

How can OEMs benefit from green energy offerings?

Sustainable product positioning. If complemented by a portfolio of green energy solutions, an OEM’s electric vehicle can be refined into a sustainable and eco-friendly product. In contrast to conventional vehicles, such a product can dramatically improve the OEM’s image and marketing impact, potentially increasing vehicle sales.

Direct customer contact

In addition, OEMs can create direct customer contact by expanding their business activities into the energy sector. In the automotive industry’s traditional three-tier sales model, direct customer contact is mostly owned by the dealer. With green energy offerings, however, OEMs create direct customer contact and enter their customers’ homes. This contact and the associated data facilitate new data-based business models and the development of new fields of competence. This in turn will enable OEMs to offer customer-centric services and solutions on an unprecedented scale.

Additional sales potential

A further benefit for OEMs is the extra revenue that can be derived from the sale of energy. As discussed above, this effect is reinforced by the fact that growing uptake of electric vehicles will enormously increase electricity demand. Therefore, this opportunity is bigger than the size of the current energy market might suggest.

To summarize, expanding the product and service range by including green energy solutions is a great way for OEMs to position themselves for the future. They can generate additional sales through an improved brand image for their vehicles, as well as by selling energy. In addition, direct customer contact and the associated customer data can open up a whole new range of business opportunities.

For further information please read our 2018 Cars Online Study or get in touch with us.

Sources:
(1) Agora Energiewende (2019): “Die Energiewende im Stromsektor: Stand der Dinge 2018.
(2) Nationale Plattform Elektromobilität (2018): “Fortschrittsbericht 2018 – Markthochlaufphase.

Manuel WienerManuel Wiener

Innovation & Strategy Consultant – Capgemini Invent

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