SUSTAINABLE INNOVATIONS AND BUSINESS

MODELS IN THE AUTOMOBILE INDUSTRY:

A MULTIPLE CASE STUDY OF ELECTRIC VEHICLES

D.L. Driever

MSc Business Administration

University of Amsterdam

SUSTAINABLE INNOVATIONS AND BUSINESS

MODELS IN THE AUTOMOBILE INDUSTRY:

A MULTIPLE CASE STUDY OF ELECTRIC VEHICLES

University of Amsterdam – Amsterdam Business School MSc Business Administration – International Management Track Master Thesis – Final Version

Student: D.L. Driever Student Number: 10900985 Date: 25-01-2016

First Supervisor: D.J.H.M. van den Buuse Second Supervisor: Dr. M.K. Westermann-Behaylo

Statement of Originality This document is written by Student Desie Driever, who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

Abstract

This research investigates the Corporate Social Responsibility (CSR) strategy, sustainable innovations and business models of Multi National Enterprises (MNEs) that wholesale Electric Vehicles (EVs) within the automobile industry. It is argued that the business model within the EV industry stabilizes over time, and strategic CSR and sustainable innovation have influence on the business model. The business models of EVs were investigated prior to this research by several papers, yet this research focuses on the global EV industry (Bohnsack et al., 2014; Kley et al., 2011; Pinkse et al., 2013; Zapata

& Nieuwenhuis, 2010). A sample of five automobile MNEs were selected according to their sales performance in 2015 of one of their EV models. Following, a cross-case study design is used in which gathered documentary data is examined. Subsequent analysis has led to the conclusion that strategic

CSR is an integrated part in the global organization. Furthermore, as all of the MNEs have made use of incremental and radical innovations it can also be stated that sustainable innovations cause the need for business model improvements. The findings of this research suggest that all MNEs within the sample have adopted an innovative business model. Subsequently, the findings in this research partly support a dominant business model, as some of the MNEs manufacture EVs designed for special preferences. Hereby it can be argued that the business models within the automobile industry are still evolving, as it is an emerging industry.

Key words: Business Models, Sustainable Innovations, CSR, Electric Vehicles

Acknowledgements

I would like to thank my thesis supervisor, Daniël van den Buuse, for his guidance and support during the process of this thesis. Appreciated insights and suggestions were given during the meetings and by contacts trough mail. Valuable recommendations throughout the meetings, concerning the structure and content of the thesis, contributed to an enhanced result.

Table of Contents 1. Introduction ...... 2 2. Theoretical Foundation ...... 5 2.1 Corporate Social Responsibility ...... 5 2.2 Sustainable Innovations ...... 9 2.3 Business Models ...... 11 2.4 Electric Vehicles ...... 15 2.5 Conclusion ...... 17 3. Conceptual model and working propositions ...... 19 3.1 Strategic CSR and Sustainable Innovations ...... 20 3.2 Business Models for Sustainable Innovations ...... 22 3.3 Conclusion ...... 25 4. Research Design ...... 27 4.1 Multiple-Case Study Research Design ...... 28 4.2 Maximizing Generalizability, Reliability & Validity ...... 29 4.3 Data Selection and Analysis ...... 30 4.4 Case Selection ...... 31 5. Results ...... 34 5.1 Within case analysis ...... 34 5.1.1 Nissan Leaf ...... 34 5.1.2 Tesla Model S ...... 41 5.1.3 Mitsubishi Outlander PHEV...... 47 5.1.4 BYD Qin ...... 53 5.1.5 BMW i3...... 59 5.2 Cross-Case Analysis ...... 65 5.2.1 Strategic CSR ...... 65 5.2.2 Sustainable Innovations ...... 66 5.2.3 Innovative Business Models ...... 67 5.2.4 Dominant Business Model ...... 69 6. Discussion ...... 71 6.1 Working Propositions regarding Strategic CSR ...... 71 6.2 Working Propositions regarding Sustainable Innovations ...... 72 6.3 Working Propositions regarding Innovative Business Models ...... 73 6.4 Working Propositions regarding the Dominant Business Model ...... 74 7. Conclusion ...... 76 7.1 Scientific Relevance and Managerial Implications ...... 77 7.2 Limitations and Suggestions for Further Research ...... 78 7. References ...... 79

Index of Tables and Figures

Tables Table 01 - Business Model Conceptualization……………………………………..…………………. 12 Table 02 - Working Propositions Overview…………………………………………………..………. 26 Table 03 - Linking Coding Categories with Working Propositions …..…….………………………... 31 Table 04 - Ranking EV sales 2015…..…………………………………………..…………………….32 Table 05 - Description of Selected Cases………………………………………………..……………. 33 Table 06 - Business Model Canvas Nissan Leaf……………………………………..……………….. 38 Table 07 - Working Propositions Nissan Leaf………………………………………………..………. 39 Table 08 - Business Model Canvas Tesla Model S…………………………………………..………. 44 Table 09 - Working Propositions Tesla Model S……………………………………………………... 45 Table 10 - Business Model Canvas Mitsubishi Outlander PHEV…………………………………….. 50 Table 11 - Working Propositions Mitsubishi Outlander PHEV………………………………………. 51 Table 12 - Business Model Canvas BYD Qin………………………………………………………… 56 Table 13 - Working Propositions BYD Qin…………………………………………………………... 57 Table 14 - Business Model Canvas BMW i3…………………………………………………...... 62 Table 15 - Working Propositions BMW i3…………………………………………………………….63 Table 16 - Cross-case Analysis of Working Propositions…………………………...………………... 65 Table 17 - Conclusion of Working Proposition regarding Strategic CSR….………..………………...72 Table 18 - Conclusion of Working Propositions regarding Sustainable Innovations………...... 73 Table 19 - Conclusion of Working Propositions regarding Innovative Business Models ………...…. 74 Table 20 - Conclusion of Working Propositions regarding Dominant Business Model……………... 75

Figures Figure 1 - Conceptual Model………………………………………………………………………….. 19 Figure 2 - Research Conceptualization………………………………………………………………... 27

List of Abbreviates

BMC………....Business Model Canvas CSR……….....Corporate Social Responsibility EV………..….Electric Vehicles MNE……...... Multi National Enterprise PS……………Partially Supported RQ………..….Research Question S……….…….Supported WP…...... Working Propositions

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 2

1. Introduction

As reasoned by MacDuffie & Fujimoto (2010), “Making automobiles safe and reducing their environmental impact are important concerns while at the same time, their high cost raises consumer expectations for styling, power, handling, reliability, and amenities” (p. 23). In order to overcome the challenge of providing a more sustainable vehicle while not lacking on delivering style, power and reliability, sustainable innovations may provide the solution (Bohnsack et al., 2014; Hockerts &

Wüstenhagen; 2010; Johnson & Suskewicz, 2009; Kley et al., 2011). Sustainable technologies can be used to use resources more effectively and additionally to reduce the gas emissions (Bohnsack et al.,

2014). Due to global resource shortages and climate change the traditional auto mobility had to be reconsidered. A sustainable innovation as the EV can overcome the former mentioned difficulties; therefore a greater market penetration can be expected (Bohnsack et al., 2014; Kley et al., 2011).

However, as the supply chain of the EV is different compared to the supply chain of the traditional vehicle, different business models are in place. Business models took a central role in the case of EV in literature since the proposition is made that innovative offers increase customer benefits (Bohnsack et al., 2014; Hockerts & Wüstenhagen; 2010; Johnson & Suskewicz, 2009; Kley et al., 2011).

Competitive advantages may be obtained through creating new business models premised on novel structures and approached or by re-engineering the architecture of the existing business (Budde

Christensen et al., 2012). This could be in the sense that innovative technologies have the potential to meet key sustainability targets, and innovative business models may be a prerequisite to the success of these technologies, the innovative business models may hence the contribution to environmental targets (Budde Christensen et al., 2012). Furthermore, Boons & Lüdeke-Freund (2013) state in this context: “Sustainable business models with a focus on technological innovation are market devices that overcome internal and external barriers of marketing clean technologies; of significance is the business model’s ability to create a fit between technology characteristics and (new) commercialization approaches that both can succeed on given and new markets” (p. 14). However, in

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 3 emerging industries business models are developing and the appropriate business model is hard to uncover.

Global demand for cars is increasing at a prompt pace as the consuming middle class is growing rapidly (Altenburg et al., 2012). The sale of new cars has increased with over 8% in Europe in the first quarter of 2015, compared to the first quarter of 2014 (CBS: Kwartaalmonitor Auto- en Motorbranche,

2015). However, due to rapid growth and the climate change, new challenges have arrived for the automobile industry. Recent negotiations of the climate top in Paris prove the importance of adopting a CSR strategy (Sustainable Innovation Forum, 2015). Gas emissions have to be reduced by half before 2050 compared to the levels of 1990, and at the same time consumers demand more features

(Altenburg et al., 2012; IPCC, 2014). Global emissions of CO2 must be reduced by 50%-85% by 2050 in order to avoid the 2°C temperature rise, that will cause catastrophic climate change (IPCC, 2014).

This reduction means that developed countries need to reduce their emissions with 80%-95% by 2050 in order to counter-balance with emerging markets (EU, 2011). One of the main contributors to CO2 is the transport sector, where private car use is the highest contributor, however reducing the CO2 levels in this sector may be challenging as the CO2 levels rise according to economic growth (EEA, 2010).

This research focuses on the impact of the automobile sector and their improvements on the environment. As big changes are needed in the automobile industry, radical innovations may be necessary in order to respond to external pressures (EEA, 2010; van den Hoed, 2007). Conversely, the automobile industry tends to favor incremental and process-oriented innovations instead of radical innovations (van den Hoed, 2007). Also, the global financial crisis affected the automobile industry.

In order to overcome many job losses, governments stimulated the industry by incentives with sustainability requirements (Bohnsack et al., 2014). These incentives created opportunities for automobile MNEs to develop and innovate EVs (Bohnsack et al., 2014).

Previous studies already touched upon the matter, yet this research focuses on the global market where other studies are focusing on specific countries (Budde Christensen et al., 2012; Kley et al., 2011).

Recent studies focused on business models and EV in Denmark, China, or differences in business

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 4 models between entrepreneurial and incumbent automobile MNEs (Bohnsack et al., 2014; Budde

Christensen et al., 2012; Kley et al., 2011). As EVs are designed to take the global environment into consideration, it is important that EVs will be as widely spread as possible (Altenburg et al., 2012).

Mainstream business model literature is recently focused on the successful introduction of innovations in new markets, yet the field of introducing sustainable innovations is still underexplored (Baden-

Fuller & Morgan, 2010; Boons & Lüdeke-Freund, 2013). This research seeks to analyze what the choices are in case of the business model for automobile MNEs to widely wholesale their electric vehicles (EVs) and if the dominant business model in this industry is currently determined. The

Research Question (RQ) of this research is corresponding with the research gap identified in the theoretical framework: “Is there a unified business model within the Electric Vehicle Industry and what is the contribution of sustainable innovations and strategic CSR to the business model?” In order answer the RQ five MNEs operating in the automobile industry that are wholesaling EVs will be investigated.

This study aims to provide new insights in the determination of finding a dominant business model in

EV industry. Furthermore, this research provides insides in how business models and sustainable innovations are linked. The results could help managers to understand how to select the appropriate business model when operating in emerging industries. The remainder of this research is structured as follows. First, the concepts of CSR, sustainable innovations and business models will be discussed, and the way in which they interlink. Next, the concepts will be linked in the working propositions

(WPs), where the theoretical framework is used as the foundation for the WPs. Also the EV market will be discussed and the right business models according to Bohnsack et al. (2014) will be expounded. The succeeding section provides the methodology for the research and the sample of the five MNEs that is determined for this research. Subsequent the multiple case study design is discussed and validity of this research is confirmed. This research concludes with the results, discussion, limitations of this research and recommendations for future research.

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 5

2. Theoretical Foundation

Many researchers have investigated business models and business models for innovations (Bohnsack et al., 2014; Budde Christensen et al., 2012; Kley et al., 2011). To complement prior research, this study draws on these theories to research the strategic behavior of selecting business models in the automobile industry, and if dominant business models in this industry have yet appeared. In this chapter, different theories used will be discussed to form the WPs in the subsequent chapter. First, the concepts of CSR and strategic CSR are discussed, where the different views of researchers, the advantages and the potential competitive advantages are examined. In the second paragraph the focus is on sustainable innovations. Sustainable innovations are linked with CSR, as the sustainable innovations can be a part of the CSR strategy. Hence, it could be stated that sustainable innovations can be an integrative part of the CSR strategy. Business models are discussed in the last paragraph of the theoretical foundation. First, the concept of business models is discussed briefly and subsequent the business models used for sustainable innovations are discussed. Here, the article of Bohnsack et al.

(2014) is a key paper, as business models for EVs have been examined in this paper thoroughly. The succeeding paragraph concludes the theoretical framework and discusses the theories of the chapter briefly.

2.1 Corporate Social Responsibility

The advantages of a CSR strategy for companies have been discussed in previous literature comprehensively, yet there is no consensus on the advantages or disadvantages of a CSR strategy

(Sheehy, 2015, Banerjee, 2008, Aguinis & Glavas, 2012). This lack of consensus starts with the disagreement concerning the definition of CSR (Sheehy, 2015). However, half of the existing research on CSR is developed after 2005, demonstrating an extensive growth of interest in this field of research

(Aguinis & Glavas, 2012; Banerjee, 2008; Sheehy, 2015; Porter & Kramer, 2006). This may be due to the fact that CSR is becoming a mainstream activity for MNEs. Sheehy (2015) attempts to provide a solution for the lack of a unified definition of CSR. Here, CSR is defined as “an international private business regulation that is political in nature combined with the fundamental definition that CSR’ responses to industrial harms and the provision of public good” (Sheehy, 2015, p. 635). In a similar

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 6 vein, McWilliams & Siegel (2001) define CSR as “actions of firms that appear to further some social good, beyond the interests of the firm and that which is required by law” (p.117). Furthermore, definitions of CSR include: a contribution to sustainable economic development, going beyond legal requirements, abating pollution and supporting products with social attributes (Banerjee, 2008;

McWilliams & Siegel, 2001). To avoid confusion in different definitions available, in this research the definition of CSR of Aguinis (2011) is respected: “Context-specific organizational actions and policies that take into account stakeholders’ expectations and the triple bottom line of economic, social, and environmental performance” (p. 855). This definition is respected as it integrates organizational policies as well as the triple bottom line. Although the definition considers the organizational policies and actions, this research does acknowledge the fact that such policies and actions are influenced by all actors at all levels of analysis (Aguinis & Glavas, 2012).

As there is no consensus in the definition of CSR in recent literature, incongruities consists regarding the adoption of a CSR strategy. In general, proponents of adopting a CSR strategy have used one or multiple of the following reasons: moral obligation, sustainability, license to operate, and reputation

(Porter & Kramer, 2006). Porter & Kramer (2006) reason that CSR can be a source of opportunity, innovation or advantage. Friedman (1970) on the other hand argues that the business of business is increasing its profits, and contributing in CSR activities is equal to theft of its shareholders. This holds for all businesses unless CSR activities generate goodwill and it retains employees. This is considered to be a politically conservative view, which although is espoused as economic, is neither political as it is economic (Krugman, 2007). The political view defines and uses CSR as a corporate and economic policy, in order to enhance particular preferences (Sheehy, 2015). In addition, Banerjee (2008) also argues that a competitive advantage cannot be achieved through CSR, however this is as it is easily imitable. Inversely, Banerjee’s (2008) arguments are moderately in line with Porter & Kramer, stating that CSR is a necessity for MNEs and that there is no evidence CSR can harm the wealth generating capabilities of a firm.

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 7

In order to find some consensus in CSR literature, Aguinis & Glavas (2012) reviewed 588 journals and 102 books, and identified the main predictors, mediators, moderators and outcomes of CSR on institutional, organizational and individual level of analysis. For this research the outcomes on the organizational level are most applicable. They found that in 59% of the literature a positive outcome of CSR was measured on the organizational level. Here, the positive outcomes were mainly due to reputation, attractiveness to investors, reduced risk, efficiency and product quality (Aguinis & Glavas,

2012). In line with this research it could be argued that adopting a CSR strategy for MNEs is beneficial. However, CSR is not a strategy that should just be advantageous, it should also integrate social and environmental concerns in the core business of the MNE, which is considered to be strategic CSR.

Strategic CSR should be an overarching strategy that globally integrates the highest corporate level, instead of tactically responding to current environmental issues (Maio, 2003). This creates CSR being an integrated part in the global organization and identity, which drives its actions and image (Polonsky

& Jevons, 2009). Gelbmann (2010) adds that strategic CSR should fulfill the general requirements of a strategic character as management responsibility and legal compliance. As CSR is part of the strategy of the MNE, it embraces issues that reshape the organizational activities and makes CSR a core value

(Polonsky & Jevons, 2009). This means that MNEs adopt strategic CSR if actions that are considered good corporate citizenship shape the inputs and processes of the MNE (Bruyaka et al., 2013). Some

MNEs are ‘born social’ and CSR activities have been integrated in the strategy form inception, which makes sustainability an accepted element within the organization (Polonsky & Jevons, 2009). MNEs are increasingly treating CSR as a strategic tool to maximize its corporate value (Polonsky & Jevons,

2009).

CSR as a strategic tool is currently mainly working for corporations and not for society (Banerjee,

2008). As stated formerly, there is a lack of consensus regarding the definition of CSR. Consequently, the requirements for MNEs accomplishing CSR trademarks are vague, which makes it easier for

MNEs to fulfill these requirements, while not acting in a sustainable manner (Banerjee, 2008).

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 8

Furthermore, in the existing literature there is no unified motivation discovered why companies may want to adopt a CSR strategy. Waddock (2008) states that MNEs might adopt a CSR strategy due to external pressures instead of the potential outcomes the CSR strategy may generate. This is due to the fact that there is a rapid evolution of new infrastructure pressuring companies in adopting a CSR strategy (Waddock, 2008). These pressure may change the way companies act in order to sustain their legitimacy, and be accepted as social actors. Half of today’s assets of companies consist intangible assets such as goodwill and reputation. These intangible assets rely on the quality of stakeholder relationships therefore adopting a CSR strategy proves to be critical (Waddock, 2008).

Adopting a CSR strategy could lead to positive outcomes, however if this strategy is adopted mainly for reputational reasons the outcomes may not be a significant improvement. Kourula & Halme (2008) elaborate on the purpose of MNEs going beyond the mandatory CSR actions. They distinguish three main typologies, namely motivation-based, expected responsibility-based and stage typology. The motivation-based typology is based on the motivation to engage in CSR by strategic intent or enforced egoism. The expected responsibility-based typology is built on normative responsibilities like legal, ethical and economic responsibilities. And the last typology, the stage typology, is based on different levels of CSR development of MNEs (Kourula & Halme, 2008). They also mention the difference of

CSR integration and innovation, where integrating CSR means the strategy stays close to the existing core business. With CSR innovation, the core business will be enlarged or new businesses will be developed. The latter concept is concerned with CSR as a source of business innovations (Kourula &

Halme, 2008). Furthermore, it is stated that true sustainability requires innovation in any kind

(Gobble, 2012). These sustainable innovations could fulfill demand of current or future markets

(Zahra & Covin, 1995). Therefore, sustainable innovations can be part of strategic CSR adopted by

MNEs, and the concepts of CSR and sustainable innovations are entwined. In order to analyze the competitive contribution of sustainable innovations, the next paragraph will elaborate on the concept.

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 9

2.2 Sustainable Innovations

As mentioned in the previous paragraph, sustainable innovations and CSR are two concepts that are interlinked. As Gobble (2012) stated, true sustainability requires innovation in any kind, fundamental, disruptive or system wide. Sustainability can be defined as meeting the social, economic and environmental needs of this generation, but without compromising the potential for future outcome

(Gobble, 2012; Kahvul & Bruton, 2013; Porter & Kramer, 2006). The focus and importance of sustainability is recently confirmed, as over 90 countries have latterly made voluntary pledges and commitments for reducing their emissions (Sustainable Innovation Forum, 2015). Next to that, non- state climate initiatives have advanced enormously where many of the more successful initiatives are combined government and non-government actors, these initiatives often convey emission reduction and sustainable growth (Sustainable Innovation Forum, 2015). Innovation based on products is concerned with the ability of a MNE to modify existing products, or create new products that fulfill the demand of current or future markets (Zahra & Covin, 1995). Together the concepts of sustainability and innovation would imply the ability of MNEs to modify existing products, or create new products that fulfill the demand of current and future markets, without compromising social, economic and environmental needs of the current or future generations.

Sustainable innovations are studied thoroughly in past research, and definitions are substantial (Boons

& Lüdeke-Freund, 2013; Carillo-Hermosilla et al., 2010; Gobble, 2012; Kahvul & Bruton, 2013). In general the definitions of sustainable innovations are interlinked with reduction of harmfulness in the future, and reduction of negative impacts on resource usage (Carillo-Hermosilla et al., 2010).

Sustainable innovations are often associated with the term eco-innovation, which is defined as “the reduction of the environmental impact caused by consumption and production activities, whether the main motivation for their development or deployment is environmental or not” (Carillo-Hermosilla et al., 2010, p. 1073). Due to environmental innovations that internalize external costs, where a compensating benefit is not granted to the innovator, innovations regarding sustainability are regularly associated with extensive costs (Sartorius, 2006). However, Hull & Rothenberg (2008) found that the

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 10 corporate financial performance is enhanced by the corporate social performance, and this effect is moderated by innovation. Innovation is essential to the survival of MNEs and is generally conceded as a positive influence on firm performance when environmental factors are taken into account (Hamel &

Prahalad, 1994; Schumpeter, 1934; Zahra & Covin, 1995). According to Rogers (1983), there are five general attributes of innovation, namely relative advantage, compatibility, complexity, observability and trialability. Tornatzky & Klein (1982) also researched the attributes of innovations, and they came up with the same five attributes plus an additional five, consisting of cost, communicability, divisibility, profitability and social approval.

Additionally, innovations can be divided into radical or incremental innovations. Radical or disruptive innovations change the established trajectory of the product, market or industry of performance improvement (Richter, 2013). Radical innovations transform the field and can improve the position of the firm, but this is unpredictable and uncertain and the payback period can be relatively long (Xu &

Yan, 2014). However, intermittently radical innovations are needed to improve the product to meet customer needs. The pace of technological progress of disruptive innovations is greater than most consumers find necessary, and usually only tend to be attractive to the more forward-looking customers (Christensen et al., 2000; Pinkse et al., 2013). Conversely, by providing technological progress, upcoming MNEs can benefit and eventually offer better products cheaper, simpler and more convenient to the consumer (Christensen et al., 2000). Sartorius (2006) states that radical innovations can be important to achieve improved sustainability. However, as disruptive technologies change the field, different business models may be in order (Johnson & Suskewicz, 2009). In the case of incremental innovations this is not necessary considering the technological innovation will not significantly impact the value proposition (Richter, 2013). Incremental or sustaining innovations comprise improvements of existing technologies with lower uncertainty, here the potential is lower but the payback is quicker (Richter, 2013; Xu & Yan, 2014). Most of the innovations are considered to be incremental innovations (Richter, 2013).

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 11

Sustainable innovations hold the promise to reduce emissions and make efficient use of the available resources, however they still face problems penetrating mainstream markets (Budde Christensen et al.,

2012; Hockerts & Wüstenhagen, 2010). Also, sustainable technologies often do not fit existing methods as production, management expertise and customer preferences (Johnson & Suskewicz,

2009). Therefore, in order to be viable, changes in the business model might be in order to fully benefit from the sustainable innovations. This would however imply a fundamental reconsideration of the value proposition, value network and the revenue/cost model (Budde Christensen et al., 2012;

Richter, 2013). Therefore, in the next paragraph the concept of business models will expounded and the different components are explained.

2.3 Business Models

As mentioned in the prior paragraph, sustainable innovations are in need of changes within the business model in order to be commercially viable. As Chesbrough (2010) states, companies commercialize new ideas and technologies through business models. Equivalently, the paper adds that mediocre technologies within great business models may be more valuable than great technologies using mediocre business models (Chesbrough, 2010). In recent years business models received great attention, which may be due to complex and continuously changing business environments (Zott et al.,

2011). Business models could be described as practical models that describe the generic levels of the organization of a firm, and consequently how the firm is profitable by creating and distributing value

(Baden-Fuller & Morgan, 2010). Osterwalder & Pigneur (2009) define business models as “the rationale of how an organization creates, delivers and captures values” (p.14). Baden-Fuller & Morgan

(2010) and Teece (2010) coincide with this definition and Teece (2010) states that the business model

“defines how the enterprise creates and delivers value to customers, and then converts payments received into profits” (p. 173). Teece (2010) complements that MNEs should be ready for replication of business models, nonetheless MNEs should be open for innovation and variation of their business model.

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 12

Boons & Lüdeke-Freund (2013) state that a business model is a plan in which a venture specifies how it can become profitable, and they identify the following elements of a generic business model concept: value propositions, supply chain, customer interface and a financial model. Richter (2013) identifies four main components of the business model that are shown in Table 1. The business model conceptualization is derived from Osterwalder & Pigneur (2009), and this conceptualization is extensively tested in practice and in case of renewable energies it has been successfully applied

(Richter, 2013). The business model conceptualization consists of the value proposition, customer interface, infrastructure and the revenue model. The value proposition comprises the value that is offered to the customer in the sense of the product or service, where renewable and green energy can be a source of additional value to the customer (Osterwalder & Pigneur, 2009; Richter, 2013). The customer interface portrays the interaction between a company and its customers; this consists of the customer relationship, customer segments and distribution channels (Richter, 2013). The organization of the value creation is described in the infrastructure of the business model and consists of assets, knowhow and partnerships (Richter, 2013). Conclusively, the last component of the business model conceptualization is the revenue model. The revenue model is key to the MNE, and represents the relationship between the costs and revenues (Osterwalder & Pigneur, 2009).

Table 1 - Business Model Conceptualization

Business model pillar Description Value proposition “Is the bundle of products and services that creates value for the customer and allows the company to earn revenues”. Customer interface “Comprises the overall interaction with the customer. It consists of customer relationship, customer segments and distribution channels”. Infrastructure “Describes the architecture of the company’s value creation. It includes assets, knowhow and partnerships”. Revenue model “Represents the relationship between costs to produce the value proposition and the revenues that are generated by offering the value proposition to the customers”. Source: Richter, 2013, p. 1227

Another model that conceptualizes the business model is the business model canvas (BMC). The BMC consists of nine building blocks that describe the parts of the business model conceptualization shown

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 13 in Table 1. The BMC is a “shared language for describing, visualizing, assessing and changing business models” (Osterwalder et al., 2010, p. 12). The blocks include customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities and key partners. Customer segments entails the people and organizations for which the products and services are provided, and for whom it creates value. The value proposition describes the collection of products that creates the value for the customer. The channels are the route in which the MNE intents to create awareness for its products and services. The customer relationships are the type of relationships that are established by the MNE and its customers. The revenue streams present the way through which the

MNE generates and creates value from its customers. The key resources are the resources that are necessary in order to create the value to its customers. The key activities represent the activities that have to be performed in order to create value. The key partners present the external relationships that are essential to the success of the MNE and to optimize the business operations. The last block is the cost structure, that represents the fixed and variable costs while operating business. The blocks are arranged in such a way to help present the business activities in an organized, aligned and illustrated way (Shaland et al., 2015). It provides a more holistic and practical application for visualizing the different activities conducted by MNEs, and has been proven a helpful tool in the business environment (Osterwalder et al., 2010; Rytkönen & Nenonen, 2013).

MNEs can gain competitive advantages through business models, however this is not the same as a business strategy (Teece, 2010). This strategic potential could lie in the development of innovative business models, and identifying new sources of value creation, where its uniqueness lies with value creation instead of value appropriation (Sosna et al., 2010; Zott et al., 2011). Business model innovation is a process of trial and error in combination with ex-post adaptation (Chesbrough, 2010;

Sosna et al., 2010). Especially in case of disruptive technologies the need for business model innovation might be elevated (Richter, 2013). This is due to the fact that MNEs might be incapable of commercializing the value of disruptive technologies through an already adopted business model.

Therefore innovation of the business model is in order, and in this sense the business model can be a source of competitive advantage by means of business model innovation (Boons & Lüdeke-Freund

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 14

2013; Chesbrough, 2010). Therefore managers should always seek new ways to adapt and innovate their existing business models in order to stay competitive.

Turbulent technological environments are ideal for new business models to emerge, as new ways of conducting business become apparent (Budde Christensen et al., 2012). But over time convergence might take place and a dominant business model might be ‘shared’ by multiple competitors (Teece,

2010). First, MNEs start with a business model, and in response to external triggers the business model will be altered until the business model that best suits the objectives of the MNE is found

(Sosna et al., 2010). For most emerging industries they eventually tend to stability in business model selection, as the wider market becomes more settled (Budde Christensen et al., 2012). Therefore, a business model evolves over time through internal consistency and adaptation to its environment

(Bohnsack et al., 2014; Teece, 2010). Conversely, it is hard to state what the appropriate or right business model is (Chesbrough, 2010). And in the case of emerging industries the generic business model that will become the standard is yet to find (Bohnsack et al., 2014; Teece, 2010).

Bohnsack et al. (2014) recently developed four business model archetypes by distinguishing two dimensions of the value proposition. Here, the differences in value propositions are made between the luxury or economy segment, that attempts to capture the target customer and the corporate identity.

Furthermore, the distinction is made between the main purpose of the car, if this is with a specific- purpose or multi-purpose, the differences between sports cars and family cars. Together, the four following business model archetypes are developed: luxury specific-purpose business model, luxury multi-purpose business model, economy specific-purpose business model and the economy multi- purpose business model. The first archetype provides specific-purpose only cars in the luxury segment for consumers. The specific-purpose could entail leisure or urban commuting where driving experience and image are dominant. The second business model archetype has multiple-purposes instead of a single purpose as the first archetype. Nonetheless, it is focused on the luxury segment. It targets the high-performance market and does share many features with the previous business model archetype; such as low price sensitivity and recharging services are limited. This archetype tends to be

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 15 a sedan that can transfer more than two people for multiple rides. Therefore, larger batteries are needed to complement the extra power needed, which adds complexity to the value network and revenue/cost model. The third business model archetype is focused on the economy segment, with a specific-purpose. Here, the EVs are targeted at urban commuters and commercial customers where customers are price-sensitive. The additional investment costs, limited range and lengthy recharging time are barriers to overcome in this segment, however the positive sustainability impact and reduced fuel costs are of high importance. In this business model archetype MNEs focus on components that could be provided for lower costs in order to meet customer needs. Economy specific-purpose EVs are also suitable for commercial customers. The final business model archetype is again focused on the economy segment, yet is a multi-purpose business model. Here the greatest challenges exist, as there is demand for large-sized cars except initial investment costs need to stay low. In order to overcome these challenges, a wide range of incremental adjustments has been adopted by MNEs using this business model. This is done by changing the revenue/cost model by leasing the EV, by selling the EV apart from the battery, or by using government incentives to lower the price for consumers. Initial sources of income are found in the form of selling used batteries and licensing technology to other

MNEs.

The former three paragraphs described strategic CSR, sustainable innovations and business models.

As stated before, true sustainability is only sustainability when it adopts innovations in any kind

(Gobble, 2012). Furthermore, sustainable innovations are still facing problems penetrating mainstream markets and are therefore in need of changes in the business model (Budde Christensen et al., 2012).

The next paragraph will elaborate on the EV context on which this research is focusing.

2.4 Electric Vehicles

The focus of this research lies with EVs, which are a sustainable innovation in the automobile industry. EVs differ from traditional automobile vehicles on several key dimensions, like higher initial investments and limited driving range (Budde Christensen et al., 2012; Bohnsack et al., 2014; Kley et al., 2011). The core difference is the propulsion technology, the electric motor versus an internal

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 16 combustion engine, which provides an impact in driving experience and the functioning of the car

(Bohnsack et al., 2014). Traditional mobility services had to be reconsidered as global resources face shortages, and as a consequence the EV is introduced (Bohnsack et al., 2014; Kley et al., 2011).

However, this is not the first time the EV is being introduced. The first time the EV appeared was in

1834 and popularity increased over time, however traditional mobility became less expensive and its popularity diminished (Kley et al., 2011). Due to the oil crisis in 1970 the interest in EV increased, nevertheless as soon as the oil crisis was resolved the interest in EV waned (Kley et al., 2011).

Presently the interest in EVs is in return due to global resource shortages and climate change

(Hockerts & Wüstenhagen, 2010; Kley et al., 2011).

EVs present advantages over traditional mobility as efficiency and environmental advantages (Gómez

San Román et al., 2011). But they also pose new challenges as technical, economic, policy and regulatory challenges; nevertheless the future of the EV seems promising (Gómez San Román et al.,

2011). Due to considerable progress being made in battery technologies, some of the technical obstacles could be solved more easily (Kley et al., 2011). However, batteries still have to be improved as batteries generate fairly little energy per kg of battery, which results in batteries of 200 kg in order to achieve acceptable driving ranges (Altenburg et al., 2012). Furthermore, next to high prices of the battery, recharging a typical 16 kWh battery takes four to five hours with the normal single phase

(Altenburg et al., 2012). Also the infrastructure issue exists, due to the need of a wide coverage of recharging stations as workspace charging stations and public charging stations, which will result in challenges in urban planning in densely populated areas (Altenburg et al., 2012; Bohnsack et al.,

2014).

A transition to large-scale deployment of EVs requires radical and systematic changes, in the sense of going beyond incremental improvements of the design and introducing new core technologies

(Altenburg et al., 2012). As mentioned earlier, radical innovation transform the field and can improve the position of the firm and require newness, change and shits in technological paradigm (Van den

Hoed, 2007; Xu & Yan, 2014). According to van den Hoed (2007) established, or incumbent firms are

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 17 generally too late and are having difficulties with radical innovations, while entrepreneurial firms adopt disruptive innovations more easily. This research also identifies five situations for the automobile industry in which MNEs should adopt radical innovations, namely: new entries, external shocks of crisis, performance of the new technology, market changes and industry competition (van den Hoed, 2007). However, incremental adjustments also may be in order to improve the overall quality of the EV, as tires with low rolling resistance (Pinkse et al., 2013). The type of innovation depends on the difference to prior manufacturing and product usage, where either radical or incremental innovations are needed (Pinkse et al., 2013). As alternative fuel can be used with minimal modifications compared to the traditional automobile it is considered an incremental innovation

(Zapata & Nieuwenhuis, 2010). Alternative powertrains, as EVs, on the other hand make use of different systems regarding the internal combustion engine, which results in new investments for different manufacturing systems, which makes the EV a radical innovation (Zapata & Nieuwenhuis,

2010). However, after a radical innovation, several incremental adjustments can be expected in order for the product to advance and compete with the dominant design, and eventually even replace the dominant design (Pinkse et al., 2013).

As the EV is interlinked with innovation, either radical or incremental, differences in the business model to successfully commercialize the technological innovations can be expected (Pinkse et al.,

2013; Zapata & Nieuwenhuis, 2010). Furthermore, in order to overcome the technical, economical, policy and regulatory challenges new sources of value trough a viable business model may be examined (Altenburg et al., 2012; Budde Christensen et al., 2012; Bohnsack et al., 2014; Kley et al.,

2011).

2.5 Conclusion

This section explained the concepts of CSR, sustainable innovations and business models, and the way they interlink. The definition of CSR is still without a consensus within the current literature.

Furthermore, the advantages or disadvantages of adopting strategic CSR are also without any agreement. In the article of Aguinis & Glavas (2012) it is found that CSR has a positive influence on

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 18 the organizational level. This is mainly due to reputation, attractiveness to investors, reduced risk, efficiency and product quality (Aguinis & Glavas, 2012). Additionally, it is stated that strategic CSR is an overarching strategy that globally integrates the corporate level, which embraces issues that reshape the organizational activities (Maio, 2003; Polonsky & Jevons, 2009). Furthermore, it is argued that CSR is only truly CSR when exploiting innovations (Gobble, 2012). Therefore, the concept of sustainable innovations is explained in the second paragraph. Sustainable innovations are innovations that fulfill the demand of current and future markets, without compromising social, economic and environmental needs of the current or future generations (Zahra & Covin, 1995). Innovations can be divided into radical and incremental innovations. Radical innovations change the established trajectory of the product, market or industry and transform the field (Richter, 2013; Xu & Yan, 2014).

Incremental innovations comprise improvement of existing technologies (Richter, 2013). Sustainable innovations hold the promise to reduce emissions, however they still face problems penetrating mainstream markets (Budde Christensen et al., 2012; Hockerts & Wüstenhagen, 2010). Therefore, in order to fully benefit from sustainable innovations, the appropriate business models must be selected.

A business model is a plan in which a venture specifies how it can become profitable (Boons &

Lüdeke-Freund, 2013). New ideas and technologies are commercialized though business models, and a great business model may be even more important than a great technology (Chesbrough, 2010). The business model conceptualization and the BMC are models that conceptualize the different components of the business model. However, the great business model might not always be as apparent, especially in emerging industries. In this research the dominant business model within the

EV industry will be investigated, and the influence of sustainable innovations and strategic CSR on this business model will be examined. In the next chapter, the concepts discussed in this chapter are summarized and will lead to WPs.

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 19

3. Conceptual model and working propositions

Building on strategic CSR and sustainable innovations that make use of innovative business models, this research presents four WPs on the choice of business models in the automobile sector. These WPs are constructed in order to provide the tools to answer the following research question: “Is there a unified business model within the Electric Vehicle Industry and what is the contribution of sustainable innovations and strategic CSR to the business model?” The first section of this chapter combines CSR strategy and sustainable innovations. The following section provides insides concerning innovative business models and the dominant business model in the EV industry. The conceptual model illustrated in Figure 1 shows the relationships between the theories used, the WPs and the research question.

Figure 1- Conceptual Model

Strategic CSR Sustainable Business Models Innovations

WP1: Strategic CSR WP3: Innovative Business Models

WP2: Radical and Incremental WP4: The Dominant Business Model Innovations

Business Model Evolution of EVs in the Automobile Industry

Source: Author

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 20

3.1 Strategic CSR and Sustainable Innovations

Porter & Kramer (2006) reason that CSR can be a source of opportunity, innovation or advantage.

However, CSR is not a strategy that should just be advantageous, it should also integrate social and environmental concerns. Strategic CSR should be an overarching strategy that globally integrates the highest corporate level instead of tactically responding to current environmental issues (Maio, 2003).

This creates CSR being an integrated part in the global organization and identity, that drives its actions and image (Polonsky & Jevons, 2009). Gelbmann (2010) adds that strategic CSR should fulfill the general requirements of a strategic character, as management responsibility and legal compliance. As

CSR is part of the strategy of the MNE it embraces issues that reshape the organizational activities and makes CSR a core value (Polonsky & Jevons, 2009). Since strategic CSR is expected to reshape organizational activities it can be stated that business models have to be adapted as well. Therefore the following working proposition is established to research the impact of strategic CSR on business model evolution.

WP1: MNEs that wholesale EVs and adopt a strategic CSR are expected to be related to the

evolutions of business models

As previously stated, innovations can be divided into radical or incremental innovations. Radical or disruptive innovations change the established trajectory of the product, market or industry of performance improvement (Richter, 2013). Radical innovations transform the field and can improve the position of the firm, but this is unpredictable and uncertain and the payback period can be relatively long (Xu & Yan, 2014). However, intermittently radical innovations are needed to improve the product to meet customer needs and by providing technological progress, upcoming MNEs can benefit and eventually offer better products cheaper, simpler and more convenient to the consumer

(Christensen et al., 2000). Sartorius (2006) states that radical innovations can be important to achieve improved sustainability. However, as disruptive technologies change the field different business models may be in order (Johnson & Suskewicz, 2009). Zapata & Nieuwenhuis (2010) state that battery electric fuelled automobiles are radical innovations. They argue so since alternative power

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 21 traits replace the existing internal combustion and so it creates greater costs of innovation and new investment costs (Zapata & Nieuwenhuis, 2010). As radical innovations are interlinked with the adoption of new business models, it can be argued that MNEs operating in the automobile industry that wholesale EVs, that are considered radical innovations, will adopt and evolve new business models. Therefore, the following WPs will determine whether radical innovations will influence the adoption and evolution of the business model of the MNE.

WP2a: Radical innovations adopted by MNEs that wholesale EVs are related to the evolution

of business models

In the case of incremental innovations, new business models are not particularly necessary considering the technological innovation will not significantly impact the value proposition (Richter, 2013).

Incremental or sustaining innovations comprise improvements of existing technologies with lower uncertainty, here the potential is lower but the payback is quicker (Richter, 2013; Xu & Yan, 2014).

Most of the innovations are considered to be incremental innovations (Richter, 2013). However, as after the initial radical innovation of the EV, incremental adjustments can be expected to advance the

EV (Pinkse et al., 2013). As disruptive technologies are expected to deliver value beyond consumer needs, and upcoming MNEs could benefit from the technological progress by providing better products cheaper, simpler and more convenient to the consumer (Christensen et al., 2000). Therefore, it could be expected that incremental innovations with regard to the EV do not influence the evolution or adoption of business models. The following working proposition will establish the influence of incremental innovations on the evolution of the business model.

WP2b: Incremental innovations adopted by MNEs that wholesale EVs are not related to the

evolution of business models

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 22

3.2 Business Models for Sustainable Innovations

As argued by Boons & Lüdeke-Freund (2013): “Sustainable business models with a focus on technological innovation are market devices that overcome internal and external barriers of marketing clean technologies; of significance is the business model’s ability to create a fit between technology characteristics and (new) commercialization approaches that both can succeed on given and new markets” (p. 14). In order to find this fit in the business model’s ability between technology characteristics and commercialization we first determine whether MNEs wholesaling EVs make use of innovative business models. Strategic potential could lie in the development of innovative business models, and identifying new sources of value creation where its uniqueness lies with value creation instead of value appropriation (Sosna et al., 2010; Zott et al., 2011). Business model innovation is a process of trial and error in combination with ex-post adaptation (Chesbrough, 2010; Sosna et al.,

2010). Especially in case of disruptive technologies the need for business model innovation might be elevated (Richter, 2013). This is due to the fact that MNEs might be incapable of commercializing the value through an existing business model of disruptive technologies. Therefore, innovation of the business model is in order, and in this sense the business model can be a source of competitive advantage by means of business model innovation (Boons & Lüdeke-Freund, 2013; Chesbrough,

2010). Consequently, the following working proposition is established to determine the adoption of innovative business models in combination with the EV as sustainable innovation.

WP3a: MNEs that wholesale EVs are expected to have innovative business models

As Budde Christensen et al. (2012) put it, “it might be that innovative technologies that have the potential to meet key sustainability targets are not easily introduced by existing business models within a sector, and that only by changes to the business model would such technologies become commercially viable” (p. 499). Additionally, sustainable technologies challenge prevailing business practices and need new ways to create economic value (Bohnsack et al., 2014). Consequently, it can

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 23 be argued that innovative technologies have a need for innovative business models. It is argued that

MNEs with an innovative character are more willing a to adopt new business models or make changes to the existing business model. Therefore the following proposition will be investigated.

WP3b: MNEs that wholesale EVs with an innovative character positively influence the

adoption of innovative business models

As the climate demands more sustainable solutions for the automobile industry to maintain sustainable in the future and to lower gas emissions, a greater market penetration of electric vehicles can be expected. However, as electric vehicles demands other players in the supply chain it can be expected that different business models could develop, and it is unclear which business models are most effective (Kley et al., 2011). Bohnsack et al. (2014) recently developed four business model archetypes by distinguishing two dimensions of the value proposition. In this research the business model archetypes are used and examined if a dominant business model has been discovered. However, as the cases used in this research are between 2006-2010 it could be argued that meanwhile a dominant business model occurred. Therefore the business models of Bohnsack et al. (2014) will be used in order to test if a dominant business model is yet transparent in the EV industry.

In the paper of Bohnsack et al. (2014), the differences in value propositions are made between the luxury and economy segment and the multi- or specific-purpose. This difference tries to attempt to capture the target customer and the corporate identity. Furthermore, the distinction is made between the main purpose of the car, if this is with a specific-purpose or multi-purpose, the differences between sports cars and family cars. Together, the four following business model archetypes are developed: luxury specific-purpose business model, luxury multi-purpose business model, economy specific- purpose business model and economy multi-purpose business model. The following working propositions are based on the establishment of the dominant business model within the EV industry.

As (Christensen et al., 2000; Pinkse et al., 2013) argued, at first the more forward-looking consumers

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 24 are interested in the radical innovation, and technological innovation is beyond customers’ needs, which would imply a specific purpose. After the initial phase, the innovation will reach the greater public and therefore it is expected that the multi-purpose business models are dominant within the EV industry. The following WP that consists of two parts will establish whether the multi-purpose business model is indeed the dominant business model.

The first archetype provides specific-purpose cars in the luxury segment for consumers. Here, driving experience and image are dominant. The specific-purpose could entail leisure or urban commuting. As this business model contains a specific-purpose, it is not expected that this business model is the dominant business model. The second business model archetype with a specific-purpose is focused on the economy segment. Here, the EVs are targeted at urban commuters and commercial customers where customers are price-sensitive. The additional investment costs, limited range and lengthy recharging time are barriers to overcome in this segment, however the positive sustainability impact and reduced fuel costs are of high importance. In this business model archetype, MNEs focus on components that could be provided to lower costs, in order to meet customer needs. Economy specific- purpose EVs are also suitable for commercial customers. However, as this business model has a specific purpose, it is not expected that this is the dominant business model. The former two business model archetypes are not expected to be the dominant business model and this is presented in WP4a.

WP4a: The luxury or economy specific-purpose business model is not the dominant business

model in the EV industry

The multi-purpose business model archetypes have multiple-purposes instead of a single purpose. The first business model archetype is focused on the luxury segment. It targets the high-performance market and does share many features with the previous luxury segment business model archetype such, as low price sensitivity and recharging services are limited. This archetype tends to be a sedan

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 25 that can transfer more than two people for multiple rides. Therefore, larger batteries are required to complement the extra power needed, which adds complexity to the value network and revenue/cost model. As this business model is a multi-purpose business model, it can be expected that this is the dominant business model within the EV industry. The final business model archetype is again focused on the economy segment, yet this is a multi-purpose business model. Here the greatest challenges exist, as there is demand for large-sized cars except initial investment costs need to stay low. In order to overcome these challenges a wide range of incremental adjustments have been adopted by MNEs using this business model. This is done by changing the revenue/cost model by leasing the EV, by selling the EV apart from the battery, or by using government incentives to lower the price for consumers. Initial sources of income are found in the form of selling used batteries and licensing technology to other MNEs. As the former business model archetypes have multi-purposes it can be expected that this is the dominant business model, and this prediction is disclosed in WP 4b.

WP4b: The luxury or economy multi-purpose business model is the dominant business model

in the EV industry

3.3 Conclusion

In order to answer the research question of the research: “Is there a unified business model within the

Electric Vehicle Industry and what is the contribution of sustainable innovations and strategic CSR to the business model?” the prior WPs were formed. In table 2 the WPs are summarized and categorized according the established themes.

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 26

Table 2 - Working Propositions Overview

Theme 1: CSR and sustainable innovations and their influence on business models WP1 MNEs that wholesale EVs and adopt a CSR strategy are expected to be related to the evolutions of business models WP2a Radical innovations adopted by MNEs that wholesale EVs are related to the evolution of business models WP2b Incremental innovations adopted by MNEs that wholesale EVs are not related to the evolution of business models Theme 2: Business models of MNEs that wholesale EVs and the dominant business model WP3a MNEs that wholesale EVs are expected to have innovative business models WP3b MNEs that wholesale EVs with an innovative character positively influence the adoption of innovative business models WP4a The luxury or economy specific-purpose business model is not the dominant business model in the EV industry WP4b The luxury or economy multi-purpose business model is the dominant business model in the EV industry Source: Author

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 27

4. Research Design

In this chapter the research design incorporated in this research is discussed. First the research conceptualization is discussed, followed by the multiple-case research design. Then the generalizability, reliability and validity are established, followed by a discussion regarding data selection and analyzing and the case selection. As research on sustainable innovations in combination with business models is yet underexplored and relatively young, a qualitative research design is most appropriate (Eisenhardt, 1989). Furthermore, qualitative research is more suitable when researching motivations, perceptions or beliefs of certain phenomenon (Eisenhardt, 1989). Therefore, a qualitative method is chosen for this research to gain deeper insights on business models for sustainable innovations, and a multiple-case study is applied to investigate the business model choice of five

MNEs. In Figure 2 the research design of this research is illustrated.

Figure 2 - Research Conceptualization

Qualitative Research Design

Interpretivist Epistemology

Deductive Research Approach

Multiple-Case Study

Secondary Data

Thematic Coding

Source: Author

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 28

The overall framework of the thesis will be a qualitative multiple case study at firm level on the business models of automobile MNEs, focused on the ones that wholesale EVs. As this research is investigating the ‘how’ and ‘why’ a qualitative study is appropriate (Eisenhardt, 1989). The research will be explanatory, and the unit of analysis is holistic. This thesis will implement an interpretivist perspective where the how and why are questioned in the research. For this research this is helpful as the interpretivist perspective is measurable and also causal relations can be identified (Saunders et al.,

2012). Interpretivism and positivism are the two main philosophical research paradigms acknowledged that are part of the epistemological assumptions identified by Gephart (1999).

Epistemological assumptions are linked with knowledge of reality; it is concerned with what constitutes knowledge and how to interpret knowledge (Krijnen & Kee, 2007). The positivism perspective focuses on the factual part of reality, and logical reasoning can identify this. Interpretivists have a contradictory view, as they believe reality is multiple and relative (Lincoln & Guba, 1985).

Usually the goal of interpretivist research is to understand the perspective of the participant of the setting for social action (Locke et al., 2004). In order to collect the appropriate data for the interpretivist view of research, interviews and systematic observations are commonly used (Locke et al., 2004). Therefore, this view is in line with this research, and the interpretivist epistemology will be used.

4.1 Multiple-Case Study Research Design

This section will elaborate on the multiple case study research design that is used for this research.

Since a case study is an in-depth exploration that will show the uniqueness and complexity of a problem in a tangible context, it is fitting for this research to use this study design (Simons, 2009).

Case studies attempt to empirically examine a contemporary phenomenon within a real-life context, where the boundaries between the real-life context and the phenomenon are unclear (Yin, 1994).

Within case studies there is a distinction between single-case and multiple-case studies. A single-case study can be used to investigate extreme of unique cases, where typical behavior is likely to be found

(Yin, 1994). On the other hand, Baxter & Jack (2008) argue that using a multiple case study research design creates an overview of multiple facets instead of a limited view of just one case. In order to

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 29 find patterns of behavior of organizations, multiple cases are the unit of analysis. Correspondingly, a multiple case study research design provides the opportunity to analyze within each setting and compare those settings, and makes the research more compelling (Yin, 1994). As this research aims to find a dominant business model within the EV industry, it is necessary to create an overview of multiple cases. To facilitate a comparison between MNEs within the EV industry on their behavior concerning their business model, and the adoption of strategic CSR and sustainable innovations, the multiple-case study research design suits this goal the best. The goal of a multiple case study is to find the similarities and differences between the analyzed cases, and this provides the opportunity to find novel, testable and rich information (Baxter & Jack, 2008; Eisenhardt, 1989). The multiple-case study in this research is divided in a within-case study and a cross-case study. The within-case study provides an opportunity to analyze the cases within each setting. Contrarily, the cross-case study compares those settings, making the results more compelling (Yin, 1994). In this research, the aim is to find the similarities in business models, CSR strategies and sustainable innovations. This research aims to find exploratory findings concerning business model choice in the automobile industry as the how and the why are investigated (Yin, 1994).

4.2 Maximizing Generalizability, Reliability & Validity

As the multiple-case study is examined in an uncontrolled nature, it is essential to increase the quality of the research by maximizing the generalizability, reliability and validity of the research design. Yin

(1994) argues that the quality of the research is improved by maximizing the generalizability, reliability and validity of the research. As this research is exploratory in nature, external validity or generalizability is the main concern (Yin, 1994). External validity is the extent of which the results generated by the study are generalizable across other studies or settings. Generalizability is achieved through the familiarization with the cases. When the researcher becomes intimately familiar with the cases as an individual object, it creates the ability to generalize across cases (Eisenhardt, 1989). In a similar vein, this can be done by using multiple sources of evidence, which is accomplished through the usage of a multiple-case study and multiple reports. Moreover, Eisenhardt (1989) states that, using a multiple-case study with replication logic enhances the reliability and validity in the design of the

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 30 study. Furthermore, multiple sources of evidence as annual reports, sustainability reports, existing interviews, and newspaper articles are used in order to build construct measures. In effect, by using multiple sources of evidence, the validity of the research is strengthened (Eisenhardt, 1989).

Furthermore, reliability is concerned with consistent findings through data collection techniques and analysis. Reliability is achieved through storage of secondary data in a database, which is especially designed for such a research design. Moreover, it is important to avoid observer bias, a predetermined mindset on business models in the EV industry, its strategic CSR and adoption of sustainable innovations.

4.3 Data Selection and Analysis

In order to successfully analyze data deducted from the Internet in a structured manner, Romano et al.

(2003) propose an approach that contains three steps that include elicitation, coding and clustering.

The first step contains selection of data, and reduction of data trough selection. The second step contains coding the data into relevant categories, followed by clustering that entails visualization to further understanding of the data (Romano et al., 2003). This study aims to follow the steps provided by this article. Firstly, data selection already started during the selection and reduction of the cases.

Following, texts and documents of the selected cases were collected including annual reports, newspaper articles, articles on the web and previous interviews. The information that is relevant for this research is stored and will be evaluated in Nvivo. Analyzing MNE profiles and the profiles of the selected automobile models are forthright, as most information contains facts that is available on the websites of the MNEs. Data concerning the business models of the past five years is considered to be less straightforward and several newspaper articles and annual reports were analyzed. Codes were established as objectively as possible after analyzing the data comprehensively.

In order to find information on the CSR strategy of the selected MNEs, annual reports and sustainability reports are analyzed. As more and more companies publish sustainability report, or incorporate CSR in their annual reports, those reports are used for analysis. Because of accessibility of the sustainability reports and the extensive reporting of CSR of the selected cases, the corporate

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 31

publications were proficient for this research. In total 106 sustainability reports, annual reports and

newspaper reports were used for the analysis. In case of the Nissan Leaf, 5 annual reports, 5

sustainability reports and 12 newspaper reports were used in order to analyze the case. In case the

Tesla Model S, 5 annual reports and 15 newspaper reports were investigated. For the Mitsubishi

Outlander PHEV, 5 annual reports, 1 sustainability report and 9 newspaper reports were examined.

For the fourth case, the BYD Qin, 5 annual reports and 21 newspaper reports were used to investigate

the case. Lastly, in the BMW i3 case, 5 annual reports, 2 sustainability reports and 16 newspaper

reports were researched. Using sustainability reports and annual reports has advantages; nonetheless it

also has some limitations. As MNEs provide the reports, they decide what is enclosed in the reports,

which makes the reports subjective. Furthermore, as mentioned before, CSR is a poorly defined

concept and MNEs can interpret the concept on several ways, which makes it more difficult to

compare the CSR strategies. Therefore other reports and articles containing the strategic CSR,

sustainable innovations and business model concepts are gathered through LexisNexis. To cover the

full range of sustainable innovations and CSR, a broad range of categories was used to guarantee

reliability of the research. In Table 3, the categories used are presented and linked with the WPs

mentioned in the previous chapter.

Table 3 - Linking Coding Categories with Working Propositions

Code Category WP1 WP2a WP2b WP3a WP3b WP4a WP4b Strategic CSR x Innovation x x Radical innovation x Incremental innovation x Business Model x x x x Innovative Business Model x x Dominant Business Model x x Source: Author

4.4 Case Selection

This section provides the criterion used for selecting the cases that are incorporated in this research, in

order to effectively investigate the business models for sustainable innovations. The criterion is

therefore based on the sustainable innovations developed by the MNEs, operating in the automobile

industry. There is no home or host country selected for this case, as MNEs operating in the automobile

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 32 industry are regularly global players. Furthermore, as the EV is considered a sustainable innovation it is important that it is widely spread, and therefore no location constraints will be applied to this research (Altenburg et al., 2012). The cases have been selected on the EV models that are the top selling models of 2015 (Table 4). This is because as their sales are the highest, the business models applied should appeal to most consumers.

Table 4 - Ranking EV Sales 2015

Ranking Model Oct 2015 YTD2015 % of total EV sales 1 Nissan Leaf 2.949 38.908 10 2 Tesla Model S 3.345 36.302 9 3 Mitsubishi Outlander PHEV 3.734 32.503 8 4 BYD Qin 2.209 28.365 7 5 BMW i3 2.150 20.190 5 Source: EV-Sales, 2015

All the CSR projects of the MNEs within the sample will be investigated in the period 2010-2015, and their business model will be evaluated in term of business model components and business model innovation. Furthermore, previous efforts of those MNEs will be studied and the reasons why their current business model for EVs is or is not suitable for the MNE as a whole. In Table 5 an overview of the selected cases including a description per case is exhibited.

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Table 5 - Description Selected Cases

Company Nissan Tesla Mitsubishi BYD BMW Model and Leaf – 38.908 Model S – 36.302 Outlander PHEV – 32.503 Qin -28.365 i3 – 20.190 Sales Country of Japan United States Japan China Germany origin Description Nissan Motor Co., Ltd. Tesla Motors Inc. is an Mitsubishi Motors is a part BYD is formerly specialized BMW is a German based established in Japan, in 1933 American based automobile of the Mitsubishi Group, in mobile phone batteries luxury car, motorcycle and and manufactures vehicles in and energy storage MNE which is a group of Japanese and now has become the engine manufacturer. The over twenty countries around that is established in 2003. MNEs established in 1870. largest rechargeable battery mini is part of the BMW the world. Nissan cooperates The core business of Tesla is The Mitsubishi Outlander manufacturer. The MNE brand, and BMW itself is part with Renault, its alliance selling luxury electric sports PHEV is the electric created the BYD Auto of the Rolls-Roys Motor partner. Nissan’s vision is to cars, battery products and automobile of Mitsubishi, subsidiary in 2003 and by Cars. A subbrand of BMW is enrich people’s lives, building EV powertrain components. which is a mid-sized combining battery the i-brand that produces trust with their employees, The second model Tesla crossover electric SUV. The technology and production plug-in EVs. The EV is a customers, dealers, partners, Motors have sold is the model presented a solution capacity it soon became a five-door urban, zero shareholders and the world at Model S, which is a full- for the SUV trend while major EV player in the emission EV. The range of large. It tries to achieve this by sized, electric, five-door offering low-emissions. Chinese industry. the i3 is 130 to 160 km, and providing innovative products luxury sedan. The Model S Nearly 85.000 units have EV industry. The MNE has a up to 200 km if the driving and services that deliver is introduced in 2012 and its been sold globally since its joint venture with Daimler conditions are most efficient. superior value, like the Nissan sales have grown rapidly. introduction in 2013. The that delivers luxury A range extender in the form Leaf. The Nissan Leaf is a The range of the EV with an model was the top-selling automobiles. The electric of a gasoline is available that world-leading model within 85 kWh battery, 426 km, is electric model in Europe in model of BYD is the Qin, extends the range to 260 to the 100% electric industry. higher than any other EV in 2014 and ranked as the third which is a plug-in hybrid 290 km. The energy While being 100% electric the market. The model has best selling plug-in after the sedan with an all-electric consumption of the EV is with a limited driving range been ranked the second best all-electric models Nissan range of 70 km. The model minimalized through the EV is rather similar as EV in the market in 2014. Leaf and Tesla Model S. has been introduced into the sustainable materials being conventional automobiles with The leading markets of the market in 2012. Qin is used to manufacture the EV. low running costs, a Model S are the US, And has the third greatest Under the EPA testing, the i3 comfortable interior and sharp Norway, China, the sales in 2015. is the most fuel-efficient acceleration. The electric Netherlands and Canada. vehicle available. powertrain is one of the specifics that set the Nissan Leaf apart. The Nissan Leaf has been ranked the best EV in the market in 2014.

Source: Author

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5. Results

EVs are gaining popularity and demand is expected to grow the coming years. About 0.02% of total automobile vehicles in 2013 consist of EVs, which is over 180.000. Furthermore, the sales of EVs have more than doubled between 2011 and 2012. (Global EV Outlook, 2013). By 2020, the expectation is a 20% annual growth with over 6 million EVs on the road (Global EV Outlook, 2013).

This section provides the results of the multiple-case study conducted in this research of five MNEs that represent the global best selling EV models. First a within case analysis will be provided and each case will be analyzed separately. These results will be referred to the WPs and results of each case will be discussed. Furthermore, as it is argued that the business model will evolve over time, the separate components of the business model can develop as well. Therefore, for each case the BMC with its nine blocks is incorporated with the available data inserted. Following, a cross-case analysis will be conducted where similarities and differences will be identified across the cases. Here the results will also be compared with the WPs and results will be discussed.

5.1 Within case analysis

The within case analysis examines the information obtained from secondary data, and looks how this information compares to the WPs. Here, the within case analysis will be performed by looking at the five best selling EVs in the global market and the MNE that produces those models. The sequence of the cases is by sales in 2015, starting with Nissan Leaf with the highest sales. Secondly, the Tesla

Model S will be discussed followed by the Mitsubishi Outlander PHEV. Lastly the BYD Qin and

BMW i3 will be examined.

5.1.1 Nissan Leaf

The Nissan Leaf is the 100% Electric EV produced by Nissan. It has been ranked the best EV in the market in 2014, and the sales of the Nissan Leaf were the highest within the EV industry. In this paragraph, the analysis of the Nissan Leaf is presented, with the BMC of the Nissan Leaf shown in

Table 6. Illustrative quotes of the data regarding the Nissan Leaf are projected in Table 7. The first

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 35 part of this analysis considers the strategic CSR of Nissan, and combines this with the first WP. The second part contains the innovations adopted by Nissan and within the Nissan Leaf, either radical or incremental, and this is linked with the second WPs. The third part encompasses the business model and will be linked the third and fourth WPs.

Strategic CSR

Nissan adopted strategic CSR as its part of the core business, and made it clear that there was a link between the impacts of automobiles on the environment. Accordingly, it provided a car to the market with zero emissions. In this sense it made a statement that driving an automobile does not necessarily have a negative impact on the environment. Nissan made it even more clear with this statement: “We want to be the auto industry’s most socially and environmentally responsible manufacturer. We also want to become one of the most sustainable companies on the planet” (Nissan, 2015B). In order to be the one of the most sustainable companies of the world, resources throughout the entire supply chain should be sustainable. In order to accomplish this, innovations and other integrated business activities require being adapted into sustainable standards. This would imply a strategic choice as it reshapes organizational activities. One of the examples besides producing and manufacturing the EVs is creating awareness and demand for the EV, in order to help reduce the emissions. Accordingly, Nissan states: “Nissan has calculated that “well-to-wheel” CO2 emissions for new vehicles will need to be reduced by 90% by 2050 compared with levels in 2000 and has also committed to taking a leadership role in promoting the use of zero-emission vehicles” (Nissan, 2015B). Furthermore, Nissan is ranked as the fifth global best green brand in 2013, and the Nissan Leaf the best ranked EV in 2014. It is argued that this ranking is based on a halo effect of the Nissan Leaf, by providing a hero product that is green; the perception of the consumers is changed concerning Nissan as a whole. This could also create a changed perception regarding the EV industry as a whole. In conclusion, the statements made by Nissan support an adoption of strategic CSR, which would support the first WP proposition of this research (Table 6).

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Sustainable Innovations

After commercializing the Nissan Leaf with its radical improvement of the electric engine, multiple incremental improvements have been adopted as weight reduction, faster recharging time, higher range, and over 100 other changes from customer feedback. The radical innovations are mostly achieved through partnerships, as supported by the following statements: “Nissan has been working with eVgo on charging infrastructure, a subsidiary of NRG Energy, and has been rolling out DC-fast charging across the nation”, “As the EV market expands, Nissan sees a need to utilize reusable lithium-ion batteries more effectively. In 2010, it launched 4R Energy Corporation, a joint venture with Sumitomo Corp. This company is developing and testing to use EV batteries as part of a stationary energy storage system” (Nissan, 2014B). This would imply that the innovations adopted by

Nissan are not the main business. The focus with the innovations lies with customer satisfaction. After receiving recommendations from customers, Nissan implemented multiple incremental improvements, supported by the following statement: “Improvements of the original Nissan leaf incorporated in the new Nissan leaf, first 175 km and now 199 km, weight reduction of 32km, reduced motor friction and more efficient motor, improved aerodynamics, improved brake generation, new integrated powertrain, over 100 changes from customer feedback, recharging time by home wall box reduced by half, new carwings system” (Nissan, 2015B). However, as the incremental adjustments are important for the value proposition within the business model, it has not changed the business model as a whole as the radical innovations did. By offering radical innovations as recharging infrastructure and an EV, changes within the business model are needed. For example, key partnerships are different in comparison with the regular manufactured automobiles, as well as the value proposition and the revenue streams. This results in support both WP2a and WP2b.

Business Models

As the intention of Nissan is being a more sustainable company, the business model should be in line with this objective. As Nissan states: “One key area of focus will be our vision of a “zero emission, zero-fatality” future for automobile transportation. Nissan pioneered this effort in 2010 with the launch of the Nissan LEAF—the world’s first successful mass-marketed, zero-emission vehicle. The

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LEAF continues to be the bestselling electric vehicle in history and has established Nissan as the auto industry’s zero-emission leader. However, our achievement in the electric vehicle segment is just one part of Nissan’s groundbreaking efforts to transform the use and impact of automobiles” (Nissan,

2015A). This statement implies an innovative approach for the MNE as a whole, exploiting the Nissan

Leaf to elevate the company. As Nissan states itself: “It’s a virtuous circle: A major car company innovates, gets market uptake, builds brand value, and gains the confidence to keep pushing the technology and the market” (Nissan, 2015A). These statements suggest an innovative business models conducted by an innovative MNE, supporting WP3a and WP3b. Furthermore, the business model of the Nissan Leaf concerns bringing a real product to real people at real prices; consequently Nissan does not see the EV as a niche car. The strategy is to have as many Nissan Leafs on the road in order to create acceptance, and creating an acceptance of the EV as a regular car. Although the EV has higher investment costs than a regular automobile, the EV is still seen within the economy segment.

This is because the price is relatively low compared to competitors and the Nissan Leaf aims at a real price. With these statements an economy multi-purpose business model is adopted, supporting WP4 and WP4b.

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Table 6 - Business Model Canvas Nissan Leaf

Key Partners Key Activities Value Proposition Customer Relationships Customer Segments  News papers  Production and  Midsize car  24-hour support service  All consumers, the focus  Motoring magazines manufacturing of cars  Front-wheel drive through online channels lies with providing a zero  Car of the year award  80kWh battery  Ongoing, clear emission car that feels as a contributed to the  Driving range of 160km communication regular automobile awareness of the Nissan  Recharging 8hrs at 240V  Environmentally concerned Leaf with 3.6kWh charger and 5 consumers hrs. at 240V with 6.6 kWh Key Resources charger Channels  R&D  Batteries can be charged at  Online  Manufacturing and home  Dealers assembling  Soothing start-up sound &  Third party mobility futuristic design service providers

Cost Structure Revenue Streams  Manufacturing  Due to hero effect Nissan is perceived a more sustainable MNE  Technology  The sales of the EV  Salaries  Maintenance

Source: Author

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Table 7 - Working Propositions Nissan Leaf

Working Propositions Supported Illustrative Information WP1 & WP2 - Strategic CSR & Sustainable Innovations WP1 – Strategic CSR S “Guided by its corporate vision of Enriching People’s Lives, Nissan aims to contribute to the sustainable development of society through its full range of global business activities in addition to providing value through its products and services.”

“We want to be the auto industry’s most socially and environmentally responsible manufacturer. We also want to become one of the most sustainable companies on the planet.”

“By prioritizing sustainability, Nissan has become more efficient, resilient and competitive. Our company has proven that it is possible to create cutting-edge products that not only strengthen our business and meet customer needs but also help to solve today’s most significant mobility, safety and environmental challenges.”

“In an ever-changing world, Nissan aims to minimize the environmental impact of vehicle transportation and to expand access to safe, sustainable mobility for all.”

“Nissan has calculated that “well-to-wheel” CO2 emissions for new vehicles will need to be reduced by 90% by 2050 compared with levels in 2000 and has also committed to taking a leadership role in promoting the use of zero-emission vehicles.”

“Nissan went directly for the green. Its earliest ad, for example, featured a polar bear — “which was a very clear link between the environment and the impact of cars on the environment, and the fact that we are bringing a car to market that doesn't have any emissions. So, it was a statement of the fact that cars don't have to be bad for the environment. At that stage, we didn't talk so much about the specifications of the car or its pricing. We very much went with the concept of zero emissions.” “In the 2013 Best Global Green Brands ranking, just released, Nissan claimed the title as the most-improved company, jumping 16 places to rank No. 5 overall.” WP2a – Radical Innovations S “Nissan has been working with eVgo on charging infrastructure, a subsidiary of NRG Energy, and has been rolling out DC- fast charging across the nation.”

“As the EV market expands, Nissan sees a need to utilize reusable lithium-ion batteries more effectively. In 2010, it launched 4R Energy Corporation, a joint venture with Sumitomo Corp. This company is developing and testing to use EV batteries as part of a stationary energy storage system.” WP2b – Incremental S “In June 2014 Nissan USA announced an updated battery replacement program allowing the outright purchase of a new Innovations battery pack for US$5,499. The price does not include labour and the trade-in of the old pack is mandatory. Older 2011–12- model year Leafs will require a mounting kit to retrofit the new pack for an additional US$225. The new pack will be the same as the one in the 2015 model year Leaf; with the latest battery chemistry which Nissan claims will be more heat tolerant. Financing for the replacement battery was scheduled to be announced by the end of 2014.”

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“Improvements of the original Nissan leaf incorporated in the new Nissan leaf, first 175 km and now 199 km, weight reduction of 32km, reduced motor friction and more efficient motor, improved aerodynamics, improved brake generation, new integrated powertrain, over 100 changes from customer feedback, recharging time by home wall box reduced by half, new carwings system; first system of it’s kind; remote control system. So overall more space, more grades, more convenience and more technology.” WP3, WP4 & WP5 - Business Models WP3a – Innovative Business S “I think what we are starting to see is a recognition by consumers and the market of the ongoing investment we are making, Models especially in the Leaf. But not only the Leaf. Like many car companies, we're investing quite a bit in getting our cars cleaner and getting our whole supply chain more green.”

“The lithium-ion batteries used in Nissan’s EVs retain capacity well beyond the useful life of the vehicles themselves. “4R” business models—which reuse, resell, refabricate and recycle lithium-ion batteries—allow their effective use for energy storage solutions in a range of applications, thus creating a much more efficient energy cycle of battery use.”

“It’s a virtuous circle: A major car company innovates, gets market uptake, builds brand value, and gains the confidence to keep pushing the technology and the market”

"We started to do communication in terms of what the actual cost of the vehicle is and the total cost of ownership. As you know, the vehicle is expensive but there are lots of subsidies all over the world, which is quite complex for consumers. I think that's an ongoing communications job we have to do.” WP3b – Innovative MNE & S “What's going to grow the perception of us as leaders in the space is volume and people seeing the car on the road,” Innovative Business Models “One key area of focus will be our vision of a “zero emission, zero-fatality” future for automobile transportation. Nissan pioneered this effort in 2010 with the launch of the Nissan LEAF—the world’s first successful mass-marketed, zero-emission vehicle. The LEAF continues to be the bestselling electric vehicle in history and has established Nissan as the auto industry’s zero-emission leader. However, our achievement in the electric vehicle segment is just one part of Nissan’s groundbreaking efforts to transform the use and impact of automobiles.” WP4a – Luxury or Economy S - Specific-Purpose Business model WP4b- Luxury or Economy S “We went out with a very aggressive strategy to distribute the car through 50 states. We're not like some of our competitors Multi-Purpose Business model that are going into certain states, where it's sort of a compliance car to avoid some penalties. The Leaf is really a part of Nissan; it's not just a niche car. And the more that people see it on the road, and the more they have friends and relatives that drive one — and live the lifestyle around an EV, which is not that different than having a regular vehicle — the more momentum we gain.”

“What we've done over the last couple of years is to bring a real product to real people at a real price,” Source: Nissan, 2014B; Nissan, 2015B

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5.1.2 Tesla Model S

In this paragraph, the analysis of the Tesla Model S is presented, with the BMC of the Model S shown in Table 8. Illustrative quotes of the data regarding the Tesla Model S are projected in Table 9. The first part of this analysis considers the strategic CSR of Tesla, and this will be associated with the first

WP. The second part contains the radical or incremental innovations adopted by Tesla and within the

Tesla Model S, and this is connected with the second WPs. The third part encompasses the business model, business model innovation and the business model currently adopted by Tesla, and will be linked the third and fourth WPs.

Strategic CSR

The goal of Tesla has not changes since its establishment, which is driving the world into transition to electric mobility by bringing a full range of increasingly affordable electric cars to the market. As

Tesla stated itself: “Our goal when we created Tesla a decade ago was the same as it is today: to drive the world’s transition to electric mobility by bringing a full range of increasingly affordable electric cars to market” (Tesla Motors Inc., 2014). Tesla even surpassed this statement with the following statement: “Additionally, consistent with our mission to accelerate the advent of sustainable transport, we announced a patent policy in which we irrevocably pledged that we will not initiate a lawsuit against any party for infringing our patents through activity relating to electric vehicles or related equipment for so long as such party is acting in good faith. We made this pledge in order to encourage the advancement of a common, rapidly-evolving platform for electric vehicles, thereby benefiting ourselves, other companies making electric vehicles, and the world” (Tesla Motors Inc., 2015). This statement indicates a more important goal of a transition towards sustainable transport, instead of being the top supplier of that sustainable transport. Furthermore, this would imply business activities would change over time as innovations are in place. Consequently, the sustainable transport objective of Tesla supports adoption of strategic CSR, which supports WP 1.

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Sustainable Innovations

The R&D department is one of the core competences of Tesla, and has over 140 patents awarded.

Therefore, the innovations provided by Tesla are abundant, especially the radical innovations. Some of the innovations adopted by Tesla are presented in the following statement: “Our proprietary technology includes cooling systems, safety systems, charge balancing systems, battery engineering for vibration and environmental durability, customized motor design and the software and electronics management systems necessary to manage battery and vehicle performance under demanding real-life driving conditions. These technology innovations have resulted in an extensive intellectual property portfolio” (Tesla Motors Inc., 2015). By providing multiple adjustments and customer preferences the

Model S is designed to take customer preferences into consideration and incremental adjustments are possible. Furthermore, Tesla aims to present an EV that will reduce customer resistance demonstrated by the subsequent statement: “Our vehicles offer ranges that are over double the range of any other commercially available electric vehicle. In addition, our vehicles incorporate our proprietary on-board charging system, permitting recharging from almost any available electrical outlet. Model S also offers fast charging capability from our Supercharger network. We believe the long-range and charging flexibility of our vehicles will help reduce consumer anxiety over range, alleviate the need for expensive, large-scale charging infrastructure, and differentiate our vehicles as compared to those of our competitors” (Tesla Motors Inc., 2015). However, the focus lies with radical innovations, as it is

Tesla’s goal to provide a successful high-end car that will cost around $35.000 instead of the costs of the Model S, which is around $128.000. This can be done by significant incremental adjustments and radical innovations. These statements indicate an extensive focus on innovations. However, only the radical innovations have an influence on the business model as these innovations shape the business model of Tesla. Therefore, it can be stated that both WP2a and WP2b are supported.

Business Models

The business model of Tesla is focused on a specific niche as it provides EV with a sports car look and feel, however the model is flexible enough to be adapted to changing conditions. The business model of Tesla differs on multiple segments from its main competitors. For example, the sales distribution of

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Tesla is different demonstrated by the following statement: “We sell our vehicles through our own sales and service network which we are continuing to grow globally. We believe the benefits we receive from distribution ownership will enable us to improve the speed of product development and improve the capital efficiency of our business” (Tesla Motors Inc., 2015). The value proposition contains service where no service is the best service, as there is no maintenance needed. It is stated that the quality is promised to be exceptional, that no service is ever needed. Also the largest driving range in the market of 426 km is provided, with relatively short recharging time needed. By offering this value Tesla states: “We believe the intended combination of performance, styling, convenience and energy efficiency of Model S will help position it as a compelling alternative to other vehicles in the luxury and performance segments” (Tesla Motors Inc., 2014). Furthermore, Tesla adopts an innovative business model as they state: “You must consider our business and prospects in light of the risks, uncertainties and difficulties we encounter as we implement our business model. For instance, we will need to persuade customers, suppliers and regulators of the validity and sustainability of our business model. We cannot be certain that we will be able to do so, or to successfully address the risks, uncertainties and difficulties that our business strategy faces. Any failure to successfully address any of the risks, uncertainties and difficulties related to our business model would have a material adverse effect on our business and prospects” (Tesla Motors Inc., 2015). This indicates a business model based on trial and error, which is one of the pillars of an innovative business model, supporting

WP3a and WP3b. Additionally, as Tesla states: “We believe the intended combination of performance, styling, convenience and energy efficiency of Model S will help position it as a compelling alternative to other vehicles in the luxury and performance segments”, a luxury-segment car is provided (Tesla Motors Inc., 2015). The EV is presented as a sports car with a single-purpose, however, as the EV is intended for everyday use it could be stated that Tesla offers a multi-purpose

EV. Therefore, WP4a and WP4b are partially supported.

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Table 8 - Business Model Canvas Tesla Model S

Key Partners Key Activities Value Proposition Customer Relationships Customer Segments  Toyota to cooperate in EV  R&D  Full size environmental  No service is the best  High net worth consumers development  Production and friendly luxury car service  Environmentally concerned  Battery Manufacturing manufacturing of  Only EV with the looks consumers plants (Panasonic) cars of a sports car but with  High performance an electric engine computing GPU producers  Car customization  Rear motor, rear-wheel Key Resources drive Channels  Software  Different battery  Online at corporate  R&D options: 40, 60, 70, 85 website  Manufacturing and or 90 kWh battery  Direct distribution via assembling  Range with 70 kWh: retail stores; difference  Patents 390 km, range with exist here in no sales  Supercharge 85kWh: 426 km through dealerships. infrastructure  11 kWh 85-265 onboard charger Cost Structure Revenue Streams  Manufacturing  Sales of cars  Technology  Partnerships  Engineering  Salaries  Maintenance

Source: Author

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Table 9 - Working Propositions Tesla Model S

Working Propositions Supported Illustrative Information Strategic CSR & Sustainable Innovations WP1 – Strategic CSR S “Our goal when we created Tesla a decade ago was the same as it is today: to drive the world’s transition to electric mobility by bringing a full range of increasingly affordable electric cars to market.”

“Additionally, consistent with our mission to accelerate the advent of sustainable transport, we announced a patent policy in which we irrevocably pledged that we will not initiate a lawsuit against any party for infringing our patents through activity relating to electric vehicles or related equipment for so long as such party is acting in good faith. We made this pledge in order to encourage the advancement of a common, rapidly-evolving platform for electric vehicles, thereby benefiting ourselves, other companies making electric vehicles, and the world.” WP2a – Radical Innovations S “Our proprietary technology includes cooling systems, safety systems, charge balancing systems, battery engineering for vibration and environmental durability, customized motor design and the software and electronics management systems necessary to manage battery and vehicle performance under demanding real-life driving conditions. These technology innovations have resulted in an extensive intellectual property portfolio.”

“To ensure that our customers can drive even farther along the most popular routes in the world, we are building the fastest and most comprehensive international network of charging stations.”

“Over 140 patents are awarded to Tesla and over 240 patents are pending”

“Our vehicles offer ranges that are over double the range of any other commercially available electric vehicle. In addition, our vehicles incorporate our proprietary on-board charging system, permitting recharging from almost any available electrical outlet. Model S also offers fast charging capability from our Supercharger network. We believe the long-range and charging flexibility of our vehicles will help reduce consumer anxiety over range, alleviate the need for expensive, large-scale charging infrastructure, and differentiate our vehicles as compared to those of our competitors.”

“The Model S inherited many of the electric powertrain innovations we introduced with our first vehicle, the Tesla Roadster.”

“Designing an electric powertrain and a vehicle to exploit its energy efficiency has required extensive safety testing and innovation in battery packs, motors, powertrain systems and vehicle engineering.” WP2b – Incremental Innovations S “Tesla will have to make significant incremental improvements and tweaks to the traditional way in which cars are made, sold and serviced.” Business Models WP3a – Innovative Business S “We sell our vehicles through our own sales and service network which we are continuing to grow globally. We believe the Models benefits we receive from distribution ownership will enable us to improve the speed of product development and improve the capital efficiency of our business.”

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“The concept and layout of our interactive stores, which are typically located in high profile retail centers, is different than what has previously been used in automotive sales.”

“You must consider our business and prospects in light of the risks, uncertainties and difficulties we encounter as we implement our business model. For instance, we will need to persuade customers, suppliers and regulators of the validity and sustainability of our business model. We cannot be certain that we will be able to do so, or to successfully address the risks, uncertainties and difficulties that our business strategy faces. Any failure to successfully address any of the risks, uncertainties and difficulties related to our business model would have a material adverse effect on our business and prospects.”

“Tesla culture is the greatest asset where moving fast, doing the impossible, reason from first principles, think like owners and being all in are key principles.”

“Unlike other car manufacturers who sell through franchised dealerships, Tesla uses direct sales. But more importantly, it also creates a better customer buying experience. Tesla has created its own network of Supercharger stations— places where drivers can fully charge their Tesla vehicles in about 30 minutes for free.”

“We believe our vehicles, electric vehicle engineering expertise, and business model differentiates us from incumbent automobile manufacturers.” WP3b – Innovative MNE & S “Tesla took a unique approach to getting its first vehicle in the market. Instead of trying to build a relatively affordable car Innovative Business Models that it could mass-produce and market, it took the opposite approach, focusing instead of creating a compelling car.”

“To accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.”

“Tesla did not invent the electric car or even the luxury electric car. What Tesla did invent was a successful business model for bringing compelling electric cars to the market. Part of the strategy was building a network of charging stations to solve one of the greatest obstacles facing adoption of electric vehicles—refueling on long trips. Tesla’s unique business model, which includes control over all sales and service, is one of the reasons its stock has soared since its initial pubic offering.” WP4a – Luxury or Economy PS - Specific-Purpose Business model WP4b- Luxury or Economy PS “Our first product was going to be expensive no matter what it looked like, so we decided to build a sports car, as that Multi-Purpose Business model seemed like it had the best chance of being competitive with its gasoline alternatives.”

“We believe the intended combination of performance, styling, convenience and energy efficiency of Model S will help position it as a compelling alternative to other vehicles in the luxury and performance segments.” Source: Tesla Motors Inc., 2013; Tesla Motors Inc., 2014; Tesla Motors Inc., 2015

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5.1.3 Mitsubishi Outlander PHEV

In this paragraph, the analysis of the Mitsubishi Outlander PHEV is presented, with the BMC of the

Mitsubishi Outlander PHEV shown in Table 10. Illustrative quotes of the data regarding the

Mitsubishi Outlander PHEV are projected in Table 11. The first part of this analysis considers the strategic CSR of Mitsubishi and combines this with the first WP. The second part contains the innovations adopted by Mitsubishi and within the Mitsubishi Outlander PHEV, either radical or incremental, and this is linked with the second WPs. The third part encompasses the business model and will be linked the third and fourth WPs.

Strategic CSR

Mitsubishi provides a plug-in hybrid with the look and feel of a SUV. The car is however environmental friendly due to the electric engine and the hybrid function, and therefore more sustainable. Furthermore, Mitsubishi focuses on CSR by setting policies for CSR initiatives that are based on ISO 26000, stated by Mitsubishi: “MMC engages in CSR activities on an ongoing basis by setting medium and long-term targets and setting policies for CSR initiatives which are based on ISO

26000, an international standard” (Mitsubishi Corporations, 2015B). Furthermore, Mitsubishi is concerned with CSR as a whole, presented in the following statement: “As a company that aims to make CSR its first priority, MMC is creating a framework for promoting CSR in order to advance activities that address the expectations of society across the Group and around the world, while establishing a deeper trust with communities” (Mitsubishi Corporations, 2015B). One of the pillars of improving sustainability is through its EVs, and the widespread use of the EV. Therefore, Mitsubishi aims at the promotion of the EV: “We are promoting the widespread use of electric-powered vehicles as an important business priority in a bid to bring about an eco-island from the automobile maintenance industry” (Mitsubishi Corporations, 2015B). This focus on sustainability, CSR policies focused on the ISO 26000 standards and a CSR framework indicate strategic CSR as it is incorporated in the highest corporate level, and therefore supports WP1.

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Sustainable Innovations

As Mitsubishi is known for its impressive technology, the Outlander PHEV also adopts the innovations made possible by R&D, indicated by the following statement: “The product of years of research and a passion to create a car that can fulfill the promise of a true hybrid” (Mitsubishi

Corporations, 2015B). Furthermore, the innovation award has been granted to Mitsubishi for manufacturing the EV with the most innovative technologies: “The Innovation Award recognizes the car with the most innovative technologies that contribute environment, safety, and other mobility issues by the Car of the Year Japan committee, the Outlander PHEV has won the Car of the Year

Japan 2013-2014” (Mitsubishi Corporations, 2015A). Mitsubishi sees the adoption of technological innovations as one of their core competences: “Mitsubishi takes pride in being at the forefront of technological innovation. Explore the engineering milestones that have set us apart from the competition and continue to keep up on the cutting edge” (Mitsubishi Corporations, 2015A). This indicates the adopted of radical innovations, as the EV is considered a radical innovation. Nonetheless,

Mitsubishi also adopts incremental innovations by monthly follow-ups. Furthermore, the adoption of incremental innovations is indicated in the following statement: “Mitsubishi Motors Corporation announces today that the Outlander PHEV is now also able to supply electrical power to home using a

V2H*1 system” (Mitsubishi Corporations, 2015A). These statements indicate an extensive focus on innovations. However, only the radical innovations have an influence on the business model.

Therefore, it can be stated that both WP2a and WP2b are supported.

Business Models

The business model of Mitsubishi is focused of the wants and needs of its customers, proved in the following statement: “You choose how and when the battery is used. The Outlander PHEV sports a host of simple to use features that give you complete control. Everything you need to know, from the efficiency of your driving to the electric and petrol range is right there in front of you” (Mitsubishi

Corporations, 2015B). Furthermore, an innovative business model and innovation adopted in the current business model is assured to pursue growth, stated by Mitsubishi: “We pursue sustainable economic value in the form of robust profit growth, which is achieved through constant innovation to

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 49 our profit model and portfolio, and we create sustainable societal value by contributing to the development of local economies and communities as a responsible corporate citizen growing together with society” (Mitsubishi Corporations, 2015A). This would indicate an innovative business model approached conducted by an innovative MNE, supporting WP3a and WP3b. The business model of the Outlander PHEV is focused on the luxury segment as it provides a SUV look and feel, and with five seats and the four-wheel-drive it suits every lifestyle, indicated in the following statement: “The

Outlander PHEV proposes a new way of using a vehicle by skillfully combining the advantages of

SUV and plug-in hybrid EV (electric vehicle) technologies” (Mitsubishi Corporations, 2015A). This would indicate a multi-purpose as the advantages of the SUV are combined with the advantages of an

EV. However, as an SUV is not a multi-purpose automobile as it is not the ideal automobile to use in the urban areas it cannot be stated that is a multi-purpose car. Therefore, WP4a and WP4b are partially supported for the Mitsubishi Outlander PHEV.

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Table 10 - Business Model Canvas Mitsubishi Outlander PHEV

Key Partners Key Activities Value Proposition Customer Relationships Customer Segments  GS Yuasa, the  Development, design,  Choice between four models  Provides all the  Most popular EV in producer of the production and  Super all wheel control simple tools that Europe, surpassing the battery packs manufacturing of cars  Dual charger for normal and makes it easy for Nissan Leaf in 2015 fast recharging consumers to  Environmentally  First plug-in SUV in the experience the EV concerned consumers market  300V 12 kWh lithium-ion Key Resources battery Channels  R&D, 8 facilities in 5  All-electric operation for  Online countries everyday use and mainly  Dealers  Manufacturing and motor-powered hybrid  Third party mobility assembling operations for longer journeys service providers  All electric range of 60 km with a max speed of 120 km/h  Charging 5 hrs. with 230V and 30 min with quick charging  Battery Charge mode allows the battery to be charged by the engine either when stationary or on the move. Cost Structure Revenue Streams  Manufacturing  Sales cars – models wholesale from €42.730 to €54.730  Technology  Engineering  Salaries  Maintenance

Source: Author

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 51

Table 11 - Working Propositions Mitsubishi Outlander PHEV

Working Propositions Supported Illustrative Information Strategic CSR & Sustainable Innovations WP1 – Strategic CSR S “Based on its corporate philosophy, Mitsubishi Motors helps solve social issues through its business activities.”

“As a company that aims to make CSR its first priority, MMC is creating a framework for promoting CSR in order to advance activities that address the expectations of society across the Group and around the world, while establishing a deeper trust with communities.”

“In order to achieve sustainable driving, MMC explained it continues to proactively introduce electric-powered vehicles including EVs and PHEVs (plug-in hybrid electric vehicles) to the market aiming to become a leading company in electric-powered vehicle technologies while contributing towards environmental conservation by reducing CO2 emission at the global level.”

“New Strategic Direction carries on our commitment to creating sustainable corporate value, which was established by the previous Midterm Corporate Strategy in an effort to maximize our overall corporate value, sustainable societal value and sustainable environmental value.”

“MMC engages in CSR activities on an ongoing basis by setting medium and long-term targets and setting policies for CSR initiatives which are based on ISO 26000, an international standard.”

“We are promoting the widespread use of electric-powered vehicles as an important business priority in a bid to bring about an eco-island from the automobile maintenance industry.”

“Therefore, we believe that minimizing the environmental impact through all our business activities is a social responsibility for MMC that owes its existence to vehicles.” WP2a – Radical Innovations S “The product of years of research and a passion to create a car that can fulfill the promise of a true hybrid.”

“Mitsubishi Motors Corporation announces today that the Outlander PHEV is now also able to supply electrical power to home using a V2H*1 system”

“The Innovation Award recognizes the car with the most innovative technologies that contribute environment, safety, and other mobility issues by the Car of the Year Japan committee, the Outlander PHEV has won the Car of the Year Japan 2013-2014.”

“To fulfill this responsibility, we are working on the development of electric vehicle technology and improvement of fuel economy of gasoline and diesel-powered vehicles which will contribute to lowering CO2 emissions. In addition, in all our business activities including development, production, and services, we are addressing CO2 emissions reduction,

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 52

prevention of environmental pollution, promotion of recycling, and resource conservation.”

“In development and technology, we are sequentially releasing worldwide the new Outlander PHEV, equipped with our proprietary Plug-in Hybrid EV System. By steadily pursuing these initiatives, we are working to improve corporate value through sustainable growth.” WP2b – Incremental Innovations S “As part of the Mitsubishi Outlander family, quality and refinement come as standard, along with the pricing and impressive technology for which the Japanese manufacturer is so well known”

“We are conducting ongoing monthly follow-ups and have achieved major improvements in the all-new eK Space minicar.” Business Models WP3a – Innovative Business S  “The Outlander PHEV proposes a new way of using a vehicle by skillfully combining the advantages of SUV and plug-in Models hybrid EV (electric vehicle) technologies.”  “You choose how and when the battery is used. The Outlander PHEV sports a host of simple to use features that give you complete control. Everything you need to know, from the efficiency of your driving to the electric and petrol range is right there in front of you.” WP3b – Innovative MNE & S “Mitsubishi takes pride in being at the forefront of technological innovation. Explore the engineering milestones that have Innovative Business Models set us apart from the competition and continue to keep up on the cutting edge.”

“We pursue sustainable economic value in the form of robust profit growth, which is achieved through constant innovation to our profit model and portfolio, and we create sustainable societal value by contributing to the development of local economies and communities as a responsible corporate citizen growing together with society.”

“MMC aims to realize a sustainable future by pursuing its environmental initiatives in technical development with electric vehicles at the lead as well as business activities, and by realizing a clean low-carbon society with an infrastructure that supports the use of EVs.” WP4a – Luxury or Economy PS - Specific-Purpose Business model WP4b- Luxury or Economy Multi- PS “The Outlander PHEV is a smooth and quiet ground-breaking new model that brings together the superior environmental Purpose Business model performance and quietness of an EV, the stability and handling of a four-wheel-drive vehicle, and the practicality of an SUV.” Source: Mitsubishi Corporations, 2015A; Mitsubishi Corporations, 2015B

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5.1.4 BYD Qin

In this paragraph, the analysis of the BYD Qin is presented, with the BMC of the BYD Qin shown in

Table 12. Illustrative quotes of the data regarding the BYD Qin are projected in Table 13. The first part of this analysis considers the strategic CSR of BYD and combines this with the first WP. The second part contains the innovations adopted by BYD and within the BYD Qin, either radical or incremental, and this is linked with the second WPs. The third part encompasses the business model and will be linked the third and fourth WPs.

Strategic CSR

The corporate aim of BYD is to incorporate and support different CSR initiatives by using energy solutions more effectively, the BYD Green Dream. For example, BYD states: "Our idea is to deploy our energy solutions to create mobile hospitals, in a promising model to be incorporated into our

Green Dream – BYD's effective energy storage systems can power maternity hospitals and health facilities in remote and impoverished areas, tackle the alarming death toll of women and children during childbirth, as well as prevent infections and complications during pregnancy, and end mother- to-child transmission of diseases like HIV and other diseases like malaria and cholera” (BYD, 2014).

Next to health, education is also one of the focus areas of BYD: “Since its establishment, BYD sought every opportunity to contribute to education” (BYD, 2014). The following statement indicates an additional initiative: "Everyone has dreams. BYD's Green Dream is to harness free and plentiful solar power, store it safely in long lasting energy storage systems, and finally use it in clean, quiet and incredibly efficient electric buses, trucks and cars” (BYD, 2014). Multiple all-electric models have been commercialized by BYD, stating a sustainable auto mobility approach. BYD specializes in battery technologies in order to ‘solve the whole problem’, which have made them industry pioneers.

This focus on solving the world problem by providing more sustainable energy solutions indicates strategic CSR, which supports WP1.

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 54

Sustainable Innovations

The innovation focus of BYD lies with energy solutions, and they incorporate this in many products and automobiles. BYD demonstrates this by the following statement: “The fire safe, completely recyclable and incredibly long cycle technology has become the core of their clean energy platform that has expanded into automobiles, buses, trucks, utility vehicles and energy storage facilities” (BYD,

2014). The innovations adopted by BYD support the CSR strategy of using energy solutions more effectively. They support this with the following statement: “The company aims at electrifying all possible means of transportation, and it has gone a long way towards accomplishing such feat: the “7” stands for major conventional vehicles, comprising bus, coach, taxi, private car, urban logistics truck, sanitation truck and construction truck (concrete mixer); and the “4” stands for specific off-road environments: warehouse, mining, airports, ports. The company’s rise in PHEVs has been as inconspicuous as its massive presence in Electrified Public Transportation worldwide. Starting in

2010, now its fully electric (BEV) buses and taxis are running in over 160 cities in 40 countries.”

(BYD, 2014). In order to accomplish sustainable auto mobility BYD has turned to the Chinese government for cooperation, in order to push the use of electric buses in public transport. It is also concerned with the availability of charging stations in China and the ways in how to improve the quantity. It has collaborations with the government as well as electricity providers in order to accomplish such a thing. In the case of BYD the innovations actually shape the business model as it creates their business activities and focus areas. Therefore, it is stated that the radical innovations adopted by BYD influence the business model, supporting WP2a and WP2b.

Business Models

At first, the business model of BYD was not understood by the masses as new car energy development was not a realistic investment, proved by the following statement: “We started to make great efforts on new energy car development nearly eight years ago. At that time, many people thought we were burning money. Indeed, we spent a lot of money. However, without the investments made in the past eight years, even though the state offers supporting policies, we would have no product to catch the opportunity.” (BYD, 2014). This indicates an innovative business model, and even more an innovative

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 55

MNE as their ideas are ahead of its time, this support both WP3 and WP3b. The business model of

BYD Qin is concerned with triggering Chinese urbanites in buying EVs, and attempts to achieve this by providing relatively cheap options for recharging, stated by BYD: “Our Qin model can run 70 kilometers on an electric supply and switch to fuel for longer distances. Such a design meets the demand of urbanites and has been accepted by the public.” (BYD, 2014). The EV with recharging options is offered relatively cheap as BYD want to accomplish a more sustainable transport option available to all consumers. There is also a hybrid function available, which enables drivers to enjoy long distance drives, the EV can be used for multi-purposes. Therefore, it can be argued that the BYD

Qin adopts an economy multi-purpose business model. As BYD adopts an economy multi-purpose business model, both WP4a and WP4b are supported.

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 56

Table 12 - Business Model Canvas BYD Qin

Key Partners Key Activities Value Proposition Customer Relationships Customer Segments  Joint venture with China  Production and  Plug-in hybrid Sedan with  Helping consumers in  Urbanites Southern Power Grid manufacturing of cars two110 kWh electric finding the right  Environmentally  Joint venture with  Commercializing engines subsidies in order to concerned consumers Daimler rechargeable batteries  Battery of 13 kWh be able to afford the  Option of a hybrid EV function  All electric range of 70 km Key Resources  From 0 to 100 km/h in 5.9 Channels  R&D seconds  Online  Dealers  Third party mobility service providers

Cost Structure Revenue Streams  Manufacturing  Sales of EVs  Technology  Triggering the Chinese market into more sustainable driving options  Engineering  Salaries  Maintenance

Source: Author

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Table 13 - Working Propositions BYD Qin

Working Suppo Illustrative Information Propositions rted Strategic CSR & Sustainable Innovations WP1 – Strategic “Specializing in battery technologies, their green mission to "solve the whole problem" has made them industry pioneers and leaders in CSR several High-tech sectors including High-efficiency Automobiles, Electrified Public Transportation, Environmentally-Friendly Energy Storage, Affordable Solar Power and Information Technology and Original Design Manufacturing (ODM) services.”

“Their mission lies not just in sales growth, but also in sociological integration and local job creation as they have poured incredible investments into developing offices, dealerships and manufacturing facilities in the local communities they now call home, truly a first for Chinese companies.”

"Everyone has dreams. BYD's Green Dream is to harness free and plentiful solar power, store it safely in long lasting energy storage systems, and finally use it in clean, quiet and incredibly efficient electric buses, trucks and cars.”

"Our idea is to deploy our energy solutions to create mobile hospitals, in a promising model to be incorporated into our Green Dream – BYD's effective energy storage systems can power maternity hospitals and health facilities in remote and impoverished areas, tackle the alarming death toll of women and children during childbirth, as well as prevent infections and complications during pregnancy, and end mothertochild transmission of diseases like HIV and other diseases like malaria and cholera.”

“Since its establishment, BYD sought every opportunity to contribute to education.”

“BYD Charity Foundation, founded in 2010, with help the poor through technology, care for the weak, support education hand in hand, care dedicatedly, support and promote the progress of corporate philanthropy and social commonweal as its principle, and technology innovation promotes philanthropy as its concept, develops green home energy system based on new energy business’s achievements, to meet electricity demands in remote areas without electricity and send lights there through technology innovation.” WP2a – Radical “BYD's future new energy cars will be integrated with all wheel drive. 2 stands for the number of liters of gasoline maximum that shall be Innovations consumed for 100km traveled in a BYD car. BYD cars will consume less than 2L gasoline / 100km. This is a revolutionary breakthrough when considering that the first vehicle BYD launched to achieve this at the show was an SUV class where even the most luxurious SUVs achieve barely 5L / 100 km.”

"This is not just a dream. In the electronic era, we can do things we couldn't do in the mechanical eras,"

“We have spent more effort on electric car development compared to traditional cars. The development of e-cars is based on the research platform of traditional cars, such as the brake system, chassis system and security standards. It is difficult to divide.”

“The fire safe, completely recyclable and incredibly long cycle technology has become the core of their clean energy platform that has expanded into automobiles, buses, trucks, utility vehicles and energy storage facilities”

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 58

“The company aims at electrifying all possible means of transportation, and it has gone a long way towards accomplishing such feat: the “7” stands for major conventional vehicles, comprising bus, coach, taxi, private car, urban logistics truck, sanitation truck and construction truck (concrete mixer); and the “4” stands for specific offroad environments: warehouse, mining, airports, ports. The company’s rise in PHEVs has been as inconspicuous as its massive presence in Electrified Public Transportation worldwide. Starting in 2010, now its fully electric (BEV) buses and taxis are running in over 160 cities in 40 countries.” WP2b – Incremental “Pressure over air pollution and local governments' targets to improve people's livelihoods' require a solution. Under such circumstances, Innovations BYD proposed a plan to adopt electric buses for public transportation to reduce auto emissions and air pollution. It coincided with the government's desires.” Business Models WP3a – Innovative “BYD’s outstanding performance in 2015 – in which the company climbed from the 7th position in late 2014 to the first position in just 10 Business Models months – is the result of a carefully studied and planned strategy combined with savvy market perception.”

“The new leadership has put new energy development high on its agenda.”

“We started to make great efforts on new energy car development nearly eight years ago. At that time, many people thought we were burning money. Indeed, we spent a lot of money. However, without the investments made in the past eight years, even though the state offers supporting policies, we would have no product to catch the opportunity.” WP3b – Innovative “The next three to five years will be a golden period for BYD's growth. We must seize it. Production capacity being unable to meet demand MNE & Innovative will be a temporary problem because we were cautious in the beginning. We only sold several thousand F3DM models in a few years, but Business Models now we have sold several thousand Qin models within one month. By the end of this year, we will improve our electric car production capacity.”

“The company’s EV strategy is not limited to mere passenger vehicles, in spite of its outstanding performance in this category.” WP4a – Luxury - Specific-Purpose Business model WP4b- Luxury “Our Qin model can run 70 kilometers on an electric supply and switch to fuel for longer distances. Such a design meets the demand of Multi-Purpose urbanites and has been accepted by the public.” Business model Source: BYD, 2014

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5.1.5 BMW i3

In this paragraph, the analysis of the BMW i3 is presented, with the BMC of the BMW i3 shown in

Table 14. Illustrative quotes of the data regarding the BMW i3 are projected in Table 15. The first part of this analysis considers the strategic CSR of BMW and combines this with the first WP. The second part contains the innovations adopted by BMW and within the BMW i3, either radical or incremental, and this is linked with the second WPs. The third part encompasses the business model and will be linked the third and fourth WPs.

Strategic CSR

The i-subbrand of BMW aims to redefine the meaning of mobility by providing new products and services, and by doing so appealing to new customer segments. It aims to generate growth, to generate access to technologies and redefine the future with building products that are future proof. Therefore the EV embodies the car of tomorrow as the EV can be recycled for 95%. BMW states: “Our approach is holistic, focused on implementing sustainability throughout the value chain and ensuring that sustainability is firmly entrenched within our company structures and practiced by our employees”

(BMW Group, 2014B). Furthermore, BMW has been appraised for its sustainability efforts in the Dow

Jones Index and the Carbon Disclosure Project: “The BMW Group has been one of the top-rated companies in major sustainability rankings for many years: we are the industry leader in both the Dow

Jones Sustainability Index and the Carbon Disclosure Project” (BMW Group, 2014B). As the focus of

BMW lies with creating a sustainable supply chain and using sustainable resources for manufacturing the EV instead of solely producing an automobile with an electric engine, organizational activities are reshaped. This proves of strategic CSR as all the components in the supply chain are managed in a sustainable manner, and thereby WP1 is supported.

Sustainable Innovations

Furthermore by keeping R&D as one of the key activities, the BMW i3 is focused on sustainable innovations, especially radical innovations concerning sustainable materials and lower emissions. This

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 60 is indicated in the following statement: “The long-term goal of realizing innovative new business with project i derived from the corporate 'Number One' strategy of BMW Group. By redefining the understanding of mobility to appeal new customer segments with new products and services, the

BMW i brand aims to generate growth, to develop access to technologies by pioneering technologies and design and, is shaping the future through building a future-proof product portfolio” (BMW Group,

2014B). This would indicate a radical innovation, as it transforms current business activities. The following statement also proves a radical innovation: “We have steadily reduced fleet CO₂ emissions with our Efficient Dynamics technology strategy over the years. Average emissions for our European fleet currently stand at 130 grams of CO₂ per kilometer. With BMW i, we have made sustainable mobility a reality” (BMW Group, 2014B). Furthermore, BMW adopts incremental adjustments over time: “Our vision within the framework of the Number ONE strategy extends to 2020. But we are already thinking far beyond that. It is of course also clear that a strategy will have to be adjusted here and there over time, since the world around us is likewise constantly changing” (BMW Group,

2014B). Additionally, incremental adjustments are expected and minor errors will be adjusted if needed. This was the case as in June 2012 an updated version was introduced with minor adjustments as interior and materials concept. Furthermore, as radical innovations have been introduced as the new drivetrain and modified vehicle concept, it is incrementally introduced in other available automobiles offered by BMW: “The incremental introduction of new drivetrains and the modified vehicle concepts that result are presenting new challenges in terms of how we use resources. One example is the increased use of components made of innovative, lightweight carbon-fiber-reinforced plastic

(CFRP). This is the material used in the passenger compartments of the BMW i3 and BMW i8. BMW also plans to use CFRP in other models” (BMW Group, 2014B). As the radical innovations already transformed the field and the business model of BMW, the incremental innovations did not have such an impact. Therefore, it can be stated that either WP2a as WP2b are supported.

Business Models

The business model of BMW is focused on the future and changes within the business model are expected: “We believe that sustainable action makes our business model more competitive and secures

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 61 our company’s future growth” (BMW, Sustainability Value report 2014). Furthermore, the i-brand is especially established in order to respond to future changes: “BMW anticipates with an innovative business model for future-oriented mobility: the BMW i-brand. Driven by external factors, BMW recognizes our fast changing society as a key ingredient for developing new premium products and services“ (BMW Group, 2014B). Furthermore, BMW adopts innovative business models that are subjective to minor adjustments over time: “Our vision within the framework of the Number ONE strategy extends to 2020. But we are already thinking far beyond that. It is of course also clear that a strategy will have to be adjusted here and there over time, since the world around us is likewise constantly changing” (BMW Group, 2014B). These statements indicate both an innovative business model and an innovative approach from the MNE itself, supporting WP3a and WP3b. Furthermore, as

BMW produces luxury cars, the i-brand is also focused on the luxury segment: “Reflecting the car’s niche status, just one dealer from each major capital city will be appointed as official i-car dealers, although BMW’s entire network will be trained to service and maintain the cars” (BMW Group,

2014B). BMW also provides additional services in order to maintain a luxury appearance: “BMW is the first manufacturer of premium automobiles to offer a training course with an electric vehicle – the

BMW i3 eDrive Experience. Drivers learn about the special product features and receive comprehensive safety training” (BMW Group, 2014B). The EV of BMW is focused at the luxury segment with additional services and features, however the EV can be used for multiple occasions and therefore represents a luxury multi-purpose business model, this supports both WP4a and WP4b. This is due to the range extender, whereby the EV can reach 230 km range instead of a 130 km to 160 km range.

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Table 14 - Business Model Canvas BMW i3

Key Partners Key Activities Value Proposition Customer Relationships Customer Segments  Dealers  R&D  Sustainability as the  Service provided at  Urbanites  Energy companies  Production and next premium every BMW location,  Young couples who  Suppliers manufacturing of  Range of 130 to 160 however sales just at work/live in urban areas  Recycling companies cars km appointed dealers  Environmentally  EV produced out of concerned consumers 95% recyclable materials Key Resources  Range extender Channels  R&D available to reach 320  Online km  Dealers  Recharging only  Third party mobility needed every two to service providers three days

Cost Structure Revenue Streams  R&D  Through sales of cars; prices start at €34,950  Manufacturing  Trying to change the scope of its industry by determining future-oriented  Technology mobility and sustainability as key drivers for achieving new innovative  Engineering businesses  Salaries  Maintenance

Source: Author

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Table 15 - Working Propositions BMW i3

Working Propositions Supp Illustrative Information orted Strategic CSR & Sustainable Innovations WP1 – Strategic CSR S “BMW i has a focus on sustainability throughout the entire value chain. From design to production, from its day-to-day use to its disposal: every link in the value chain is based on sustainability. BMW considers sustainability as a continuous process that does not begin nor ends at a particular moment in time. The same philosophy is applied to its value chain in which every supplier contributes to the sustainable profile of the actual product”.

“Our approach is holistic, focused on implementing sustainability throughout the value chain and ensuring that sustainability is firmly entrenched within our company structures and practiced by our employees.”

“We will continue to electrify our vehicle fleet – and this will help us reach our 2020 goal of reducing European fleet emissions to half the levels recorded in 1995.”

“The BMW Group has been one of the top-rated companies in major sustainability rankings for many years: we are the industry leader in both the Dow Jones Sustainability Index and the Carbon Disclosure Project.” WP2a – Radical Innovations S “The long-term goal of realizing innovative new business with project i derived from the corporate 'Number One' strategy of BMW Group. By redefining the understanding of mobility to appeal new customer segments with new products and services, the BMW i brand aims to generate growth, to develop access to technologies by pioneering technologies and design and, is shaping the future through building a future-proof product portfolio”.

“As an alternative to developing purely electric drivetrains, we are also doing research into hydrogen and fuel cell technology as further solutions for local emissions-free driving with a greater range.”

“We have steadily reduced fleet CO₂ emissions with our Efficient Dynamics technology strategy over the years. Average emissions for our European fleet currently stand at 130 grams of CO₂ per kilometer. With BMW i, we have made sustainable mobility a reality.”

“Investments in innovative mobility concepts contributed to the success of the BMW Group in 2014. Examples: in financial year 2014, 16,052 BMW i3.”

“Life Cycle Engineering was used in the development of the BMW i8 as well as in the BMW i3 before it. The result of the Life Cycle Assessment in accordance with ISO 14040/44 for the BMW i8 series vehicle as well as for the BMW i3 was certified externally by the German automobile certification body TÜV SÜD.”

“The incremental introduction of new drivetrains and the modified vehicle concepts that result are presenting new challenges in terms of how we use resources. One example is the increased use of components made of innovative,

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 64

lightweight carbon-fiber-reinforced plastic (CFRP). This is the material used in the passenger compartments of the BMW i3 and BMW i8. BMW also plans to use CFRP in other models.” WP2b – Incremental Innovations S “Our vision within the framework of the Number ONE strategy extends to 2020. But we are already thinking far beyond that. It is of course also clear that a strategy will have to be adjusted here and there over time, since the world around us is likewise constantly changing.”

“We are successively offering more electrified drivetrains based on the BMW i drive technologies, including for models of the core BMW brand.” Business Models WP3a – Innovative Business S “We believe that sustainable action makes our business model more competitive and secures our company’s future growth.” Models “BMW anticipates with an innovative business model for future-oriented mobility: the BMW i-brand. Driven by external factors, BMW recognizes our fast changing society as a key ingredient for developing new premium products and services.“

“A business model that works perfectly well today may no longer be viable tomorrow. The kind of grave consequences a technological change or disruptive technology can have is demonstrated by the following example: There was once a manufacturer of pure mobile telephones that dominated the world market. Then came another that built smartphones you could use to do more than just make phone calls. The rest of the story is common knowledge. Something like this also cannot be ruled out for other sectors like the automotive industry. If we want to effectively evaluate the success of new technologies like electro mobility, we have to keep time spans of at least ten, 15 years in mind: In 1900, for instance, the horse-drawn carriage was the dominant means of transport, whereas cars did not yet play a role; 25 years later the car had almost completely replaced the carriage.” WP3b – Innovative MNE & S “In the coming years, we will focus on consistently integrating sustainability into our business model. The main areas we will Innovative Business Models address are climate change and its consequences, resource availability, urban mobility and social impact along the entire value chain.”

“BMW is trying to change the scope of its industry by determining future-oriented mobility and sustainability as its new centers of gravity for achieving new innovative business”.

“With the BMW i3 or i8, we have also developed a wealth of innovations from which our other models will also profit from in the future.” WP4a – Luxury or Economy S - Specific-Purpose Business model WP4b- Luxury or Economy S “Reflecting the car’s niche status, just one dealer from each major capital city will be appointed as official i-car dealers, although Multi-Purpose Business model BMW’s entire network will be trained to service and maintain the cars.”

“BMW is the first manufacturer of premium automobiles to offer a training course with an electric vehicle – the BMW i3 eDrive Experience. Drivers learn about the special product features and receive comprehensive safety training.” Source: BMW Group, 2014B

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5.2 Cross-Case Analysis

This section provides the cross-case analysis of the results found in the within case analysis. This section is structured into four components, covering the four different WPs. The WPs linked with the adopted cases are presented in Table 16, where it is shown which WPs are supported (S) and which

WPS are partially supported (PS).

Table 16 – Cross-case Analysis of Working Propositions

Nissan Leaf Tesla Model S Mitsubishi BYD Qin BMW i3

Outlander PHEV

WP1 S S S S S

WP2a S S S S S

WP2b S S S S S

WP3a S S S S S

WP3b S S S S S

WP4a S PS PS S S

WP4b S PS PS S S

Source: Author

5.2.1 Strategic CSR

As shown in Table 16, Strategic CSR, integrated in the business operations, is found in all cases in different ways. Therefore, it is argued that strategic CSR does influence the innovative business model of the MNE, and WP1 is supported. This result corresponds with the expectations deducted from the theoretical framework. The ways in which the MNEs adopt strategic CSR are nevertheless different.

Nissan adopts strategic CSR by using the Nissan Leaf as a hero product, but also investing to accomplish a greener supply chain. Nissan wants to become one of the most sustainable companies on the planet. Therefore, resources throughout the entire supply chain should be sustainable. In order to accomplish this, innovations and other integrated business activities require being adapted into sustainable standards. Furthermore, the main focus of Tesla is driving the world into transition to electric mobility by bringing a full range of increasingly affordable electric cars to the market. They

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 66 even stated that in their patent policy that they will not initiate a lawsuit against any party for infringing their patents through activity relating to electric vehicles. The CSR strategy of Mitsubishi is mainly focused at setting policies that are based on ISO 26000, stated by Mitsubishi: “MMC engages in CSR activities on an ongoing basis by setting medium and long-term targets and setting policies for

CSR initiatives which are based on ISO 26000, an international standard” (Mitsubishi Corporation,

2015B). BYD adopts strategic CSR by providing more effective energy solutions to different transportation possibilities. They do so through their BYD Green Dream and multiple all-electric models have been commercialized by BYD, stating a sustainable auto mobility approach. Lastly,

BMW tries to embody the car of tomorrow as the EV can be recycled for 95%. BMW states: “Our approach is holistic, focused on implementing sustainability throughout the value chain and ensuring that sustainability is firmly entrenched within our company structures and practiced by our employees” (BMW Group, 2014B). The CSR objective the MNEs have in common within the sample is creating awareness and a transmission towards sustainable transport, and creating demand accordingly. Tesla does so by not initiating a lawsuit when infringing their patents. Nissan and

Mitsubishi work towards the same goal through advertisement and creating awareness for electric transport. BYD provides electric transport other than personal automobiles, making electric transport available for all consumers. So in conclusion, it can be stated that all the MNEs within the sample of this research adopt Strategic CSR, all in different ways.

5.2.2 Sustainable Innovations

All of the models are focused on innovations, as they claim this is necessary to be competing in the future. First of all, by adopting an electric engine, it is clear that the models adopt radical innovations.

But the strategic adoption of innovation differs for the MNEs. For example, the focus of the innovations of Nissan lies with customer expectations and is mainly accomplished with incremental innovations as weight reduction and higher range. However, the incremental innovations did not change the entire business model, only a part of the value propositions, whereas the radical innovations did change the business model. For Tesla, the R&D department is one of the core competences, and has over 140 patents awarded. Therefore, the innovations provided by Tesla are

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 67 abundant, especially the radical innovations. The radical innovations shape the business model in the case of Tesla as well. For Mitsubishi, as it is known for its impressive technology, the Outlander

PHEV also adopts the innovations made possible by R&D, indicated by the following statement: “The product of years of research and a passion to create a car that can fulfill the promise of a true hybrid”

(Mitsubishi Corporation, 2015B). The innovation focus of BYD lies with energy solutions and they incorporate this in many products and automobiles. In the case of BYD the innovations actually shape the business model as it creates their business activities and focus areas. Furthermore, by keeping

R&D as one of the key activities, the BMW i3 is focused on sustainable innovations, especially radical innovations concerning sustainable materials and lowering emissions. This is indicated in the following statement: “The long-term goal of realizing innovative new business with project i derived from the corporate 'Number One' strategy of BMW Group. By redefining the understanding of mobility to appeal new customer segments with new products and services, the BMW i-brand aims to generate growth, to develop access to technologies by pioneering technologies and design and, is shaping the future through building a future-proof product portfolio” (BMW Group, 2014B). As the radical innovations already transformed the field and the business model of BMW, the incremental innovations did not have such an impact. Therefore, it can be stated that for all the cases either WP2a as WP2b are supported.

5.2.3 Innovative Business Models

All the models included in this sample have adopted innovative business models to commercialize the

EV in the market. Some of the models have adopted changes into the model over time to adjust to customer preferences, and by doing so the value proposition has changed. The way in which they proposed the innovative business model differs for the different MNEs. The way Nissan sees they innovative approach is as follows: “It’s a virtuous circle: A major car company innovates, gets market uptake, builds brand value, and gains the confidence to keep pushing the technology and the market”

(Nissan, 2015A). Their innovative business model is focused merely on the technology and customer preferences. Tesla on the other hand, does focus mainly on technology, but also has a focus on customer experience in a different way. For example, the sales distribution of Tesla is different

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 68 demonstrated by the following statement: “We sell our vehicles through our own sales and service network which we are continuing to grow globally. We believe the benefits we receive from distribution ownership will enable us to improve the speed of product development and improve the capital efficiency of our business” (Tesla Motors Inc., 2015). Tesla believes that updating the business model is essential as it is subdued to risk, uncertainties and difficulties. This indicates a business model based on trial and error, which is one of the pillars of an innovative business model. Also

Mitsubishi considers customer preferences as they state: “You choose how and when the battery is used. The Outlander PHEV sports a host of simple to use features that give you complete control.

Everything you need to know, from the efficiency of your driving to the electric and petrol range is right there in front of you” (Mitsubishi Corporations, 2015A). Furthermore, an innovative business model and innovation adopted in the current business model is assured to pursue growth, stated by

Mitsubishi: “We pursue sustainable economic value in the form of robust profit growth, which is achieved through constant innovation to our profit model and portfolio, and we create sustainable societal value by contributing to the development of local economies and communities as a responsible corporate citizen growing together with society” (Mitsubishi Corporations, 2015A).

Furthermore, BYD also adopts an innovative business model in the sense that they invested in electric mobility before any demand was identified as they state: “We started to make great efforts on new energy car development nearly eight years ago. At that time, many people thought we were burning money. Indeed, we spent a lot of money. However, without the investments made in the past eight years, even though the state offers supporting policies, we would have no product to catch the opportunity.” (BYD, 2014). This indicates an innovative business model, and even more an innovative

MNE as their ideas are ahead of its time. Lastly, the business model of BMW is focused on the future and changes within the business model are expected: “We believe that sustainable action makes our business model more competitive and secures our company’s future growth” (BMW Group, 2014B).

Furthermore, the i-brand is especially established in order to respond to future changes: “BMW anticipates with an innovative business model for future-oriented mobility: the BMW i-brand. Driven by external factors, BMW recognizes our fast changing society as a key ingredient for developing new premium products and services“ (BMW Group, 2014B). These statements indicate both an innovative

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 69 business model and an innovative approach from the MNE itself for all the cases, supporting WP3a and WP3b.

5.2.4 Dominant Business Model

The dominant business model was expected to be a multi-purpose business model, which was confirmed in three of the cases and partially confirmed in two in the selected cases. The Tesla Model S and Mitsubishi Outlander PHEV are partially supported, as the model is manufactured for a specific group as a SUV or a sports car. However, as the aim of all the MNEs within the sample is the widespread of sustainable mobility, and they provide an EV solution for the otherwise only regular available automobile, the WP is partially supported. There was also a difference in the economy and luxury segment, which was expected. The Nissan Leaf and the BYD Qin focused on the economy segment. In the economy segment the core business of the models is focused at offering a relatively inexpensive EV option. For example, the business model of the Nissan Leaf concerns bringing a real product to real people at real prices; consequently Nissan does not see the EV as a niche car. The strategy is to have as many Nissan Leafs on the road in order to create acceptance and creating an acceptance of the EV as a regular car. The business model of BYD Qin is concerned with triggering

Chinese urbanites in buying EVs, and attempts to achieve this by providing relatively cheap options for recharging, stated by BYD: “Our Qin model can run 70 kilometers on an electric supply and switch to fuel for longer distances. Such a design meets the demand of urbanites and has been accepted by the public.” (BYD, 2014). The EV with recharging options is offered relatively cheap as

BYD want to accomplish a more sustainable transport option available to all consumers. There is also a hybrid function available, which enables drivers to enjoy long distance drives, the EV can be used for multi-purposes. Conversely, the Tesla Model S, Mitsubishi Outlander PHEV and the BMW i3 all targeted the luxury segment. Within the luxury segment the focus lies mostly with the look and feel of the car, offering a sports car, or an SUV. For example, Tesla states: “We believe the intended combination of performance, styling, convenience and energy efficiency of Model S will help position it as a compelling alternative to other vehicles in the luxury and performance segments” (Tesla Motors

Inc., 2015). The EV is presented as a sports car with a single-purpose, however, as the EV is intended

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 70 for everyday use it could be stated that Tesla offers a multi-purpose EV. The business model of the

Outlander PHEV is focused on the luxury segment as it provides a SUV look and feel, and with five seats and the four-wheel-drive it suits every lifestyle, indicated in the following statement: “The

Outlander PHEV proposes a new way of using a vehicle by skillfully combining the advantages of

SUV and plug-in hybrid EV (electric vehicle) technologies” (Mitsubishi Corporations, 2015A). This would indicate a multi-purpose as the advantages of the SUV are combined with the advantages of an

EV. However, as an SUV is not a multi-purpose automobile as it is not the ideal automobile to use in the urban areas it cannot be stated that is a multi-purpose car. Therefore, WP4a and WP4b are partially supported for the Mitsubishi Outlander PHEV. Additionally, BMW also provides a luxury car with its i-brand and the availability of one dealer per major city supports this niche status. The EV of BMW is focused at the luxury segment with additional services and features, however the EV can be used for multiple occasions and therefore represents a luxury multi-purpose business model. In conclusion, for three of the five cases a multiple-purpose business model, either luxury or economy, is offered. The other two cases, both offering a luxury EV, the multi-purpose business model is partially supported.

Therefore, WP4a and Wp4b are partially supported.

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 71

6. Discussion

In this research the business model choice and evolution by MNEs that adopt sustainable innovation and strategic CSR is studied. In this section the findings will be discussed compared to the theory presented in the theoretical framework. This section is structured in four components, covering the main theories used in this research combined with the WPs, namely strategic CSR and sustainable innovations, innovative business models and the dominant business model.

6.1 Working Propositions regarding Strategic CSR

The findings of this research of the adoption of strategic CSR by all the MNEs are in line with the statements made in the theoretical framework, regarding CSR becoming a mainstream activity.

Contrariwise, the strategy adopted by the MNEs in the way they adopt and implement the CSR strategy does differ. Furthermore, Aguinis & Glavas (2012) state that adopting CSR can create positive outcomes on the organizational level due to improved reputation, attractiveness to investors, reduced risk, efficiency and product quality. This is also demonstrated in this research, especially in the case of Nissan. For example, due to the Nissan Leaf, Nissan as a whole is perceived as a more sustainable MNE. Nonetheless, it is also stated that CSR mainly works for the reputation of the MNE instead of the society as a whole due to vague requirements of CSR and CSR trademarks (Banerjee,

2008). However, all the MNEs within the sample manufactured an EV with lower emissions.

Therefore, it is argued that in the case of the EV industry, CSR is also working for society as emissions are lowered, although reputation may be improved as well. In the case of BMW i3, this is stressed even further by manufacturing a zero-emissions EV that consists of 95% sustainable materials. Furthermore, it is argued that strategic CSR should be an overarching strategy that globally integrates the highest corporate level instead of tactically responding to current environmental issues

(Maio, 2003). This creates CSR being an integrated part in the global organization and identity, which drives its actions and image (Polonsky & Jevons, 2009). This is shown in all the cases as the MNEs have adopted CSR throughout the entire supply chain. For example, BMW wants to implement sustainability throughout the entire supply chain as well as Nissan, and they both want to become one of the most sustainable companies. This suggests CSR being an integrated part in the global

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 72 organization, and also has an impact on the perceived image of the MNE. The CSR objective the

MNEs have in common within the sample is creating awareness and a transmission towards sustainable transport, and creating demand accordingly. Tesla does so by not initiating a lawsuit when infringing their patents. Nissan and Mitsubishi work towards the same goal through advertisement and creating awareness for electric transport. BYD provides electric transport other than personal automobiles, making electric transport available for all consumers. Here, it shows that CSR can be a source of opportunity, innovation or advantage, which is supported by Porter & Kramer (2006).

Furthermore, as all the EVs within the sample adopt strategic CSR combined with innovative business models (Table 19), there is strong evidence for the relation between CSR strategy and the evolution of business models. Therefore, the WP regarding the influence of strategic CSR on the evolution of business models is supported (Table 17).

Table 17 - Conclusion of Working Proposition regarding Strategic CSR

Working Proposition Result

WP1 - MNEs that wholesale EVs and adopt a CSR strategy are expected to be related to S the evolutions of business models Source: Author

6.2 Working Propositions regarding Sustainable Innovations

Zapata and Nieuwenhuis (2010) state that battery electric fuelled automobiles are radical innovations.

As all the MNEs in the sample have adopted an electric engine, radical innovations have therefore been adopted. Radical innovations transform the field and can improve the position of the firm (Xu &

Yan, 2014). Sartorius (2006) states that radical innovations can be important to achieve improved sustainability. For example, Tesla does not infringe its patens in order to create opportunities for competitors to manufacture EVs, which will create improved sustainability. Furthermore, 95% of the materials used to manufacture the EV of BMW are sustainable, created by radical innovations. For

Nissan, the improved sustainability is created by the radical innovation of the EV that transformed the business model; nevertheless the focus lies with incremental improvements to advance customer satisfaction. In a similar vein, as disruptive technologies change the field different business models may be in order (Johnson & Suskewicz, 2009). For example, in case of Tesla and BYD the business

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 73 model is build around the radical innovations. Additionally, as all the MNEs in the sample make use of innovative business models, the positive link between radical innovations and adopting new business models is evident. Furthermore, as all of the MNEs have made use of incremental innovations it can also be stated that incremental innovations cause the need for business model improvements. Additionally, as all the EVs within the sample adopt radical sustainable innovations combined with innovative business models (Table 19), there is strong evidence for the relation between radical innovations and the evolution of business models. Therefore, the WPs regarding the influence of radical and incremental innovations on the evolution of business models are supported

(Table 18).

Table 18 - Conclusion of Working Propositions regarding Sustainable Innovations

Working Proposition Result

WP2a - Radical innovations adopted by MNEs that wholesale EVs are related to the S evolution of business models WP2b - Incremental innovations adopted by MNEs that wholesale EVs are not related to S the evolution of business models Source: Author

6.3 Working Propositions regarding Innovative Business Models

Concerning the business model, Boons & Lüdeke-Freund (2013) argued: “Sustainable business models with a focus on technological innovation are market devices that overcome internal and external barriers of marketing clean technologies; of significance is the business model’s ability to create a fit between technology characteristics and (new) commercialization approaches that both can succeed on given and new markets” (p.14). The findings of this research suggest that all MNEs within the sample have adopted an innovative business model. The innovative business models have adopted many forms as finding new sources of value creation through providing electric buses and public transfer or providing new recharging stations. Furthermore, as Budde Christensen et al. (2012) put it,

“it might be that innovative technologies that have the potential to meet key sustainability targets are not easily introduced by existing business models within a sector, and that only by changes to the business model would such technologies become commercially viable” (p. 499). As stated by BMW, this is the case concerning their business model: “BMW anticipates with an innovative business model

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 74 for future-oriented mobility: the BMW i-brand. Driven by external factors, BMW recognizes our fast changing society as a key ingredient for developing new premium products and services“ (BMW

Group, 2014B). Additionally, an innovative business model is based on trial-and-error in combination with ex-post adaptation (Chesbrough, 2010; Sosna et al., 2010). The MNEs within the sample constantly fine-tune and update their business model in terms of the value proposition and customer relationship by offering additional services and upgrades. In case of Tesla this is especially apparent as they state that updating the business model is essential as it is subdued to risk, uncertainties and difficulties. Moreover, it is argued that MNEs with an innovative character are more willing a to adopt new business models or make changes to the existing business model. This is supported within this research as all the MNEs have an innovative character and have adopted innovative business models.

For example, Nissan states: “It’s a virtuous circle: A major car company innovates, gets market uptake, builds brand value, and gains the confidence to keep pushing the technology and the market”

(Nissan, 2015A). Conclusively, as all the EVs within the sample adopt innovative business models there is strong evidence for the relation between wholesaling EVs and the adoption of innovative business models. Therefore, the WPs regarding innovative business models and innovative MNEs are supported (Table 19).

Table 19 - Conclusion of Working Propositions regarding Innovative Business Models

Working Proposition Result

WP3a - MNEs that wholesale EVs are expected to have innovative business models S

WP3b - MNEs that wholesale EVs with an innovative character positively influence the S adoption of innovative business models Source: Author

6.4 Working Propositions regarding the Dominant Business Model

Lastly, this research investigated the emergence towards a dominant business model within the EV industry. As electric vehicles demands other players in the supply chain, it can be expected that different business models could develop, and it is unclear which business models are most effective

(Kley et al., 2011). Especially in emerging markets a generic business models that becomes the standard is yet to find (Bohnsack et al., 2014; Teece, 2010). However, in most emerging industries

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 75 eventually the business model selection tends to stability as the wider market becomes more settled

(Budde Christensen et al., 2012). Therefore, it is argued that a multi-purpose business model provided by Bohnsack et al. (2014) is the dominant business model, either within the luxury or the economy segment. Within the sample, a diversion between the luxury and economy segment is found as two of the five MNEs were focused on the economy segment. The distinction between the single-purpose and multi-purpose business model was not that clear as well. It is expected that at first the more forward- looking consumers are interested in the radical innovation, and therefore technological innovation is beyond most customers needs, which would imply a specific purpose (Christensen et al., 2000; Pinkse et al., 2013). After the initial phase, the innovation will reach the greater public and therefore it is expected that the multi-purpose business models are dominant within the EV industry. However, this is not the case for all the MNEs within the sample. Although all the MNEs within the sample are focused on the wider public, not all the EVs available serve multi-purposes. As the SUV provided by

Mitsubishi and the sports car provided by Tesla are not suitable for all occasions. In conclusion, for three of the five cases a multiple-purpose business model, either luxury or economy, is offered. The other two cases, both offering a luxury EV, the multi-purpose business model is partially supported.

Therefore, WP4a and Wp4b are partially supported (Table 20).

Table 20 - Conclusion of Working Propositions regarding Dominant Business Model

Working Proposition Result

WP4a - The luxury or economy specific-purpose business model is not the dominant PS business model in the EV industry WP4b - The luxury or economy multi-purpose business model is the dominant business PS model in the EV industry Source: Author

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 76

7. Conclusion

This research investigated the CSR strategy, sustainable innovations and business models of MNEs that wholesale EVs within the automobile industry. Within the business model literature the concept of sustainable innovations is relatively new, but has received gradually more attention the past several years. The business models of EVs were investigated prior to this research by several papers

(Bohnsack et al., 2014; Kley et al., 2011; Pinkse et al., 2013; Zapata & Nieuwenhuis, 2010). Business model research took a central role in case of the EV in recent literature since the proposition is made that innovative offers increase customer benefits (Bohnsack et al., 2014; Hockerts & Wüstenhagen,

2010; Johnson & Suskewicz, 2009; Kley et al., 2011). The innovative technology of the EV has the potential to meet key sustainability targets and innovative business models may be a prerequisite success of these technologies contributing to environmental concerns (Budde Christensen et al., 2012).

It is argued that adopting strategic CSR also enhances the success of the MNE and CSR can be a source of opportunity, innovation or advantage (Porter & Kramer (2006). Strategic CSR is only strategic when CSR is being integrated in the global organization and forms the organizational identity that drives its actions and image (Polonsky & Jevons, 2009).

Furthermore, innovations are a part of this research and innovations can be divided into radical or incremental innovations. Radical or disruptive innovations change the established trajectory of the product, market or industry of performance improvement (Richter, 2013). Incremental or sustaining innovations comprise improvements of existing technologies with lower uncertainty (Richter, 2013;

Xu & Yan, 2014). Most of the innovations are considered to be incremental innovations (Richter,

2013). Sustainable innovations hold the promise to reduce emissions and make efficient use of the available resources, however they still face problems penetrating mainstream markets (Budde

Christensen et al., 2012; Hockerts & Wüstenhagen, 2010). Therefore, in order to be viable, changes in the business model might be in order to fully benefit from the sustainable innovations. Conversely, it is hard to state what the appropriate or right business model is (Chesbrough, 2010). And in the case of emerging industries the generic business model that will become the standard is yet to find (Bohnsack

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 77 et al., 2014; Teece, 2010). Bohnsack et al. (2014) recently developed four business model archetypes within the EV industry by distinguishing two dimensions of the value proposition. In this research the business model archetypes are used and examined if a dominant business model has been discovered.

The findings of this research are in line with the statements made in the theoretical framework regarding the adoption of strategic CSR, although managed in different ways. This is shown in all the cases as the MNEs have adopted CSR throughout the entire supply chain. This suggests CSR being an integrated part in the global organization. Furthermore, as all of the MNEs have made use of incremental and radical innovations, it can also be stated that sustainable innovations cause the need for business model improvements. The findings of this research suggest that all MNEs within the sample have adopted an innovative business model. Subsequently, the findings in this research partly support a dominant business model evolution, as some of the MNEs manufacture EVs designed for special preferences. Hereby it can be argued that the business models within the automobile industry are still evolving, as it is an emerging industry.

7.1 Scientific Relevance and Managerial Implications

This research is relevant in two areas, the academic field and within the EV industry. This research helps academic researchers in the field of International Management to recognize the fact that sustainable innovations have an influence on the adoption of innovative business models. Business model literature combined with sustainable innovations is still underexplored until now, and therefore this research can be seen as a start of researching the two theories combined. Furthermore, this research focuses on the emerging market of the EV. As the market is emerging many changes are expected, and therefore this study contributes to the academic implications of the emerging market on business model choice. The results would help managers to understand how to select the appropriate business model when operating in emerging industries. Furthermore, it shows managers what important building blocks are for the business model in the EV industry. It becomes clear that sustainable innovations have an influence on innovative business models and the evolution of business models. Commercializing sustainable innovations can be most viable through innovative business

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 78 models and therefore it is important for managers to pay utmost attention to the selection of the business model when commercializing sustainable innovations.

7.2 Limitations and Suggestions for Further Research

As the scope of this research has limitations, the sample of this research has limitations as well. Due to time constraints the sample consists of five EV models, whereas for this research to be generalizable a greater sample should be expected. Also, as some of the EV models in the sample have not been on the market for several years, evolution in the business model is hard to find as this has yet to evolve.

Additionally, it is unclear whether the EV industry has indeed settled, and therefore the dominant business model could be apparent in the coming years, indicating this research should be repeated when this is the case. Furthermore, as the data consists mostly of corporate reports, it could be argued that the corporate reports could be biased as MNEs decide for themselves what is incorporated within the reports, although incorporating newspaper articles as well mainly prevents this bias.

As this research has some scope limitations, it could be suggested that an investigation with a more complete sample on a larger scale would increase the generalizability of finding of this research. This result could be even stronger when conducting interviews with the cases incorporated within the sample, creating the possibility to ask specific questions regarding the strategy, and finding rationales.

Also, as the EV industry is still emerging, it is interesting to keep track of changes of the business model, and dominant business models could be found over time within the EV industry. Business models could also be more fitting when adjusted to locations. For example, the dominant business model within urban areas, or economically more stable environments, could differ. Therefore, it might be interesting to investigate whether the business model choice of MNEs within the EV industry is location-bound. Furthermore, it would be interesting to see if hybrid cars and EVs have different business models. This could also differ for presumably a new emerging industry, the self-driving EV, and it can be investigated what kind of implications this industry will have on business models.

SUSTAINABLE INNOVATIONS AND BUSINESS MODELS IN THE AUTOMOBILE INDUSTRY | 79

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