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

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  • Huth, Christian
  • Kieckhäfer, Karsten
  • Spengler, Thomas Stefan

Abstract

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

Suggested Citation

  • Huth, Christian & Kieckhäfer, Karsten & Spengler, Thomas Stefan, 2015. "Make-or-buy strategies for electric vehicle batteries—a simulation-based analysis," Technological Forecasting and Social Change, Elsevier, vol. 99(C), pages 22-34.
    • Handle: RePEc:eee:tefoso:v:99:y:2015:i:c:p:22-34
    DOI: 10.1016/j.techfore.2015.06.027
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    References listed on IDEAS

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    Cited by:

    1. Lukas, Elmar & Spengler, Thomas Stefan & Kupfer, Stefan & Kieckhäfer, Karsten, 2017. "When and how much to invest? Investment and capacity choice under product life cycle uncertainty," European Journal of Operational Research, Elsevier, vol. 260(3), pages 1105-1114.
    2. Z. Aytan Ediz & M. Atilla Öner & Y. Can Erdem & Nesimi Kaplan, 2018. "A Model for Make-or-Buy Decisions in Engineering Design Services Sector: A Case Study from Turkey," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 15(04), pages 1-27, August.
    3. Idiano D’Adamo & Paolo Rosa, 2019. "A Structured Literature Review on Obsolete Electric Vehicles Management Practices," Sustainability, MDPI, vol. 11(23), pages 1-17, December.

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