Electric vehicles and renewable energies in the automotive industry: the case of Renault

Abstract: 
Growing environmental consciousness and awareness of the fact that something has 
to be done to curb carbon emissions and consequent global warming mitigation is 
having a big impact on international business. The Automotive industry is one of the 
industries most affected, in that private transport emissions are major contributors to 
most countries‟ carbon emission profile. In this connection, the electric vehicle (in 
various forms) is emerging as a major alternative to the traditional internal 
combustion engine powered vehicles. Electric vehicles have caught the attention of 
both incumbent companies and start-ups from all over the world, as well as 
companies offering new business models for provision of infrastructure; in many 
cases, governments are giving subsidies to stimulate the growth of this sector, to 
counter-balance extensive subsidies already supplied to the fossil fuel industries. This 
Thesis examines the phenomenon of the rise of electric vehicles from four 
perspectives. In the first I analyze the potential market for these vehicles that will be 
commercialized in the coming years and how the production value chain will be 
structured, using the Porter‟s five forces and the Global Value Chain frameworks. In 
the second part I evaluate the question whether a dominant design is emerging in the 
batteries‟ technology and whether electric vehicles are likely to constitute a 
technological discontinuity and, if so, how they might break with the technological 
lock-in that currently constraint the industry. In the third part I investigate to what 
extent, the introduction of electric vehicles will impact on the electric utility business, 
placing pressure on electric power suppliers to switch to greener sources. Finally, I 
present the case of Renault, a company that is developing, a complete range of fully 
electric vehicles in partnership with Nissan, and is doing this by linking itself with 
utility companies, institutions and also new start-ups with novel business plans such 
as Project Better Place. The thesis reaches the conclusion that electric vehicles will 
indeed constitute a major rupture for the automotive industry, facilitating the entry of 
major new players. 
 
Keywords: electric vehicle, lock-in, dominant design, government policy, V2G 
vehicle to grid, Renault, Renault-Nissan, Project Better Place.
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Introduction: 
The protection of the environment is changing lots of the things we do nowadays: the 
way we dispose of the waste we produce, the way we build houses to make them 
more efficient, the way we produce energy, etc. 
There is also another thing that will probably change in coming years. In fact a new 
market is opening its doors and will probably affect one of the most important and 
oldest industries in the world, the automotive industry, established in Germany in 
1885 when Karl Benz built the first automobile with a petrol engine. The change I am 
referring to is the emergence of the electric vehicle as a new means of personal 
transportation. 
A change of this dimension will influence also others sectors, in particular the 
manufacturing of the batteries and the utility sector, and will create new opportunities 
for both incumbent and start-up firms that plan to enter in one or more of these three 
sectors. 
Electric vehicles are not a completely new market, as a matter of fact, in the past 
there were attempts of introduce this type of car, but they never succeeded, due to 
technological factors (battery technologies were not ready), political factors 
(governments did not sustain their introduction) and economic factors (price of oil 
decreased, making electric vehicles too expensive). Nowadays these conditions are no 
longer relevant, because battery technology is now ready to give sufficient autonomy 
to vehicles, governments are sustaining the growth of the sector with various types of 
investments and the price of oil is not expected to decrease. Moreover, the 
environmental issues linked to the use of common internal combustion vehicles 
became a big threat for the sector, since it is considered the most harmful for the 
greenhouse gas emissions through its heavy dependence on fossil fuels, especially oil. 
What I want to investigate with this thesis is not just the emergence of a new sector 
and its main characteristics, but also how this relates to wider issues in a more global 
perspective, and how this change will affect the world economic scenario. 
The questions I am trying to answer are:
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 How this will change the automotive industry of the future and its geography? 
Will Europe and US always be the dominant continents or will the leaders of 
the future come from other countries? 
 Will electric vehicles also affect the utility business and what will the 
relationship been between car manufacturers and grid operators? 
 What will the impact of electric vehicles be on greenhouse gasses and global 
warming? 
 What are the business opportunities that this market will create? 
To answer these questions I have divided my Thesis in four parts: in the first I 
investigate the change that these vehicles can cause in the automotive market, using 
the global value chain and the Porter‟s five forces framework. In the second part I 
analyze the battery technology that can be used under a dominant design perspective 
and I investigate if electric vehicles can be considered a technological discontinuity 
and to what extent they are able to break the lock of the internal combustion vehicles 
they are actually in. In the third part I analyze the change that electric cars can bring 
in the utility sector. In the last part I present the case of Renault, which is developing 
a complete range of electric vehicles that will be mass-marketed during the coming 
year, and I explain their approach to this new market and the strategy they are using.
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Chapter 1: The Industry 
1.1 Electric vehicle market: 
The electric vehicle market is not a recent innovation, but one which had its 
beginnings in the last century, but which never completely emerged. Historically, the 
main drivers of ferment around the re-emergence of electric vehicles were the 
increase of oil prices, which caused companies to reinvest in this technology in the 
70s and 80s. After some time oil prices went down and the technology was 
abandoned and all constructors returned to the traditional internal combustion 
vehicles. It was probably not only for the price of oil that constructors ended their 
investment, but also for the faulted battery technology and for governments which 
were reluctant to support this industry. 
Nowadays we find ourselves in another period of ferment, but, at the contrary, there 
are many positive factors that enable this electric vehicle industry succeed and 
become a reality. The most important factors are: the price of oil which has never 
been so high, the new technology in terms of battery and green energy production, the 
governments that are ready to sustain the industry with investment both for producers 
and buyers, and the consciousness that something has to be done to stop vehicles 
pollution. 
In this sector there are not only the traditional incumbent firms of the common 
automobile market, which are spending billions of dollars in new cars and battery 
technology development, but there are also many start-ups that are entering in the 
market, often with the support of venture capital firms and/or governments. 
The electric vehicle can also change the geography of the automotive sector as we 
know it. In fact, most of the leading companies are based in Asia and not in Europe or 
US as has always been the case. The most important company from this area is BYD 
Auto, a start-up part of BYD Company limited, the world‟s second largest battery 
maker. It thus has, the advantage of both battery technology knowledge, with the 
possibility to exploit big synergies, and substantial financial resources. 
In Europe and US the most important investors are incumbent firms which have 
begun developing new cars and have started pilot projects this year.
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There are also other industries that will be influence by the introduction of the electric 
vehicles; these are the utility companies and the battery makers. In particular the last 
one will be fundamental for the sector, since the price of the battery is one of the most 
important issues. 
 
1.2 A global view of the automotive industry: 
The car market is one of the oldest and most fundamental sectors in the world 
economy. At European level it accounts for a large part of the continental GDP, it is 
one of the most important employers and is the largest private investor in R&D
1
. 
Moreover, it is probably one of the most global and competitive industries worldwide 
which is today transforming the sector from a traditionally manufacturing-based 
industry into an increasingly knowledge based one. These factors together with the 
need to protect the environment, safeguard human health, operate in a high oil price 
regime and the economic downturn have created a situation where the industry faces 
new challenges, responsibilities and opportunities which could change both the 
industry and its products. 
On one hand there are some features that the global automotive industry share with 
other globalized industries (for example: electronics, apparel and consumer goods, 
etc.). The first common feature is that in this industry foreign direct investment (FDI), 
global production and cross border trade have increased dramatically since the late 
1980s
2
. The growth of real and potential market and a big surplus of low cost skilled 
labor in countries like Brazil, China and India have attracted large FDI flows to 
supply local markets and to export back to developed countries. This was also 
                                                      
1
 Cars 21 (2008). “Mid-term Review High Level Conference-Conclusion and Report”, 
European commission Enterprise & Industry Directorate General. 
2
 Sturgeon, T. J., Memedovic, O., Van Biesebroeck, J. and Gereffi, G. (2009). “Globalization 
of the automotive industry: main features and trends”, International Journal of Technological 
learning, innovation and development, 2, pp. 7-24: the paper highlights how global, regional, 
national and local value chains are nested to create a pattern of global integration that is 
distinctive to the industry. The authors use global value chain analysis to help explain the 
limits of build-to-order in the industry, the role of regional and global suppliers, the shifting 
geography of production and how the characteristics of value chain linkages in the industry 
favor tight integration and regional production.
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facilitated by trade and investment liberalization through World Trade Organization 
(WTO) agreements. 
The second common feature is increased outsourcing and the building of more value 
chain activities in supplier firms
3
. This has brought an increase in the involvement of 
the developed countries suppliers in their own FDI and trade, while developing 
countries suppliers have increased their capabilities. The largest suppliers, based in 
developed countries, have become “global suppliers”, with multinational operations 
and an ability to provide goods and services to a wide range of lead firms
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. 
On the other hand Sturgeon et al.
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 identifies four distinctive features of the 
automotive industry: 
 An extremely concentrated firm structure: eleven lead firms from three 
countries, Japan, Germany and USA dominate the production in the main 
market (see table 1 for the data on vehicle production). 
 Final vehicle assembly and part production has largely been kept close to end 
markets because of political sensitivities. 
 Strong regional structure. 
 Just few fully generic parts or subsystems that can be used in a wide variety of 
end products without extensive customization: part and subsystems are 
generally specific to particular vehicle models. This ties suppliers to lead 
firms, limits economies of scale in production and economies of scope in 
design, creates the need for close collaboration, raises the cost for suppliers 
that serve multiple customers and gives birth to geographic clusters, typically 
near firms‟ headquarters, where most design work is made. 
A greater degree of global integration has developed, within the industry, at the 
design level, since global firms have sought to leverage design efforts across products 
sold in multiple markets. The design work continues to be concentrated near the 
headquarters of lead firms. Moreover, suppliers of parts have taken on a larger role in 
                                                      
3
.Ibid. 
4
 Sturgeon, T. J. and Lester, R. K. (2004). “The new global supply-base: New challenges for 
local suppliers in East Asia” in Shahid Y., Anjium, A.M. and Nebeshima, K. (Eds) : Global 
Production Networking and Technological Change in East Asia, The World Bank and Oxford 
University Press, Washington, DC. 
5
 Sturgeon et al. (2009).