Deployment and pricing strategies for different generations of battery swap stations

Abstract

With an acceleration of electric vehicle uptake, battery swapping services, which offer quicker energy replenishment than plug-in charging services, are becoming increasingly vital. However, the mass adoption of battery swapping services relies heavily on the establishment of adequate energy replenishment infrastructure to address customer concerns regarding travel costs, service availability, and waiting time. In this study, we explore the optimal deployment strategy for different generations of battery swap stations, where the battery swapping service provider has two options: an incremental deployment strategy, which involves constructing more current-generation stations over next-generation ones to achieve early expansion, or a leapfrog deployment strategy, which prioritizes building more next-generation stations on top of current ones to facilitate late expansion. Our results illustrate a two-sided network effect, (i.e., service-to-user effect and user-to-service effect), where increasing the number of current-generation stations can incentivize the deployment of next-generation stations. This cycle is referred to as forward infrastructure momentum. We also demonstrate a backward infrastructure momentum, indicating that the deployment of next-generation stations can also create momentum for the early establishment of current-generation stations, but this occurs if and only if the service provider is more strategic. Our research provides valuable insights for managers on pricing and deployment of next-generation stations. For instance, technological improvements could decelerate the pace at which service providers deploy next-generation battery swap stations. Continuous improvements in service speed offered by next-generation stations might motivate the service provider to prioritize immediate expansion by constructing more current-generation stations to leverage the user-to-service network effect to achieve profit-maximization. Such an expansion allows them to attract more demand with higher service price.