Based on the energy saving and environmental protection of electric vehicles, many countries have introduced policies to support the research and development of electric vehicle technology in recent years, and promoted the entire industrial chain and ecological construction of electric vehicles. A recent report released by Strategy&, Part of the PwC network predicts that by 2030, the registration number of new electric vehicles in the three biggest auto markets, EU, the United States and China, will exceed 17.4 million, accounting for nearly 27% of total vehicle sales. Prof. Chen Rui of School of Management and Economics (SME), The Chinese University of Hong Kong, Shenzhen (CUHK-Shenzhen) and his team found in the latest research that, the realization of environmental benefits of electric vehicles needs to be based on the integration of multiple conditions. The team also explored what policies the government needs to adopt to guide the usage of electric vehicles in shared vehicles, to achieve the purpose of reducing environmental pollution. The paper "Adoption of Electric Vehicles in Car Sharing Market" was recently included in the international journal Production and Operations Management.

Chen Rui

Transportation is the second largest source of global greenhouse gas emissions from human activities. According to U.S Environmental Protection Agency (2016), transportation accounts for 27 percent of greenhouse gas emissions in 2015 in the United States. Almost all of the emissions from this sector involve fossil fuels burned for road, rail, air, and marine transportation. As a result, global warming, urban air pollution, reduction in oil supplies, etc. become important global problems in the near future. Electric vehicles (EVs) have been identified as one of the major opportunities to reduce greenhouse gas emissions in the transportation sector and fossil fuel consumption.

Compared to fossil fuel vehicles (FVs), EVs are more environmental friendly and their operating cost is lower (2 cents per mile for EVs versus 12 cents plus per mile for FVs). However, there are several major issues that hinder their widespread adoption. The relatively high price, the limited driving range of EVs, and the lack of fast charging stations are the greatest concerns for consumers among many others. The price of an EV is usually higher than the price of a FV (even with tax credits or subsidies) and a typical EV on the market has a range

of a few 100 miles at best.

Without enough fast charging infrastructures or battery switching stations, the recharge time for EVs is not compatible with charging-while-travelling, which makes them inappropriate for long trips. Moreover, the EV market faces a “chicken-and-egg” problem: people will not purchase EVs without adequate charging infrastructure, and vast charging networks can only make profit if there is enough demand.

To address these issues and to incentivize deployment of EVs, a number of policies have been adopted. These policies generally fall into three categories: (1) vehicle tax credits or subsidies, (2) investments in recharging stations and electric vehicle service equipments, and (3) research and development (R&D). While tax credits have successfully increased the selling of EVs (for example, the US Congressional Budget Office estimates that the current tax credits will be responsible for 30 percent of all EVs sold), other policies have limited impact on the adoption of EVs. According to New York State Electric Vehicle Charging Station Report, the percentage of time that EVs were connected to public charging stations, between July and September 2015, was 4.7%. Therefore, investments in public charging infrastructure may offer marginal value in realizing the intended benefits of EV adoption. Similarly, without successful mass production with new technology that can increase the range of EVs and reduce their price, policies that encourage R&D are inefficient in increasing their usage.

Compared to the slow adoption of EVs in the private market, the use of EVs seems highly attractive in the car sharing market. First, car sharing can eliminate the purchase price burden of EVs for consumers. It is a low-risk way for consumers to use EVs for their travel needs without a large financial commitment. Second, it can address consumers’ “range anxiety” by allowing them to choose a car that fits the trip (for example, an EV for a shorter trip and a FV for a longer trip). Third, in shared vehicle environments, car sharing companies (CSCs) bear the costs of infrastructure installation and the benefits from their usage. CSC can also control access to the infrastructure to make sure that it is used effectively. This may resolve the “chicken-and-egg” problem.

Although the adoption of EVs in the car sharing market seems promising, there is still no clear advantage in their usage in practice. While several CSCs introduce EVs into their fleet, others replaced EVs by FVs. For examples, Zipcar launched the company’s first large-scale EV pilot program in Chicago in March 2012 and BMW launched ActiveE DriveNow electric car sharing in

San Francisco in August 2012. In contrast, Car2go that started the car sharing service in San Diego, California in 2011 with all electric cars, replaced all of its electric vehicle fleet with gasoline-powered cars in May 2016 (see Car2go 2016). This is a symbolic stepback for the adoption of EVs.

Motivated by these examples, the goal of this paper is to examine how EVs can be deployed in the car sharing market to improve consumers’ utility, CSC’s profit, and social welfare. More specifically, we examine the following questions: (1) Is it optimal for CSCs to deploy EVs in the car sharing market and if so, how many EVs should be deployed? (2) What factors may affect this decision? (3) Is it environmentally wise to use EVs in the car sharing market? What policy should the government follow to encourage the adoption of EVs in the car sharing market to increase social welfare, or to reduce the environmental impact of greenhouse gases?

To address these questions, we develop a model consisting of a profit-maximizing CSC and a population of utility-maximizing customers. The CSC can use both EVs and FVs, and therefore, should decide how many of them to acquire. The CSC charges customers a usage fee per unit distance for each trip they make (for both EVs and FVs). Customers choose between renting a vehicle or using public transportation, whichever is available and generates the largest net utility, to complete a planned trip (we ignore customers who have their own vehicles as they are less likely to use car sharing). The net utility of renting a vehicle is affected by the price. The utility of renting an EV is also affected by the range of the EV and the environmental consciousness of the consumer. The availability of vehicles is affected by the number of vehicles that are in the market. The CSC sets the number of FVs, the number of EVs, and the rental price jointly to maximize its profit. We consider two cases: (1) models in which the CSC serves the market using either all EVs or all FVs, to which we refer as the Car2go Model, and (2) models in which the CSC may use both EVs and FVs in the same market, to which we refer as the Zipcar Model. Our main findings and contributions are highlighted as follows. Our main findings and contributions are:

(1) For both Car2go and Zipcar Models, we characterize conditions under which it is optimal to use EVs in the market (see Theorems 1 and 2). In particular, we show that it is optimal for the CSC to use EVs only if the charging speed is high enough for EVs and both the number of charging stations and the range of EVs are large enough. Somewhat surprisingly, among these three conditions, the recharging speed is the most important factor. If the condition about the recharging speed is not satisfied, then it is optimal not to use any EVs no matter what the number of charging stations and the range of EVs are. Moreover, the number of charging stations is more important than the range of EVs.

We also show that the same conditions in the mixed usage Zipcar Model are weaker than in the Car2go Model as it may be optimal not to use EVs in the Car2go model whereas it is optimal to include some EVs in the Zipcar model (see Proposition 1). This may be one of the reasons that Car2go switched from electric-powered cars back to gas-powered cars in San Francisco whereas Zipcar and Enterprise started to include EVs in their fleets.

(2) We find that including EVs in the car sharing market may lead to a higher total emission (see Theorem 3). This is particularly true when the charging speed for EVs is high enough and both the number of charging stations and the range of EVs are large enough. This is because in this case, the recharging speed, the limited range of EVs and the lack of fast charging stations are not concerns for consumers. As a consequence, the CSC tends to charge lower prices for renting due to the low operating cost of EVs to encourage more people to use the car sharing system. This will induce more trips to be completed by the car sharing system. Thus, even if an EV generates less emission than a FV does for the same distance, using EVs may generate a higher total emission.

(3) We also consider the problem from the perspective of a social welfare maximizer, where social welfare is defined as the surplus of consumers plus the profit of the CSC minus the negative environmental impact of the system. For the Car2go model, EVs are more efficient in increasing the total social welfare than increasing the total profit of the CSC (see Theorem 4 and Proposition 5). That is, there are cases in which FVs are preferred to EVs in terms of the total profit, but EVs are preferred to FVs in terms of social welfare. Moreover, we find that if the environmental impact is important, the government should tax the CSC to

induce a higher rental price in the market. Otherwise, the government should subsidize the CSC to induce a lower rental price. For the Zipcar model, we show that increasing the recharging rate of EVs or increasing the number of charging stations can lead to a higher total social welfare. However, increasing the range of EVs may reduce social welfare.

(4) We apply our results to the case study of Car2go in San Diego and in Europe. We observe that Car2go in San Diego replaced EVs with FVs likely due to the slow recharging speed rather than the lack of charging stations or the limited travel distance of EVs. We also find that if Car2go allows both EVs and FVs, then it is optimal to include EVs in the fleet in San Diego.

Translation: Yifei

Proofreading: Fiona, Claire