DEPARTMENT OF TECHNOLOGY MANAGEMENT AND ECONOMICS DIVISION OF ENVIRONMENTAL SYSTEMS ANALYSIS CHALMERS UNIVERSITY OF TECHNOLOGY Gothenburg, Sweden 2022 www.chalmers.se Report No. E2022:112 Evaluating business model environmental performance with BM-LCA A comparative case study in an automotive company Master’s thesis in industrial ecology Jens Sandqvist Hannes Westberg REPORT NO. E 2022:112 Evaluating business model environmental performance with BM-LCA A comparative case in an automotive company Jens Sandqvist Hannes Westberg Department of Technology Management and Economics Division of Environmental Systems Analysis CHALMERS UNIVERSITY OF TECHNOLOGY Gothenburg, Sweden 2022 Evaluating business model environmental performance with BM-LCA A comparative case in an automotive company Jens Sandqvist Hannes Westberg © Jens. Sandqvist, 2022. © Hannes. Westberg, 2022. Report no. E2022:112 Department of Technology Management and Economics Chalmers University of Technology SE-412 96 Göteborg Sweden Telephone + 46 (0)31-772 1000 Gothenburg, Sweden 2022 Evaluating business model environmental performance with BM-LCA A comparative case in an automotive company Jens Sandqvist Hannes Westberg Department of Technology Management and Economics Chalmers University of Technology Abstract Business models are identified as the “engines” of the economy, and economic growth is identified as a driver for increased environmental impacts. It is therefore not surprising that sustainable business model innovation, not at least circular business models, has gained increased interest to achieve sustainability and impact decoupling (Bocken et al., 2019). A review of sustainable business models by Nosratabadi et al., (2019) makes it clear that there is a research gap when it comes to the assessment of environmental performance of business models. If the environmental performance of business models is not assessed, there is a risk of assuming, without knowing, that certain types of business models are more sustainable than others with a risk of greenwashing. This is a pressing issue since it often is uncertain if sustainability-labeled business models deliver on the promise of being sustainable (Baumann et al., 2022). A new LCA methodology for the assessment of environmental performance of business models called Business Model Life Cycle Assessment (BM-LCA) has been introduced and successfully applied on the first case in the garment sector comparing a sale and a rental model for jackets (Goffetti et al., 2022). BM-LCA switches the focus from impacts related to product function to impacts related to business value. The functional unit can e.g., be “1M€ in profit per quarter”. The aims of this study is to conduct a BM-LCA on a different type of case and assess the relevance of the tool for business model assessment and sustainable business model innovation. A case study performing a carbon footprint BM-LCA on Partner sales, Direct sales, and three types of subscription-based business models, in an automotive company, was performed to achieve these aims. The automotive case significantly differs from the previous BM- LCA case by more complex product and economic structures, larger company, and emissions during the use phase. Another difference compared to the previous BM-LCA case is that an existing product LCA will be used and complemented with business model data to reduce the work needed to perform the BM-LCA. Findings are explored with regards to the feasibility to perform a BM-LCA, the usefulness of BM-LCA as a tool for environmental assessment of business models as well as sustainable business model innovation. The BM-LCA revealed a significant difference in CO2eq of up to 40% between the business model's environmental performance per contribution margin in favor of the subscription-based business models. However, the results were sensitive to factors such as the influence of external subsidies for low-emission vehicles and market prices of used cars. This study showed that it is possible to assess both current business models and future scenarios. Thus, BM-LCA fills a knowledge gap when it comes to quantitative assessments of business models. The study followed the methodology of BM-LCA described in (Baumann et al., 2022b; Böckin et al., 2022a, 2022b; Goffetti et al., 2022), although it was not achievable to replicate it step by step, and therefore there are some deviations in the study. When it comes to the usefulness of the result, further research is needed to better understand how to interpret and use the produced results from a company perspective. Keywords: BM-LCA, environmental assessment of business models, environmental performance of business models Table of contents 1 INTRODUCTION ................................................................................................................................. 1 1.1 BACKGROUND ............................................................................................................................................ 1 1.1.1 Decoupling ........................................................................................................................................ 2 1.1.2 Business model and their sustainable adaptation ............................................................................ 2 1.1.3 Circular economy .............................................................................................................................. 3 1.1.4 Product service system ..................................................................................................................... 4 1.1.5 Assessing the environmental performance of sustainable business models .................................... 4 1.1.6 The use of LCA to evaluate the environmental performance of business models ............................ 5 1.1.7 Business model LCA .......................................................................................................................... 6 1.1.8 Automotive Business models ............................................................................................................ 9 1.1.9 Assessing automotive business models .......................................................................................... 10 1.1.10 Conclusion of background .......................................................................................................... 10 1.2 AIM ....................................................................................................................................................... 10 2 METHOD ......................................................................................................................................... 11 2.1 LITERATURE REVIEW .................................................................................................................................. 11 2.2 BM-LCA OF FIVE BUSINESS MODELS ............................................................................................................ 12 2.3 EXPLORATION – BM-LCA AS A TOOL FOR SUSTAINABLE BUSINESS MODEL INNOVATION ......................................... 13 2.4 EVALUATION ............................................................................................................................................ 13 3 BM-LCA - ENVIRONMENTAL ASSESSMENT OF FIVE BUSINESS MODELS ............................................... 14 3.1 GOAL & SCOPE: DESCRIPTIVE PHASE ............................................................................................................ 14 3.1.1 Descriptions of the business models ............................................................................................... 14 3.1.2 Functional unit ................................................................................................................................ 25 3.1.3 Environmental system boundaries ................................................................................................. 26 3.1.4 Environmental limitations .............................................................................................................. 26 3.1.5 Economic system boundaries.......................................................................................................... 27 3.1.6 Impact categories ........................................................................................................................... 27 3.2 GOAL AND SCOPE: COUPLING ..................................................................................................................... 27 3.2.1 Monetary transactions per car age ................................................................................................ 29 3.2.2 Emissions per car age ..................................................................................................................... 39 3.3 LIFE CYCLE INVENTORY ............................................................................................................................... 42 3.3.1 Spare parts ...................................................................................................................................... 43 3.4 LIFE CYCLE IMPACT ASSESSMENT .................................................................................................................. 43 3.5 INTERPRETATION ...................................................................................................................................... 46 3.6 CONCLUSION OF THE BM-LCA STUDY OF THE FIVE BUSINESS MODELS ................................................................ 51 4 EXPLORATION – BM-LCA AS A TOOL FOR BUSINESS MODEL INNOVATION .......................................... 53 5 EVALUATION OF BM-LCA IN THIS STUDY ........................................................................................... 56 5.1 EVALUATION OF THE USEFULNESS OF BM-LCA FOR VCC ................................................................................. 56 5.2 EVALUATION OF THE FEASIBILITY OF BM-LCA ................................................................................................ 57 6 DISCUSSION..................................................................................................................................... 60 6.1 RELIABILITY OF RESULTS ............................................................................................................................. 60 6.2 METHODOLOGICAL DEVIATIONS FROM PREVIOUS BM-LCA STUDY ..................................................................... 61 6.3 USABILITY OF BM-LCA FOR INNOVATION OF BUSINESS MODELS ........................................................................ 62 6.4 BM-LCA TO FILL THE KNOWLEDGE GAPS FOUND IN THE LITERATURE .................................................................. 63 7 CONCLUSION & FURTHER RESEARCH ................................................................................................ 64 1 Introduction If human and nature are to live in harmony, decoupling economic growth from environmental impacts are necessary. This is not that easy to achieve within some industries. Decoupling is a term most used in macro-context, nevertheless, it needs to be applied to real cases. Sustainable business models are one way for companies to improve their environmental performance. The transport and automotive sector are intense contributors to environmental impacts and different business models are tested within the industry. These business models’ environmental performance can however be difficult and problematic to assess (Harris, Martin, et al., 2021). Business model innovations are becoming more and more important to stay competitive and are becoming a ”key source of competitive advantage” (Santa-Maria et al., 2021). Reasons for the increased focus on business model innovations are the need to differentiate in an increasingly competitive world, the view of business models as drivers for the circular economy (N. Bocken et al., 2019), and information technology as an enabler for new business models (Planing, 2018). Business models are further identified as the engine of the economy (Baumann et al., 2022a) and economic growth is identified as a driver for increased environmental impacts (Fischer-Kowalski et al., 2011). It is therefore not surprising that sustainable business models, not at least circular business models, have gained increased interest as a way to achieve sustainability (N. Bocken et al., 2019) while at the same time maintaining or increasing competitiveness on a global market. Differentiating a company's offer by decreasing environmental impacts has in recent years also become a competitive advantage in itself (França et al., 2021). The combination of the need for decoupling, business models as economic drivers, sustainable business models with unclear environmental performance, and product and function focus in conventional LCAs indicates the need for the novel approach of business model life cycle assessment (BM-LCA) with a focus on the environmental performance of the actual business model. This modified LCA methodology links business and environmental parameters and focuses on the environmental performance of the business model itself. The novelty of the method means however that it is not clear if it is meaningfully applicable and feasible for the complex product and business systems in the automotive industry. 1.1 Background Over the past century, human welfare and economic growth have been strongly linked to natural resource use, not at least to fossil fuel use which grew by a factor of twelve over the past century, resulting in climate change. The economic growth has not been equitably distributed, while the environmental impacts are a global issue (Fischer-Kowalski et al., 2011). Climate action is targeted as one out of seventeen sustainable development goals (SDGs) by the United Nations. At the same time, several SDGs are either directly or indirectly connected to economic growth e.g., decent work, economic growth, and no poverty (THE 17 GOALS | Sustainable Development, n.d.). Population growth and increasing wealth are estimated to lead to a tripling in resource use in 2050 compared to today’s level (Planing, 2018). There is therefore an urgent need for economic growth and environmental impact reduction at the same time. 2 1.1.1 Decoupling Decoupling is the term for reducing environmental impacts per unit of economic output (Fischer-Kowalski et al., 2011). Decoupling can be defined as either relative when the economic growth is relatively higher than the increase in environmental impacts, or as absolute when the economic growth is no longer at all linked to environmental impacts. There is evidence of relative decoupling during the last three decades from various nations and regions, however, it can be said that relative decoupling will not be enough to stay within the planetary boundaries when it comes to for example climate change (Ward et al., 2016). The United Nations Intergovernmental Panel on Climate Change estimates a remaining carbon budget of 400 GtCO2 to stay below a 1.5°C increase for a likelihood of 67% (Masson-Delmotte et al., 2021). Although there is no clear evidence of absolute decoupling so far, some pollutants have in the past been decoupled from economic growth. Removal of tetraethyl lead from automotive fuel and CFCs from refrigerants and propellants are two examples, and it can be envisioned that GDP growth can be decoupled from the use of fossil fuels and their related CO2 emissions by switching to 100% renewable energy (Ward et al., 2016). To stay within the climate change planetary boundary and reduce GHG-emissions on a global scale, there is a need for micro- scale decoupling at society and company levels. Tools for assessing this micro-scale environmental performance, for example on the company or business model level, are needed to ensure their contribution towards a large-scale decoupling. 1.1.2 Business model and their sustainable adaptation The concept of a business model originates from the idea to communicate complex business ideas effectively by describing a company’s value proposition and how value is created, delivered, and captured. A sustainable business model is a business model that delivers value and performs activities in a sustainable manner (Nosratabadi et al., 2019). Sustainable business models are used to simultaneously meet a company’s ambitions in the areas of economic, environmental, and social performance, which is also referred to as the triple bottom line (Khan et al., 2021). Other common components of the definition of sustainable business models include comprehensive stakeholder consideration by including the society and environment as stakeholders as well as switching from short-term to long-term perspectives (Comin et al., 2020). The environmental part of corporate sustainability has so far mostly focused on products, activities, and organizational practices to reduce environmental impacts. To take the next steps in improving environmental performance it is necessary to also include business model innovation. Academic interest in the research field of sustainable business models is increasing, but information about sustainable business models is still rather fragmented and difficult to grasp. Table 1 presents the number of search results for listed search phrases in the Scopus database. Since no comprehensive information on different types of sustainable business models was found the focus has been on circular business models and product service systems (PSS) since they frequently appear in the literature etc. The well-cited article by Bocken et al. (2014) describes different archetypes of sustainable business models which include circular economy 3 and PSS as examples. Articles about sustainable business models have increased by 65% between 2018 and 2021. It can also be seen that the number of articles on the topics circular business model and circular economy has increased more than for product service system business model and product service system while the two last terms started at a higher number of search results. Table 1 - Search results Year published Search phrase 2021 2020 2019 2018 sustainable business model 1 944 1 686 1 406 1 176 circular business model 472 322 282 169 circular economy 4 940 3 178 2 152 1 391 product service system business model 336 357 346 336 product service system 3 365 3 690 3 766 3 344 1.1.3 Circular economy The circular economy has gained a lot of attention and excitement from businesses, policymakers as well as academia as a potential driver for sustainable development. A circular economy aims to shift the current linear or semi-circular economic system of the “take-make-dispose” resource model to circular flows (Fernandes et al., 2020). A common description of how this is done is by slowing, closing, and narrowing resource flows (Fernandes et al., 2020) which can be achieved by e.g., extended product life, re-manufacturing, and recycling (Planing, 2018). Circular business models are described by Bocken et al. (2018) as “the rationale of how an organization creates, delivers and captures value to close and slow material loops” and business model innovation is according to Fernandes et al. (2020) seen as “vehicles for innovation towards a circular economy”. Products and services are the main types of business model orientations, and it becomes increasingly common to offer a combination of these two business model orientations due to the difficulty for companies to compete with product differentiation only. The shift towards service-based business models can act as an enabling factor for the circular economy. To succeed with the transformation to circular business models it is important to consider stakeholder motivational factors including non-rational customer motives (Planing, 2018). Table 2, from (Planing, 2018), presents common business model classification and motivation from manufacturers and service providers. 4 Table 2 - Hypothesis matrix: manufacturer/service provider motivation for circular economy business models (Planning, 2018) As can be seen in Table 2, ownership-based business models have low to medium stakeholder motivation for circular strategies such as longer-usage periods, extended product-life, remanufacturing, and recycling while result-based models have high stakeholder motivation for all these strategies (Planing, 2018). Correspondingly the level of circularity of business models is commonly seen as the lowest for traditional ownership-based business models with increasing levels of circularity for access-based, performance-based, and result-based business models. Both products, activities, and business models are seen as essential to slow, close, and narrow resource loops. The field of circular business model innovation is growing but few adapted tools are used in practice. This is true for sustainable business model tools in general. There are, however, general business model innovation tools that are popular in practical use. This is not bad from a sustainable perspective, but there is a risk of dilution of sustainability focus (N. Bocken et al., 2019). 1.1.4 Product service system Product service systems are an offer that combines products and services in a joint bundle to deliver and capture more value than if either the product or the service was offered alone. There is a palette of PSS definitions in the literature and a large share of the definitions includes sustainability. It is however argued that sustainability might be an outcome of a PSS business model but is not central to the PSS concept in the same way as the concepts of product, service, system, and function fulfillment are (Mahut et al., 2017). It is therefore unclear if PSS business models should be seen as sustainable business models. It can also be noted that there is an overlap between circular economy and circular business models that often involves a business model shift from product to service. 1.1.5 Assessing the environmental performance of sustainable business models There is, according to Nosratabadi et al. (2019), a research gap when it comes to the evaluation of sustainable business models. This gap includes the assessment of environmental performance of business models. At the same time, an increasing number of tools for sustainable business model design are emerging. Bocken et al (2019) argues that many of the 5 business model tools that focus on sustainable business model innovation is lacking qualities to fit company needs or are for other reasons not widely used in practice. There are popular and widely used business model innovation tools that do not come with an environmental focus, such as the lean startup approach and the business model canvas. The use of these tools presents a risk of dilution of the sustainability focus even when used for example for circular business model innovation. One reason for the popularity of these generic tools is that they appear simple to use and are adaptable (N. Bocken et al., 2019). It is therefore of great importance to develop business model innovation tools that safeguard the environmental performance of business models and to get these tools in use in practice (Lüdeke-Freund et al., 2018). Bocken et al. (2016) propose a streamlined assessment tool for the early stages of circular business model innovation. The method intends to be useful in the early stages of business model innovation when there are multiple immature models to choose between and the design parameters are still flexible. The method focuses on qualitative expectations based on four key aspects of circular business models: slowing effects, closing effects, life cycle effects, and systems effects. Its usefulness for quantitively and accurately assessing sustainable business models is therefore limited. From the review of sustainable business models by Nosratabadi et al., (2019), it becomes clear that there is a research gap when it comes to the assessment of sustainability parameters for sustainable business models. If the business model’s sustainability performance is not assessed there is a risk of assuming, without knowing, that certain types of business models are more sustainable than others with a risk of greenwashing. This is a pressing issue since it often is uncertain if sustainability-labeled business models deliver on the promise of being sustainable (Baumann et al., 2022a). Das et al. (2022) article focus on how companies forecast environmental impacts when implementing circular business models. The findings reveal that most of the companies included in the study measure the environmental impact of existing circular business models while only 4% of the interviewed companies forecast environmental impacts before the implementation of new circular business models. This results in a risk of lock-ins in circular business models with poor environmental performance since companies often are reluctant to withdraw successfully employed business models. The need for assessment tools measuring environmental impacts during experimentation phases is therefore identified as important (Das et al., 2022). The most common method to measure the environmental performance of current circular business models is rule of thumb and LCA/LCA-based methods. It is however unclear if the methods are mainly product-oriented or include the impacts from business-specific activities. A conclusion from the Das et al. (2022) article is that few studies examine the use of forecasting environmental performance in companies. 1.1.6 The use of LCA to evaluate the environmental performance of business models The use of LCA for environmental assessments is increasing in industry, research, and policymaking (Gradin & Björklund, 2021). LCA is, in the ISO 14040 standard from 1997, defined as “… a technique for assessing the environmental aspects and potential impacts associated with a product ...” (Baumann & Tillman, 2004). The focus in traditional LCA is on environmental 6 impacts related to the use of the product and targets products and process improvements and is not an assessment of the business model's environmental performance. The use of LCA in decision-making has, according to Calado et al. (2019), not been as wide as expected. One attempt to increase the usefulness of life cycle approaches in decision-making is to assess environmental and economic performance simultaneously by performing an integrated LCA and Life Cycle Costing (LCC) (Calado et al., 2019; Luthin et al., 2021). Combining LCA and LCC is, at least in literature, a rather popular way to add economics to a regular LCA but the aim is normally to identify environmental-economic trade-offs with a focus on products and activities rather than the business models (Calado et al., 2019; Luthin et al., 2021). There is a range of different types of LCC, the main types being conventional/economic LCC, environmental LCC, and societal LCC. The costs can therefore be either from a company perspective or the environmental costs caused to the society, called externalities. Common for all LCC types is that they aim at including costs from all parts of the product's life cycle and that they are especially useful when choosing the most cost-effective product/solution among alternatives (Calado et al., 2019). It is however worth noting that there are no general standards for LCC (França et al., 2021). The main aim of combining LCA and LCC methodologies is, according to literature, to address both environmental and economic aspects and provide decision support for environmental-economic trade-offs (Calado et al., 2019; França et al., 2021; Luthin et al., 2021). Costs are included in the LCC, while revenues normally are excluded. This makes the integrated LCA/LCC approach useful for assessing product and process alternatives. It is, however, not a useful tool for the environmental assessment of business models from a business value perspective. The combined LCA/LCC assessment is just one flavor of the many types of LCA that emerged to complement the conventional LCA. Social LCA focuses on the social dimension of sustainability while life cycle sustainability assessment was developed to take environmental, social, and economic sustainability into account by combining LCA, LCC, and Social LCA. Another type of LCA is the life cycle energy and sustainability assessment which is used in the construction sector (Luthin et al., 2021). Life cycle thinking is, as the name suggests, a more qualitative way of thinking where cradle-to-grave implications are considered but without going into the quantitative details of an LCA (Baumann & Tillman, 2004). 1.1.7 Business model LCA Business model LCA (BM-LCA) is a novel tool so far tested on one case assessing the environmental performance of two different business models offering the same product, a shell jacket. By using a functional unit that focuses on business value, the method aims at assessing the environmental performance of the business models rather than product function. Creating business value can be seen as the core function of a business model. Business value can be for example profit or contribution margin. It is therefore relevant to assess business models from this perspective as a complement to conventional LCA’s focusing on the function of the product. BM-LCA can fill a knowledge gap when assessing existing business models but also as a tool in the business model innovation process adding a quantitative environmental perspective to the more qualitative business model innovation tools such as the business model canvas. By assessing the environmental performance of business models, companies can contribute to decoupling by business model choices as well 7 as avoiding greenwashing by excessive claims connected to the environmental performance of business models (Böckin et al., 2022b; Goffetti et al., 2022). The description of the BM-LCA methodology below is based on the only earlier performed BM-LCA described in (Baumann et al., 2022b; Böckin et al., 2022a, 2022b; Goffetti et al., 2022). These steps are followed to a large extent in this study and are therefore an important background. Since the aim of the BM-LCA is to assess the business model, which is based on both products, services, and activities, the goal and scope must be extended from purely a product focus to a business focus. To do this, the traditional product-oriented physical functional unit is replaced with an economic functional unit that can capture the aim of business models, which is to generate business value, for example, profit. Also, the functional unit needs to represent that profitability is measured over certain time periods for example months, quarters, or years. The functional unit in BM-LCA is thus expressed as “a chosen profit level over a given time period” (Böckin et al., 2022b). Profit level can be exchanged for other relevant terms that are used to measure business value. To assess the business model, a descriptive and coupling phase is included in the goal and scope methodology traditionally found in LCAs. The description phase intends to specify all activities and key features for each business model, where the physical flows and who has the ownership of the products in different life-cycle stages are established via an actor-analysis. A flowchart in a conventional LCA does not take into account which actors that are accountable for the different activities, it is actor neutral. An actor analysis is added in a BM-LCA to understand the actor perspective and which monetary transactions are of interest. Relevant for the description phase is to describe the number of produced products that are required to fulfill one customer transaction. For traditional sales, every transaction requires one produced product whereas, for rental, every produced product can satisfy multiple customer transactions (Goffetti et al., 2022). Like traditional LCAs, system boundaries and impact categories are determined based on the aim and case. In the coupling phase, the functional unit is determined based on a profit level suitable for the case company and business model. The profit level can be based on historical data to do the assessment more comparable to a current business model or based on a desired profit level that is more suitable for business model innovation. The second step is to establish the monetary transactions associated with the case company and the involved actors such as suppliers, partners, and customers. These monetary transactions are then coupled to the physical flow through coupling equations. With these coupling equations, the number of transactions necessary to reach the profit level can be solved by breaking out the number of transactions from revenues and costs. The number of produced products can be derived from the number of needed transactions and the number of transactions per product from the description phase. With the same profit level, the number of required products for each business model is calculated. Creating coupling equations is key in this phase and necessary to connect monetary and physical flows. 8 The next phase of the BM-LCA is to construct a Life Cycle Inventory of the relevant in and output flows of the technical system, preferably, case-specific data on the resource use and pollutant emissions. When there is no specific data to collect, generic data or best estimations are used. Documentation of the collected data is required to ensure transparency. The last step of the LCI is to calculate the environmental loads according to the established numbers of products produced for each business model (Baumann & Tillman, 2004). Thereafter, a quantitative assessment of the impacts generated from the collected data inventory is performed in the next phase called Life Cycle Impact Assessment. The resources and emissions from the inventory are classified into their respective defined impact category for example CO2, CH4, and N2O all affect global warming and are thus classified together. The emissions are then aggregated according to their impact potential, called characterization factor, for example 1kg of methane affects global warming equivalent to 25kg of carbon dioxide using GWP100. Depending on the goal and scope, normalizing the results to a reference value, and aggregating the different impact categories to a weighted one- dimensional index are optional measures to further analyze the results. The final phase of BM-LCA is to interpret and present the results. This is the stage in which the findings of either LCI, LCIA, or both are presented in line with the goal and scope to reach conclusions and recommendations (Baumann & Tillman, 2004). The results are also tested regarding their soundness and validity, by iteratively analyzing and investigating the collected data (Böckin et al., 2022b). This is done by a sensitivity analysis where parameters are changed to understand how this will affect the results. A sensitivity analysis in a BM-LCA can also be of interest to guide decisions toward more sustainable business models. The actor analysis within the BM-LCA can be used for guiding the interpretation of what impacts and measures are within or outside the control or influence of the company. A summary of the methodology is depicted in Figure 1. 9 Figure 1- Methodology of BM-LCA (Böckin et al., 2022b) 1.1.8 Automotive Business models In the past, private ownership and traditional sales models have been prevailing in the business-to-consumer automotive market. However, in recent years, there has due to, for example, climate awareness and changing customer needs and preferences, been a shift towards business models with increased customer flexibility and reduced environmental impact (Brandtner & Freudenthaler-Mayrhofer, 2020). Wells (2013) states that a new paradigm in this sector is emerging, that could be dominated by product system services, diversified business models, the lowest lifetime cost for consumers, and the lowest burden to society and the environment. Recent and up and coming business models within the car mobility sector include different types of car sharing, subscription-based sales, leasing, multi-modal mobility-as-a-service concepts, ride-along and multi-sided consumer-to-consumer platforms (Brandtner & Freudenthaler-Mayrhofer, 2020; Grieger & Ludwig, 2019). The automotive business models are diversifying from solely business-to-consumer to also including consumer-to-consumer. Large-scale car-sharing systems are a type of business model where a company, for example the OEMs, own the entire car fleet and have them placed either on specific sites or as free- floating. Free-floating car sharing is a model without any fixed parking. The cars can be picked up and parked within a permitted geographical area, which facilitates one-way travel. Subscription-based sale is a mix of renting and leasing, which offers consumers a month-to- month payment where maintenance, service, and insurance are included. Short notice period and the possibility to change vehicles are common features of the subscription model which targets customers with a demand for flexibility. Other common sales arguments favoring 10 subscription-based models are the all-inclusive no surprise deal as well as no need for a down payment. 1.1.9 Assessing automotive business models The literature on environmental assessments of automotive business models is lagging behind the assessment of the products, where several automotive manufacturers have performed LCA on their products. Even though car sharing has emerged as a potential solution to increased sustainability within the automotive industry, there is a paucity of academic literature on its implication (Harris, Mata, et al., 2021). There are even fewer assessments on other types of automotive business models. Most studies assessing the environmental implications of car sharing conduct an LCA with a cradle-to-grave perspective, based on person-kilometer traveled as a functional unit. The main contribution to lower environmental impacts from car-sharing is stemming from fewer vehicles fulfilling the total customer needs and consumer behavioral changes. Additionally, some studies account for rebound effects and modal change which gives a more holistic picture of environmental impacts on a societal level (Amatuni et al., 2020; Ding et al., 2019). However, as the emphasis in these studies is on the environmental impacts from a functional and societal perspective, the methods exclude the company-level business value implications caused by these new types of business models. 1.1.10 Conclusion of background The review has made it clear that the assessment of the environmental performance of business models is an underdeveloped area compared to the environmental assessment of products and/or functions. The tools used for business model assessment are at present most often of qualitative nature and tools aiming at sustainable business model innovation are rarely used in practice. Additionally, environmental assessments of business models are currently observed from a functional or societal perspective, ignoring the implications caused to the companies. As the automotive industry stands for a high share of environmental impacts, automotive companies are experimenting with several business models, and there are several existing product LCAs, which might make a BM-LCA more feasible, it is appropriate to conduct a study in this field. BM-LCA is a tool developed for assessments of business models' environmental performance which makes it promising from a company perspective. As the BM-LCA method so far has only been tested on one case, it is considered a natural next step to test the BM-LCA on another type of case and also to understand the usability and feasibility of the method. 1.2 Aim This report has two aims. The first aim is to apply BM-LCA to evaluate the environmental performance of automotive business models with an existing product LCA. The second aim is to explore and evaluate the method as a tool for business model environmental assessment and innovation for business practice. 11 2 Method An overview of the methodological procedure is presented in Figure 2. The methods of the different steps are further described in the following sections. The application and evaluation of BM-LCA are conducted through a comparative case study of five different business models identified and derived from Volvo Car Corporation (VCC). Although one of the business models is not operated, it is subject to application and evaluation. The case study is used to assess the environmental performance of the business models and to assess the usability of the BM-LCA for the case company. Specifically, to fulfill the first aim a BM-LCA is conducted. To fulfill the second aim, an evaluation of the usefulness of the results and method is performed. Figure 2 - Description of methods 2.1 Literature review To get an overview of the current state of knowledge about assessing the environmental performance of business models, a literature review is conducted. The literature review included several search phrases for each of the categories in the list below. • Sustainable business models • Product service system business models • Circular business models • Business models in the automotive industry • Environmental performance of business models • Environmental assessment of business models • Life cycle costing in combination with life cycle assessment • Decoupling The literature review is limited to primary sources published in peer-reviewed journals. Searches were performed in the Scopus, Web of Science, and Business Source Ultimate databases as well as in Google Scholar. The search phrases under each subject, presented in the list above, were developed during the literature review. An initial search on the subject led to information that helped in creating more specific search phrases. The outcome of the literature review is a contextual description of the environmental assessment of business models and sustainable business model innovation. This literature review resulted in a background against which the findings from this study were compared and discussed. 12 2.2 BM-LCA of five business models Five business models were identified and derived for the application of BM-LCA. The procedure follows the steps in the so far only previous conducted BM-LCA and the corresponding article focused on the BM-LCA method (Böckin et al., 2022a, 2022b; Goffetti et al., 2022) to as large extent as possible. A chosen methodological alteration is the use of an existing product LCA on the C40 battery-electric vehicle (Carbon Footprint Report C40 Recharge, n.d.). The existing product LCA is used to take advantage of existing knowledge and avoid extra work and test the feasibility of using an existing product LCA when conducting a BM-LCA. Business model-specific data is added and the existing LCA is complemented with spare part data. The chapter describing the actual conduction of the BM-LCA, see chapter 3 below, includes methodological descriptions of for example the calculation steps. The description of the BM- LCA methodology in this chapter aims at creating an overview rather than an in-depth methodological understanding. Figure 3 below shows the workflow and activities performed in this BM-LCA study. Figure 3 - BM-LCA case method 13 Starting from the top in Figure 3, the understanding, gathering of data, and creation of flowcharts and transaction equations are done in parallel for both environmental and business data. The environmental and business data is then coupled by connecting monetary and physical flows. The next step is to calculate the contribution margin for the Partner sales business model which is the reference business model in this study. The other business models are then scaled to the same contribution margin as for Partner sales. Environmental impacts connected to the functional unit are then calculated using transaction and coupling equations. Due to sensitive business data, the economic and specific business model values are not displayed in the report. The coupling equations and parameters are however shown. The results are presented as normalized values, which reflect the correlation between the models. A model is built in excel, with the possibility to modify all input parameters, to be able to use the model for sensitivity analysis, but also as a simulation tool for changes in the business models and to be able to innovate sustainable business models. 2.3 Exploration – BM-LCA as a tool for sustainable business model innovation As a part of fulfilling the second aim, an exploration of the possibilities to use BM-LCA as a tool for sustainable business model innovation is performed. The starting point in this exploration is the five business models assessed. As the creation of the model for the assessment was done with business model innovation in mind, it includes an ability to change environmental as well as monetary parameters. The sustainable business model innovation is done by changing individual parameters as well as combinations of parameters to see the effect on the environmental performance of the business model. 2.4 Evaluation The second method to fulfill the second aim is to evaluate the usefulness of the results intended for VCC to assess the environmental performance of business models and as a tool for sustainable business model innovation. This is performed by a workshop. The workshop is conducted together with relevant people within environmental and financial departments to generate holistic perspectives. A short presentation of the BM-LCA method and results is followed by an interactive session where the participants had the opportunity to alter interesting parameters. Lastly, discussion and feedback are given on the results. The work process was also documented during the entire project, including spent time on different activities, to evaluate the feasibility of performing a BM-LCA. 14 3 BM-LCA - Environmental Assessment of five Business Models This chapter report the application of BM-LCA to five business models, two sales business models, and three subscription business models. It can be seen as an individual report within the bigger report. The structure follows the main structure proposed by Böckin et al. (2022b) in the following chapters. • Goal and Scope: Descriptive phase • Goal and Scope: Coupling phase • Life Cycle Inventory • Life Cycle Impact Assessment • Interpretation • Conclusions 3.1 Goal & scope: Descriptive phase This part of the BM-LCA focuses on a description of the five business models as well as a description of system boundaries and choices of impact categories. 3.1.1 Descriptions of the business models Five business models have been assessed: Partner sales, Direct sales, Flex, Fix, and Multicycle. These are described with key features, flowcharts, and tables in the sections below. 3.1.1.1 Partner sales Partner sales are considered the reference model in this study. VCC produces cars that are sold to a dealer. The dealer sells the car to the end-user. The sale of the car is the main transaction but there are also other types of transactions during the car’s lifetime. Spare parts are sold during the whole lifetime of the car, there is however a diminishing number of loyal customers as the car gets older since customers move over to other spare part dealers. This phenomenon is called the retention curve. The Partner sales business model and its physical, as well as monetary flows, are shown in Figure 5 below with an explanation of the flowchart elements in Figure 4. Flows that cross the boundary between VCC and other actors are of interest regarding monetary flows while environmental impacts are considered independent of the actor. The monetary transactions for the Partner sales model are presented in Table 3. The revenues and costs in Table 3 correspond to the cost and revenue numbers in the flowchart. Material recycling is outside the system boundaries due to the use of the cut-off method. 15 Figure 4 - Flowchart explanations Figure 5 -Flowchart Partner sales 16 Table 3 - Transactions Partner sales Transaction Description Transaction Description Rev 1 Car sale Cost 1 Materials and components Rev 2 Revenue spare parts - "Frisk försäljning" Cost 2 Inbound logistics for material and components Rev 5 Extended warranty Cost 3 Li-ion battery Rev 6 Original service Cost 4 Inbound logistics for Li- ion battery Rev 7 Insurance Cost 5 Duty Cost 6 Variable manufacturing cost Cost 7 Outbound logistics Cost 9 Cost of sale spare parts Cost 10 Warranty Cost 11 Battery warranty Cost 12 Road assistance Cost 13 Unspecified service Cost 14 Extended warranty Cost 15 Original service Cost 16 Insurance 17 3.1.1.2 Direct sales The Direct sales business model is similar to the Partner sales model. The largest difference is that VCC sells the car directly to the end customer instead of the car dealer. This leads to different revenue and cost streams compared to the Partner sales model while the physical flows remain the same. An example is that the dealer is paid to perform certain services. See the flow chart for the Direct sales business model in Figure 6 and the transaction description in Table 4. Figure 6 - Flowchart Direct sales 18 Table 4 - Transactions Direct sales Transaction Description Transaction Description Rev 1 Car sale Cost 1 Materials and components Rev 2 Revenue spare parts - "Frisk försäljning" Cost 2 Inbound logistics material and components Rev 3 Subsidy Cost 3 Li-ion battery Rev 5 Extended warranty Cost 4 Inbound logistics Li-ion battery Rev 6 Original service Cost 5 Duty Rev 7 Insurance Cost 6 Variable manufacturing cost Cost 7 Outbound logistics Cost 8 Pre-delivery inspection Cost 19 Dealer compensation Cost 9 Cost of sale spare parts Cost 10 Warranty Cost 11 Battery warranty Cost 12 Road assistance Cost 13 Unspecified service Cost 14 Extended warranty Cost 15 Original service Cost 16 Insurance Cost 17 Service - Subscription 19 3.1.1.3 Flex The Flex business model is subscription-based and focuses on flexibility and all-inclusive hassle-free access to a car. The customer pays a monthly fee that includes most car-related costs except electricity for driving. An important revenue from this business model is the sale of the used car when the subscription is canceled. The car is then sold to a dealer that sells the car to an end customer. The business model Flex can be terminated with a three-month notice period by the user. To simplify the modeling, an assumed average user period of 18 months was chosen based on historical data and VCC experts. See Figure 7 for the flowchart and Table 5 for transaction descriptions. Figure 7 - Flowchart Flex 20 Table 5 - Transactions Flex Transaction Description Transaction Description Rev 1 Car sale Cost 1 Materials and components Rev 2 Revenue spare parts - "Frisk försäljning" Cost 2 Inbound logistics material and components Rev 3 Subsidy Cost 3 Li-ion battery Rev 4 Subscription fee / month Cost 4 Inbound logistics Li-ion battery Cost 5 Duty Cost 6 Variable manufacturing cost Cost 7 Outbound logistics Cost 8 Pre-delivery inspection Cost 19 Dealer compensation Cost 9 Cost of sale spare parts Cost 10 Warranty Cost 11 Battery warranty Cost 12 Road assistance Cost 13 Unspecified service Cost 14 Extended warranty Cost 15 Original service Cost 16 Insurance Cost 17 Service - Subscription Cost 18 Valuator cost 21 3.1.1.4 Fix Fix is a subscription-based business model that is similar to the Flex business model. The biggest difference is that the subscriber commits to a period of 36 months while getting a lower monthly price compared to the more flexible Flex business model. The used car is sold to a dealer after the 36 months subscription period. See the flowchart in Figure 8 and transaction descriptions in Table 6. Figure 8 - Flowchart Fix 22 Table 6 - Transactions Fix Transaction Description Transaction Description Rev 1 Car sale Cost 1 Materials and components Rev 2 Revenue spare parts - "Frisk försäljning" Cost 2 Inbound logistics material and components Rev 3 Subsidy Cost 3 Li-ion battery Rev 4 Subscription fee / month Cost 4 Inbound logistics Li-ion battery Cost 5 Duty Cost 6 Variable manufacturing cost Cost 7 Outbound logistics Cost 8 Pre-delivery inspection Cost 19 Dealer compensation Cost 9 Cost of sale spare parts Cost 10 Warranty Cost 11 Battery warranty Cost 12 Road assistance Cost 13 Unspecified service Cost 14 Extended warranty Cost 15 Original service Cost 16 Insurance Cost 17 Service - Subscription Cost 18 Valuator cost 23 3.1.1.5 Multicycle The Multicycle business model is at present not an existing business model but could be a potential next step for the subscription-based business models. The difference compared to the Flex model is that the car that is returned from the first subscriber is remarketed and used by another subscriber. The assessment of this potential business model builds on assumptions regarding the number of remarketing occasions, car lifetime in the subscription model before it is sold and a decreased monthly subscription fee, and increased service and maintenance cost as the car gets older. See the flowchart in Figure 9 and transaction descriptions in Table 7. Figure 9 - Flowchart Multicycle 24 Table 7 - Transactions Multicycle Transaction Description Transaction Description Rev 1 Car sale Cost 1 Materials and components Rev 2 Revenue spare parts - "Frisk försäljning" Cost 2 Inbound logistics material and components Rev 3 Subsidy Cost 3 Li-ion battery Rev 4 Subscription fee / month Cost 4 Inbound logistics Li-ion battery Rev 5 Extended warranty Cost 5 Duty Rev 6 Original service Cost 6 Variable manufacturing cost Rev 7 Insurance Cost 7 Outbound logistics Cost 8 Pre-delivery inspection Cost 19 Dealer compensation Cost 9 Cost of sale spare parts Cost 10 Warranty Cost 11 Battery warranty Cost 12 Road assistance Cost 13 Unspecified service Cost 14 Extended warranty Cost 15 Original service Cost 16 Insurance Cost 17 Service - Subscription Cost 18 Valuator cost Cost 24 Re-marketing 25 3.1.2 Functional unit The functional unit in this study is the contribution margin of the Partner sales business model for a business period of 25 years from the start of production. The Partner sales business model is used as the reference model as it is the dominating and traditional business model for VCC. The 25-year business period consists of six years of car production, followed by the car lifetime of the last produced car, which is assumed to be 20 years. During the car's lifetime, spare parts are replaced and emissions are ongoing since the cars require energy during their use phase. The business period of 25 years is long, to say the least. It could be argued that a shorter business period is more relevant but there are also arguments for choosing a long period. Consequences of the result due to a shorter business period are elaborated upon in the sensitivity analysis. The reasoning behind the chosen business period is to model a realistic scenario for the C40 battery-electric vehicle. The 25 years is derived from a combination of the long lifetime of the products, assumed production over six years, emissions as well as monetary transactions during the whole lifetime of the product, and differences in when revenues and costs occur in the different business models. By choosing 25 years business period, the time from the start of production to the end-of-life of the last car in the fleet for the assessed car model is included, resulting in several cars with different car ages for each business year as can be seen in Table 8. The computational excel model is built in a way so that results for shorter periods, for example, one specific business year, can be presented as well. Table 8 - Which activities occur during the different phases of the entire business period Business year within the business period Car production Active emission Spare part production End-of-life management 1-6 x x x 7-19 x x 20-25 x x x It is important to consider the time value of money as the business period is long and the timing of monetary flows differs between the business models. The equations behind the modeling are therefore prepared to include discounted revenues, costs, and contribution margins. However, the discount rate is set to 0% in this assessment but changed to 2,5%, 5%, and 10% in the interpretation section. The previously done BM-LCA by Böckin et al. (2022a) is based on a certain level of profit while this study is based on contribution margin. The reason for this is mainly the economic structure at VCC and the fact that it is not possible to assign all costs to a certain product due to the complexity of a car manufacturer's R&D, production, etc. where different product models share costs for technology resources as well as human resources and investments. The drawback with using contribution margin is mainly if the different business models have different levels of costs to cover before reaching the profit level. This could lead to a misleading assessment in a BM-LCA. 26 3.1.3 Environmental system boundaries The study is a cradle-to-grave, including activities over the entire life cycle for the product system within the business model, depicted in Figure 10, starting with extracting and refining raw material and ending with end-of-life management. Environmental data comes from the C40 LCA report performed by VCC (Carbon Footprint Report C40 Recharge, n.d.), with additional modeling of spare part data, see Table 9. Table 9 - Data sources Process Data source Materials production and refining C40 LCA Li-ion battery modules C40 LCA Volvo Cars manufacturing C40 LCA Use phase emissions C40 LCA Spare parts Based on information provided by VCC End-of-life C40 LCA Emissions from extraction and refining of material, production, and end-of-life management are global averages. Use phase emissions from the carbon intensity of electricity mixes are considered to be European averages. The reason behind this is the grid interconnection between Sweden and the rest of Europe. Every new introduced car within Swedish territory results in less low-carbon intensive electricity exported and thus an equivalent usage of the marginal electricity instead, which is the European average. Figure 10 - Environmental system boundary 3.1.4 Environmental limitations A cut-off approach has been used, meaning that 100% of the emissions from scrap generated in the production is allocated to the vehicle, even though, the scrap can sometimes be used as input material for other product systems. 27 Emissions from the production of spare parts are included, which is an additional activity taken into consideration compared to the LCA that this study is based on. Maintenance emissions other than spare parts, e.g. energy requirements for workshop tools, are excluded. 3.1.5 Economic system boundaries Data considering the economic parameters and the corresponding values are specific to the company and the operations of the business models in the Swedish market. Due to the economic structures at VCC, collecting eg. R&D-, capital investment, and personnel-related over head-costs for a specific business model and the associated product was not feasible. Thus, the functional unit is limited to contribution margin and deviates from the suggested profit-based functional unit (Böckin et al., 2022b), see Figure 11. EU Carbon permits nor an internal carbon price are taken into consideration in this study Figure 11 - Economic system boundary 3.1.6 Impact categories The BM-LCA study is limited to greenhouse gas emissions, a so-called carbon footprint report. Our choice of impact categories follows those of the existing VCC product LCA report. 3.2 Goal and scope: Coupling This chapter aims at describing the coupling phase and equations needed to get to the results. Each business year consists of several cars with different car ages. The age of the car is connected to both monetary transactions and CO2eq emissions. The technical lifetime of the cars is assumed to be 200 000 km based on assumptions made in the VCC C40 LCA. The driving distance per year is set to 10 000 kilometers based on discussions with VCC. This results in a car lifetime of 20 years which together with a chosen business period of 25 years results in a lot of calculations of e.g. costs, revenues, and emissions needed. These calculations were performed in Microsoft Excel using values/equations related to car age in Table 11-14 as input in equations 1 to 19 below. The transactions resulting in a contribution margin are in the center of the coupling equations and a BM-LCA computational excel model was built where input parameters for monetary transactions result in different production quantities, different CO2eq emissions, etc. As can be seen in Table 3-7 there are several different transactions within each business model, e.g. the sale of a new or used car, subscription fees, sale of spare parts, and warranty costs. To compare the different business models, a set level of economic performance is used as the basis for the comparison. The contribution margin for business model 1, in this case, the 28 Partner sales business model, is set to be the reference level to which the other business models also should achieve. Business model 1 in this BM-LCA is the Partner sales business model. The contribution margin of this business model is calculated by using sales figures per business year within the chosen business period. The same distribution of new cars per business year as for business model 1 is used for the other business models for either sale of new cars or new cars introduced to a subscription scheme. The long business period chosen in this BM-LCA is motivated by the long lifetime of the car, the time difference of monetary flows between the business models, and the fact that it was of interest to model a realistic scenario for the C40 BEV and therefore look at the whole period when the car model is produced and in use. The BM-LCA model created allows for shorter business periods as well. It is important to at least look at a long enough period to include the revenues from the subscription-based business models, both monthly revenues and sales of used cars, to get a fair comparison. By calculating contribution margin, revenues, costs, and emissions per business year, it is possible to look at monetary results and environmental impacts for shorter periods for example business periods 1-3, while at the same time keeping the longer business period as a reference period. The Partner sales and Direct sales business model is up-front revenue heavy while the revenues come later in the Flex, Fix, and Multicycle business models. The possibility to use discounting of monetary flows is applied in the sensitivity analysis. This is to take the time value of money into account as the business period is long and the monetary flows differ per business year between the business models even if the discounted contribution margin for the whole period is set to be the same. The equations below use general parameters such as BMx where x denotes the business model. The reasoning behind this is to keep the equations as general as possible. It should however be made clear that parameters and equations are a result of business model logic and methodological choices and are therefore not general in the sense that they are applicable for all other cases. The input to the coupling equations 1-19 is revenues, costs, and emissions per car age found in Table 11-14 together with the number of cars of a certain car age that is present during a specific business year. At which car age the transactions and emissions occur is depicted in the equations, e.g. for transactions or emissions during car age 0-1 that is denoted by CAj =CA1. The parameter description in Table 10 below describes the general parameters used in Table 11-14 and equations 1-19. 29 Table 10 - Parameter description Parameter description Parameter Business Model x BMx Business Year i BYi Car age j CAj Nr of cars with car age CAj for business model BMx and business year BYi 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 Contribution margin per car age cm Contribution margin per business year or business period CM Revenue per car age rev Revenue per business year or business period REV Cost per car age cost Cost per business year or business period COST CO2eq emission per business year or business period EMISSION Emission per emission source, business model, and car age 𝑒𝑚𝑐,𝐵𝑀𝑥𝐶𝐴𝑗 Revenue per emission source, business model, and car age rev𝑎,BMx,CAj Cost per emission source, business model, and car age 𝑐𝑜𝑠𝑡𝑏,𝐵𝑀𝑥𝐶𝐴𝑗 3.2.1 Monetary transactions per car age Five revenue streams were identified for the Partner sales model and four for the subscription models. Sixteen and eighteen costs were identified for the respective business models. These transactions have been expressed as per car age to enable coupling equations (eq.1-eq.19) at a later stage. The values and at what car age they occur are presented in Table 11-14. The values and when they occur differ between the business models due to the business model logic and follows the structure presented above. When the different revenues and costs that occur for one car in relation to its age are presented in Table 15 and Table 16. 30 Table 11 - Revenues – Partner sales - Per car age Transaction parameter Description of transaction Transactions per car age rev1,BMx,CAj Sale of new car to dealer rev1,BMx,CA𝑗 = price_car_Partner sales 𝑗 = 1 rev2,BMx,CAj Revenue spare parts - "Frisk försäljning" Car age (CAj): 𝑗 = 1 to 𝑗 = 𝑐𝑎𝑟_𝑙𝑖𝑓𝑒𝑡𝑖𝑚𝑒 rev2,BMx,CAj = price_spareCAj rev3,BMx,CAj Subsidy from the government if buying an electric car N/A rev4,BMx,CAj Subscription fee / month N/A rev5,BMx,CAj Extended warranty year 3 rev5,BMx,CA𝑗 = price_extended_warranty 𝑗 = 1 rev6,BMx,CAj Original service 3 years rev6,BMx,CA𝑗 = price_extended_warranty 𝑗 = 1 rev7,BMx,CAj Insurance rev7,BMx,CA𝑗 = price_extended_warranty 𝑗 = 1 Table 12 - Revenues – Flex - Per car Transaction parameter Description of transaction Transactions per car age rev1,BMx,CAj Sale of a used car to dealer rev1,BMx,CA2 = price_used_car_subscription rev2,BMx,CAj Revenue spare parts - "Frisk försäljning" Car age (CAj): 𝑗 = 1 to 𝑗 = 𝑐𝑎𝑟_𝑙𝑖𝑓𝑒𝑡𝑖𝑚𝑒 rev2,BMx,CAj = 𝑝𝑟𝑖𝑐𝑒_𝑠𝑝𝑎𝑟𝑒𝐶𝐴𝑗 rev3,BMx,CAj Subsidy from the government when buying an electric car rev3,BMx,CA𝑗 = rev_subsidy 𝑗 = 1 rev4,BMx,CAj Revenue from monthly subscription price per year Car age (CAj): 𝑗 = 1 to 𝑗 = 2 31 rev4,BMx,CAj = 𝑝𝑟𝑖𝑐𝑒_𝑠𝑢𝑏𝑠𝑐𝑟𝑖𝑝𝑡𝑖𝑜𝑛𝐶𝐴𝑗 rev5,BMx,CAj Extended warranty year 3 N/A rev6,BMx,CAj Original service 3 years N/A rev7,BMx,CAj Insurance N/A 32 Table 13 - Costs – Partner sales - Per car age Transaction parameter Description of transaction Transactions per car age 𝑐𝑜𝑠𝑡1,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of purchasing materials and components 𝑐𝑜𝑠𝑡1,BMx,CA𝑗 = cost_material_components 𝑗 = 1 𝑐𝑜𝑠𝑡2,𝐵𝑀𝑥𝐶𝐴𝑗 Inbound logistics cost of material and components 𝑐𝑜𝑠𝑡2,BMx,CA𝑗 = cost_inbound_logistics1 𝑗 = 1 𝑐𝑜𝑠𝑡3,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of purchasing a Li-ion battery 𝑐𝑜𝑠𝑡3,BMx,CA𝑗 = cost_battery 𝑗 = 1 𝑐𝑜𝑠𝑡4,𝐵𝑀𝑥𝐶𝐴𝑗 Inbound logistics cost of Li-ion battery 𝑐𝑜𝑠𝑡4,BMx,CA𝑗 = cost_inbound_logistics2 𝑗 = 1 𝑐𝑜𝑠𝑡5,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of duty related to logistics 𝑐𝑜𝑠𝑡5,BMx,CA𝑗 = cost_duty 𝑗 = 1 𝑐𝑜𝑠𝑡6,𝐵𝑀𝑥𝐶𝐴𝑗 Variable manufacturing cost 𝑐𝑜𝑠𝑡6,BMx,CA𝑗 = 𝑐𝑜𝑠𝑡_𝑚𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑖𝑛𝑔 𝑗 = 1 𝑐𝑜𝑠𝑡7,𝐵𝑀𝑥𝐶𝐴𝑗 Outbound logistics cost of car 𝑐𝑜𝑠𝑡7,BMx,CA𝑗 = cost_outbound_logistics 𝑗 = 1 𝑐𝑜𝑠𝑡8,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of pre-delivery inspection performed by dealers N/A 𝑐𝑜𝑠𝑡19,𝐵𝑀𝑥𝐶𝐴𝑗 Dealer compensation cost of handing out car N/A 𝑐𝑜𝑠𝑡9,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of sale spare parts - Purchase material & components - Other direct costs such as logistics - 4R specific costs Car age (CAj): 𝑗 = 1 to 𝑗 = 𝑐𝑎𝑟_𝑙𝑖𝑓𝑒𝑡𝑖𝑚𝑒 𝑐𝑜𝑠𝑡9,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑠𝑝𝑎𝑟𝑒𝐶𝐴𝑗 𝑐𝑜𝑠𝑡10,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of warranty for years 1-2 Car age (CAj): 𝑗 = 1 to 𝑗 = 2 𝑐𝑜𝑠𝑡10,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑤𝑎𝑟𝑟𝑎𝑛𝑡𝑦𝐶𝐴𝑗 𝑐𝑜𝑠𝑡11,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of battery warranty for years 1-8 Car age (CAj): 𝑗 = 1 to 𝑗 = 8 𝑐𝑜𝑠𝑡11,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑏𝑎𝑡𝑡𝑒𝑟𝑦_𝑤𝑎𝑟𝑟𝑎𝑛𝑡𝑦𝐶𝐴𝑗 𝑐𝑜𝑠𝑡12,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of road assistance for years 1- 3 Car age (CAj): 𝑗 = 1 to 33 𝑗 = 3 𝑐𝑜𝑠𝑡12,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑎𝑠𝑠𝑖𝑠𝑡𝑎𝑛𝑐𝑒𝐶𝐴𝑗 𝑐𝑜𝑠𝑡13,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of unspecified service for years 1-3 Car age (CAj): 𝑗 = 1 to 𝑗 = 3 𝑐𝑜𝑠𝑡13,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑜𝑛_𝑐𝑎𝑙𝑙𝐶𝐴𝑗 𝑐𝑜𝑠𝑡14,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of extended warranty for year 3 𝑐𝑜𝑠𝑡14,BMx,CA3 = 𝑐𝑜𝑠𝑡_𝑒𝑥𝑡𝑒𝑛𝑑𝑒𝑑 𝑐𝑜𝑠𝑡15,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of original service for years 1- 3 Car age (CAj): 𝑗 = 1 to 𝑗 = 3 𝑐𝑜𝑠𝑡15,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙_𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝐶𝐴𝑗 𝑐𝑜𝑠𝑡16,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of insurance for years 1-3 Car age (CAj): 𝑗 = 1 to 𝑗 = 3 𝑐𝑜𝑠𝑡16,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒𝐶𝐴𝑗 𝑐𝑜𝑠𝑡17,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of subscription-specific service & warranty N/A 𝑐𝑜𝑠𝑡18,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of evaluating a used car N/A Table 14 - Costs – Flex - Per car age Transaction parameter Description of transaction Transactions per car age 𝑐𝑜𝑠𝑡1,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of purchasing materials and components 𝑐𝑜𝑠𝑡1,BMx,CA𝑗 = cost_material_components 𝑗 = 1 𝑐𝑜𝑠𝑡2,𝐵𝑀𝑥𝐶𝐴𝑗 Inbound logistics cost of material and components 𝑐𝑜𝑠𝑡2,BMx,CA𝑗 = cost_inbound_logistics1 𝑗 = 1 𝑐𝑜𝑠𝑡3,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of purchasing a Li-ion battery 𝑐𝑜𝑠𝑡3,BMx,CA𝑗 = cost_battery 𝑗 = 1 𝑐𝑜𝑠𝑡4,𝐵𝑀𝑥𝐶𝐴𝑗 Inbound logistics cost of Li- ion battery 𝑐𝑜𝑠𝑡4,BMx,CA𝑗 = cost_inbound_logistics2 𝑗 = 1 𝑐𝑜𝑠𝑡5,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of duty related to logistics 𝑐𝑜𝑠𝑡5,BMx,CA𝑗 = cost_duty 𝑗 = 1 𝑐𝑜𝑠𝑡6,𝐵𝑀𝑥𝐶𝐴𝑗 Variable manufacturing cost 𝑐𝑜𝑠𝑡6,BMx,CA𝑗 = 𝑐𝑜𝑠𝑡_𝑚𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑖𝑛𝑔 𝑗 = 1 34 𝑐𝑜𝑠𝑡7,𝐵𝑀𝑥𝐶𝐴𝑗 Outbound logistics cost of car 𝑐𝑜𝑠𝑡7,BMx,CA𝑗 = cost_outbound_logistics 𝑗 = 1 𝑐𝑜𝑠𝑡8,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of pre-delivery inspection performed by dealers 𝑐𝑜𝑠𝑡8,BMx,CA𝑗 = cost_PDI 𝑗 = 1 𝑐𝑜𝑠𝑡19,𝐵𝑀𝑥𝐶𝐴𝑗 Dealer compensation cost of handing out car 𝑐𝑜𝑠𝑡19,BMx,CA𝑗 = cost_dealer_compensation 𝑗 = 1 𝑐𝑜𝑠𝑡9,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of sale “frisk försäljning” - Purchase material & components - Other direct costs such as logistics - 4R specific costs Car age (CAj): 𝑗 = 1 to 𝑗 = 𝑐𝑎𝑟_𝑙𝑖𝑓𝑒𝑡𝑖𝑚𝑒 𝑐𝑜𝑠𝑡9,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑠𝑝𝑎𝑟𝑒𝐶𝐴𝑗 𝑐𝑜𝑠𝑡10,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of warranty for years 1-2 Car age (CAj): 𝑗 = 1 to 𝑗 = 2 𝑐𝑜𝑠𝑡10,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑤𝑎𝑟𝑟𝑎𝑛𝑡𝑦𝐶𝐴𝑗 𝑐𝑜𝑠𝑡11,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of battery warranty for years 1-8 Car age (CAj): 𝑗 = 1 to 𝑗 = 8 𝑐𝑜𝑠𝑡11,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑏𝑎𝑡𝑡𝑒𝑟𝑦_𝑤𝑎𝑟𝑟𝑎𝑛𝑡𝑦𝐶𝐴𝑗 𝑐𝑜𝑠𝑡12,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of road assistance for years 1-3 Car age (CAj): 𝑗 = 1 to 𝑗 = 3 𝑐𝑜𝑠𝑡12,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑎𝑠𝑠𝑖𝑠𝑡𝑎𝑛𝑐𝑒𝐶𝐴𝑗 𝑐𝑜𝑠𝑡13,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of unspecified service for yyears1-3 Car age (CAj): 𝑗 = 1 to 𝑗 = 3 𝑐𝑜𝑠𝑡13,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑜𝑛_𝑐𝑎𝑙𝑙𝐶𝐴𝑗 𝑐𝑜𝑠𝑡14,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of extended warranty for year 3 𝑐𝑜𝑠𝑡14,BMx,CA3 = 𝑐𝑜𝑠𝑡_𝑒𝑥𝑡𝑒𝑛𝑑𝑒𝑑 𝑐𝑜𝑠𝑡15,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of original service for years 1-3 𝑁/A 𝑐𝑜𝑠𝑡16,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of insurance for the subscription period Car age (CAj): 𝑗 = 1 to 𝑗 = 2 35 𝑐𝑜𝑠𝑡16,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒𝐶𝐴𝑗 𝑐𝑜𝑠𝑡17,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of subscription- specific service Car age (CAj): 𝑗 = 1 to 𝑗 = 2 𝑐𝑜𝑠𝑡17,BMx,CAj = 𝑐𝑜𝑠𝑡_𝑠𝑢𝑏𝑠𝑐𝑟𝑖𝑝𝑡𝑖𝑜𝑛_𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝐶𝐴𝑗 𝑐𝑜𝑠𝑡18,𝐵𝑀𝑥𝐶𝐴𝑗 Cost of evaluating a used car 𝑐𝑜𝑠𝑡18,BMx,CA2 = 𝑐𝑜𝑠𝑡_𝑣𝑎𝑙𝑢𝑎𝑡𝑜𝑟 Table 15 - Partner sales, a summary of revenues and costs in relation to car age Car age Car sale Included services Warranty Spare parts 1 x x x x 2 x x x 3 x x x 4-9 x x 10-20 x Table 16 - Flex, a summary of revenues and costs in relation to car age Car age Car sale Subscription Included services Warranty Spare parts 1 x x x x 2 x x x x 3 x x x x 4-8 x x 9-20 x The parameters for revenues and costs in Table 10-13 are per business model and car age for the Partner sales and Flex business models. Similar tables and calculations have been made for the other business models but excluded for the sake of simplifying the report. The values of these parameters are then used as input in the couplings equations described below and step-by-step in Table 17. The step-by-step summary in Table 17 below includes CO2eq calculations that are based on emission values per source and car age found in Table 18. 36 Table 17 - Description of calculation steps Step Description 1-3 Calculate rev, cost & cm per car ages for one car for all business models 4-5 Calculate contribution margin per business model, business year, and the whole business period. This will result in different contribution margins for the different business models. 6-7 Finding the scale factor by using the contribution margin from business model 1 as the reference value. The scale factor is used to find quantities of produced cars per business year for the different business models needed to reach the set contribution margin. 8 Calculate contribution margin, revenue, and cost per business model and business year. 9-10 Calculate contribution margin, revenue, and cost per business model and business period. The contribution margin per business period should be the same for all business models so this step can be seen as a verification. 11 Calculate the emission per emission source and business year by using the emissions per car age and quantity per car age and business year. 12-13 Calculate emissions per emission source and business model as well as emissions from all emission sources per business model. 14 Calculate the main measurement of this BM-LCA – CO2eq per SEK contribution margin for each business model as well as CO2eq per SEK revenue. Step 1. Starting with calculating the revenue per car, business model, and car age by Eq. 1 by summing all revenues for a specific car age. This is needed as the monetary transactions are connected to specific ages of the cars. 𝑟𝑒𝑣𝐵𝑀𝑥𝐶𝐴𝑗 = ∑ 𝑟𝑒𝑣𝑎,𝐵𝑀𝑥 ,𝐶𝐴𝑗 11 𝑎=1 Eq.1 - Revenue (rev) per car, business model, and car age. Step 2. The next step is to do the same for cost per car, business model, and car age by Eq. 2. 𝑐𝑜𝑠𝑡𝐵𝑀𝑥𝐶𝐴𝑗 = ∑ 𝑐𝑜𝑠𝑡𝑎𝐶𝐴𝑗 23 𝑏=1 Eq.2. Cost per car, business model, and car age. Step 3. Eq. 3 below is a general equation showing the relationship between contribution margin (CM), revenue (Rev), and cost (Cost). This general equation is combined with Eq. 1 and Eq. 2 to get the contribution margin per car, business model, and car age shown in Eq. 4. 37 𝑐𝑚 = 𝑟𝑒𝑣 − 𝑐𝑜𝑠𝑡 Eq.3 - General equation for contribution margin (CM). 𝑐𝑚𝐵𝑀𝑥𝐶𝐴𝑗 = ∑ 𝑟𝑒𝑣𝑎𝐶𝐴𝑗 11 𝑎=1 − ∑ 𝑐𝑜𝑠𝑡𝑏𝐶𝐴𝑗 23 𝑏=1 Eq.4. Contribution margin (cm) per car, business model, and car age. Step 4. The next step is to calculate the contribution margin per business year by using Eq. 5. The quantity of cars for a certain car age is multiplied by the contribution margin for a car for that car age and summed for all car ages. As the business period is long and the distribution of revenues and costs per business year differs between the years it is reasonable to consider the time value to fairly compare the business models. Although it is not included in the impact assessment, the possibility to calculate with discounting is included in Eq. 5 below. 𝐶𝑀𝐵𝑀𝑥𝐵𝑌𝑖_𝑠𝑐𝑎𝑙𝑒 = ( 1 (1 + 𝑟)𝑖−1 ) ∑ 𝑞𝐵𝑀1𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 𝑐𝑚𝐵𝑀𝑥𝐶𝐴𝑗 20 𝑗=1 Eq. 5. Contribution margin (CM) for a chosen business model (x) for a chosen business year (i) with the same production quantity (𝑞𝐵𝑀1𝐵𝑌𝑖𝐶𝐴𝑗 ) as for BM1. Step 5. The result of Eq. 6. is the discounted contribution margin for a business model for the whole business period. The business period consists, in this case, of several business years. 𝐶𝑀𝐵𝑀𝑥_𝑠𝑐𝑎𝑙𝑒 = ∑ ∑ 𝑞𝐵𝑀1𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 𝐶𝑀𝐵𝑀𝑥𝐶𝐴𝑗 20 𝑗=1 𝑘 𝑖=1 Eq. 6. Discounted contribution margin (CM) for a chosen business model (x) over the business period (k) in years with the same production quantity (𝑞𝐵𝑀1𝐵𝑌𝑖𝐶𝐴𝑗 ) as for BM1. Step 6. The most significant deviation between the previously made BM-LCA and this study is within this step. In this step, the scale factor is found to scale the product system based on the set contribution margin level. The contribution margin is postulated to be the same for all business models for the business period. Scale factors for each business model are calculated by dividing the contribution margin for business model 1 by the contribution margin for each business model according to Eq. 7. The scale factor for business model 1 then becomes 100% which is logical since this is the reference business model. This methodological deviation is possible since all monetary flows are expressed per product. If there would be fixed or semifixed costs as in the previous BM-LCA study, scaling the business models would not be feasible. 38 𝑓𝐵𝑀𝑥 = 𝐶𝑀𝐵𝑀1 𝐶𝑀𝐵𝑀𝑥 Eq. 7. Find scale factor for all business models Step 7. The scale factors from Eq. 7. are used to scale the production per business year, done in Eq. 8., to reach the same contribution margin over the business period. 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 = 𝑞𝐵𝑀1𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 𝑓𝐵𝑀𝑥 Eq. 8. Scaled amount (q) to reach the same contribution margin as BM1, by multiplying the amount from business model 1 with the scaling factor. Step 8. Use equations 9, 10, and 11 to calculate contribution margin, revenues, and costs for each business year. This is not a necessary step but as the business period chosen is long, to say the least, it is probably of interest to be able to present cost and revenues as well as contribution margin per business year. 𝐶𝑀𝐵𝑀𝑥𝐵𝑌𝑖 = ( 1 (1 + 𝑟)𝑖−1 ) ∑ 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 𝑐𝑚𝐵𝑀𝑥𝐶𝐴𝑗 20 𝑗=1 Eq. 9. Contribution margin (CM) for a chosen business model (x) for a chosen business year (i). 𝑅𝐸𝑉𝐵𝑀𝑥𝐵𝑌𝑖 = ( 1 (1 + 𝑟)𝑖−1 ) ∑ 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 𝑟𝑒𝑣𝐵𝑀𝑥𝐶𝐴𝑗 20 𝑗=1 Eq. 10. Revenue (REV) for a chosen business model (x) for a chosen business year (i). 𝐶𝑂𝑆𝑇𝐵𝑀𝑥𝐵𝑌𝑖 = ( 1 (1 + 𝑟)𝑖−1 ) ∑ 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 𝑐𝑜𝑠𝑡𝐵𝑀𝑥𝐶𝐴𝑗 20 𝑗=1 Eq. 11. Cost (COST) for a chosen business model (x) for a chosen business year (i). Step 9. Eq. 12. is used to calculate the contribution margin per business model for the whole business period. This can be seen as a verification or check of the scaling step as the contribution margin is postulated to be the same for all business models. 𝐶𝑀𝐵𝑀𝑥 = ∑ ∑ 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 𝐶𝑀𝐵𝑀𝑥𝐶𝐴𝑗 20 𝑗=1 𝑘 𝑖=1 39 Eq. 12. Discounted contribution margin (CM) for a chosen business model (x) over the business period (k) in years. Step. 10. Eq. 13 and 14. result in revenues and costs per business period. This is not a necessary step but the outcome is seen as important considering the long lifetime of the vehicles and the long business period. 𝑅𝐸𝑉𝐵𝑀𝑥 = ∑ ∑ 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 𝑅𝐸𝑉𝐵𝑀𝑥𝐶𝐴𝑗 20 𝑗=1 𝑘 𝑖=1 Eq. 13. Discounted cost for a chosen business model (x) over the business period (k) in years. 𝐶𝑂𝑆𝑇𝐵𝑀𝑥 = ∑ ∑ 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 𝐶𝑂𝑆𝑇𝐵𝑀𝑥𝐶𝐴𝑗 20 𝑗=1 𝑘 𝑖=1 Eq. 14. Discounted revenues for a chosen business model (x) over the business period (k) in years. 3.2.2 Emissions per car age Thirteen sources of emissions have been identified for each business model. Emission 1-10 is related to production and activities before the use-phase and thus assigned to the first age of the car (CA1). Emission 12 and 13 occurs during the use phase, between the car age one to twenty, (CA1-CA20). Emission 11 takes place at the end of the car's lifetime (CA20). The full description of when the emissions take place is described in Table 18. When the different emissions that occur for one car in relation to its age are presented in Table 19. 40 Table 18 - Emissions –all business models - Per car age Emissions per car age Source description Equation 𝑒𝑚1−8,𝐵𝑀𝑥𝐶𝐴𝑗 Emissions related to the production and refining of material & Components 𝑒𝑚1−7,BMx,CA1 = 𝑒𝑚_𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙_𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠 𝑒𝑚1,𝐵𝑀𝑥𝐶𝐴𝑗 - Aluminum 𝑒𝑚1,BMx,CA1 = em_aluminum 𝑒𝑚2,𝐵𝑀𝑥𝐶𝐴𝑗 - Steel and iron 𝑒𝑚2,BMx,CA1 = em_steel_iron 𝑒𝑚3,𝐵𝑀𝑥𝐶𝐴𝑗 - Electronics 𝑒𝑚3,BMx,CA1 = em_electronics 𝑒𝑚4,𝐵𝑀𝑥𝐶𝐴𝑗 - Polymers 𝑒𝑚4,BMx,CA1 = em_polymers 𝑒𝑚5,𝐵𝑀𝑥𝐶𝐴𝑗 - Fluids and undefined 𝑒𝑚5,BMx,CA1 = em_fluids 𝑒𝑚6,𝐵𝑀𝑥𝐶𝐴𝑗 - Other metals 𝑒𝑚6,BMx,CA1 = em_other_metals 𝑒𝑚7,𝐵𝑀𝑥𝐶𝐴𝑗 - Copper 𝑒𝑚7,BMx,CA1 = em_copper 𝑒𝑚8,𝐵𝑀𝑥𝐶𝐴𝑗 - Tires 𝑒𝑚8,BMx,CA1 = em_tyres 𝑒𝑚9,𝐵𝑀𝑥𝐶𝐴𝑗 Production of Li-ion battery modules 𝑒𝑚9,BMx,CA1 = 𝑒𝑚_𝐵𝑎𝑡𝑡𝑒𝑟𝑦 𝑒𝑚10,𝐵𝑀𝑥𝐶𝐴𝑗 Manufacturing, assembling, in-, and out- bound logistics at/to Volvo manufacturing facilities 𝑒𝑚10,BMx,CA1 = 𝑒𝑚_𝑚𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑖𝑛𝑔 = 1 400 𝑘𝑔𝐶𝑂2 − 𝑒𝑞 𝑒𝑚11,𝐵𝑀𝑥𝐶𝐴𝑗 End-of-life emissions from landfill and incineration 𝑒𝑚11,BMx,CA20 = 𝑒𝑚_𝐸𝑜𝐿 = 500 𝑘𝑔𝐶𝑂2 − 𝑒𝑞 𝑒𝑚12,𝐵𝑀𝑥𝐶𝐴𝑗 Production and transport of spare parts Car age (CAj): 𝑗 = 1 to 𝑗 = 𝑐𝑎𝑟_𝑙𝑖𝑓𝑒𝑡𝑖𝑚𝑒 𝑒𝑚12,BMx,CA𝑗 = 𝑒𝑚_𝑠𝑝𝑎𝑟𝑒𝐶𝐴𝑗 𝑒𝑚13,𝐵𝑀𝑥𝐶𝐴𝑗 Emissions from use phase, due to carbon intensity of electricity mix Car age (CAj): 𝑗 = 1 to 𝑗 = 𝑐𝑎𝑟_𝑙𝑖𝑓𝑒𝑡𝑖𝑚𝑒 𝑒𝑚13,BMx,CA𝑗 = 𝑑𝑟𝑖𝑣𝑖𝑛𝑔_𝑑𝑖𝑠𝑡𝑎𝑛𝑐𝑒𝐶𝐴𝑗 ∗ 𝑓𝑢𝑒𝑙_𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 ∗ 𝑒𝑙𝑒𝑐𝑡𝑟𝑖𝑐𝑖𝑡𝑦_𝑚𝑖𝑥 41 Table 19 - All business models, a summary of emission sources in relation to car age Car age Materials & components Li-ion battery Manufacturin g Spare parts Use phase/drivin g EOL 1 x x x x x 2-19 x x 20 x x x Step 11. CO2eq per emission source and business year is calculated in Eq. 15. Emissions per car age and emission source from Table 18 are used in eq. 15-17 below. These emissions might differ between the business models assessed. 𝐸𝑀𝐼𝑆𝑆𝐼𝑂𝑁𝑐,𝐵𝑀𝑥 ,𝐵𝑌𝑖 = ∑ 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 20 𝑗=1 𝑒𝑚𝑐,𝐵𝑀𝑥𝐶𝐴𝑗 Eq. 15. Emission per business year, business model, and emission source. Step 12. Eq. 16 takes the leap from business year to the whole business period per emission source. 𝐸𝑀𝐼𝑆𝑆𝐼𝑂𝑁𝑐,𝐵𝑀𝑥 = ∑ ∑ 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 20 𝑗=1 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑐,𝐵𝑀𝑥𝐶𝐴𝑗 𝑘 𝑖=1 Eq. 16. Emission per business period and business model per emission source. Step 13. To get to the main measurement for the BM-LCA, 𝐶𝑂2. 𝑒𝑞/𝑆𝐸𝐾(𝐶𝑀), all emissions for the whole business period are calculated in eq. 17. - 𝐸𝑀𝐼𝑆𝑆𝐼𝑂𝑁𝐵𝑀𝑥 = ∑ ∑ ∑ 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 ∗ 20 𝑗=1 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑐,𝐵𝑀𝑥𝐶𝐴𝑗 𝑘 𝑖=1 17 𝑐=1 Eq. 17. Emission per business model for all emission sources. Step 14. The main measurement of this BM-LCA, 𝐶𝑂2. 𝑒𝑞/𝑆𝐸𝐾(𝐶𝑀), is calculated for all business models in eq. 18 by using the result in eq. 12 and 18. Eq. 17 results in CO2eq per SEK revenue for the different business models. This measurement is considered to be of interest together with the CO2eq measure based on contribution margin. 42 𝐶𝑂2. 𝑒𝑞/𝑆𝐸𝐾(𝐶𝑀) 𝐵𝑀𝑥 = 𝐸𝑀𝐼𝑆𝑆𝐼𝑂𝑁𝐵𝑀𝑥 𝐶𝑀𝐵𝑀𝑥 Eq. 18. CO2eq per SEK contribution margin for each business model 𝐶𝑂2. 𝑒𝑞/𝑆𝐸𝐾(𝑅𝐸𝑉)𝐵𝑀𝑥 = 𝐸𝑀𝐼𝑆𝑆𝐼𝑂𝑁𝐵𝑀𝑥 𝑅𝐸𝑉𝐵𝑀𝑥 Eq. 19. CO2eq per SEK revenue for each business model 3.3 Life cycle inventory The life cycle inventory originates from the public LCA report made by VCC on the C40 battery- electric vehicle. Thus, the existing report set the base of the system boundary. The values from the report are shown per car in Table 20 with the functional unit of 200 000 km. Table 20 - XC40 LCA results used in the BM-LCA Activity Kg CO2eq Material production and refining 17 000 Li-ion battery modules 7 000 Manufacturing 1 400 Use-phase emissions (EU-28 electricity mix) 16 000 End-of-life 500 To make the values compliant with these BM-LCA equations, they have been expressed as per car age (CAj). Emission 1-10, occurs before and during production, thus all the emissions can be allocated to car age 0-1 (CA1). Emission 13, use-phase emissions, occur during the entire lifetime of the car and are distributed evenly along the car ages. Based on driving distance data from VCC, a car is estimated to travel 10 000 km per year. Dividing the functional unit of 200 000 km from the LCA report by the driving distance gives a lifetime of 20 years per car. The emissions from use-phase (EU-28 electricity mix) per car age is thus calculated in the following way: CAj=16 000 kg CO2eq / 20 years = 800 kg CO2eq / year. Emission 11, end-of-life emission from incineration and landfill, are allocated to car age 20 (CA20). See Table 21 below. Table 21 - Emission values and equations Emission values in relation to the coupling equations 𝑒𝑚1−8,BMx,CA1 = 𝑒𝑚_𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙_𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠 = 17 000 𝑘𝑔𝐶𝑂2𝑒𝑞 𝑒𝑚9,BMx,CA1 = 𝑒𝑚_𝐵𝑎𝑡𝑡𝑒𝑟𝑦 = 7 000 𝑘𝑔𝐶𝑂2e𝑞 𝑒𝑚10,BMx,CA1 = 𝑒𝑚_𝑚𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑖𝑛𝑔 = 1 400 𝑘𝑔𝐶𝑂2𝑒𝑞 Car age (CAj): 𝑗 = 1 to 𝑗 = 𝑐𝑎𝑟_𝑙𝑖𝑓𝑒𝑡𝑖𝑚𝑒 𝑒𝑚13,BMx,CA𝑗 = 𝑑𝑟𝑖𝑣𝑖𝑛𝑔_𝑑𝑖𝑠𝑡𝑎𝑛𝑐𝑒𝐶𝐴𝑗 ∗ 𝑓𝑢𝑒𝑙𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 ∗ 𝑒𝑙𝑒𝑐𝑡𝑟𝑖𝑐𝑖𝑡𝑦𝑚𝑖𝑥 = 16 000 𝑘𝑔𝐶𝑂2𝑒𝑞 𝑒𝑚11,BMx,CA20 = 𝑒𝑚_𝐸𝑜𝐿 = 500 𝑘𝑔𝐶𝑂2𝑒𝑞 43 3.3.1 Spare parts Spare parts are not included in the existing VCC C40 LCA but are included in the BM-LCA system boundary to be able to perform a more complete assessment of the business models. Thus, data collection and calculation of spare parts in relation to 𝑞𝐵𝑀𝑥𝐵𝑌𝑖𝐶𝐴𝑗 was performed. This was done by combining historical company-specific data and estimations from experts within the field of spare parts at VCC. Emissions from spare parts have been allocated accordingly to how much spare parts are being replaced per car age. During the warranty period, VCC does not receive any revenues from spare parts. After the Warranty period, spare parts become revenues for VCC. At both times, spare parts are nevertheless causing environmental impact. There is no difference in the relative amounts of produced spare parts for the different business models. However, in the computational excel model, there is the possibility to make changes in the spare part activity for the different business models. 3.4 Life cycle impact assessment Impact results are calculated based on inventory data. The calculated impacts aim at presenting core results, CO2eq emission per contribution margin, as well as additional information that creates a better understanding of the core results. In Figure 12, the total amount of greenhouse gas emissions from the five business models over their entire business period is compared with one another based on the set contribution margin of Partner sales. Compared to Partner sales, Direct sales are reduced to 91% of the total Co2eq, Flex 77%, Fix 66% and Multicycle 55%, which can be seen by the normalized values in Figure 12 and Table 22. Figure 12 - Normalized results for Partner sales 0 20 40 60 80 100 120 Partner sales Direct sales Flex Fix Multicycle Results normalized to Partner sales Materials & Components Li-ion battery Manufacturing EoL Spare parts Use phase Additional s. 44 Table 22 - Summary table Business model CO2eq /CM compared to Partner sales Partner sales 100% Direct sales 91% Flex 77% Fix 66% Multicycle 56% Out of the total CO2eq for Partner sales, 38% comes from extraction and refining of raw material. With the same EU-28 electricity mix as the initial LCA report, 35% of the emissions come from the use phase. 16% comes from the production of li-ion battery modules, 7% from spare parts, 3% from manufacturing, and 1% from end-of-life management, see Figure 13. Since the cars are dealt with and used similarly by the users between the different business models, there is no variation in the distribution of emissions between them. Although some business models might enable a different solution for managing spare part usage in their cars in the future, this is not done today. Figure 13 - Contribution chart - Partner sales In Figure 14, the environmental impact per business year is accumulated over the entire business period. The changed slope of the curve is due to a changing mix of cars with different ages for each BY. The first part of the curve, BY 1-6 represents the years including the production of cars and the use phase. BY 6-20 represents the years including cars with only use phases. BY 20-25 represents the years including cars with use phases and end-of-life management. Materials & Components 38% Li-ion battery 16% Manufacturing 3% EoL 1% Spare parts 7% Use phase 35% CONTRIBUTION CHART - PARTNER SALES 45 Figure 14 - Accumulated tCO2eq per business year Additional to the previously performed BM-LCIA, complementary results mainly focused on the economic performance of the business models are presented in this report. Although the contribution margin is set to the same level for each business model, there is a variation in when the revenues and costs occur. In Figure 15, the contribution margin per BY is shown. Both Partner sales and Direct sales generate their main revenues at the same time as their main costs. Flex, Fix and Multicycle generate both monthly revenues and revenues at the end of the subscription when the used car is sold, while the main costs are at the beginning of the system. Figure 15 - Contribution margin per business model per business year BY 1 BY 2 BY 3 BY 4 BY 5 BY 6 BY 7 BY 8 BY 9 BY 10 BY 11 BY 12 BY 13 BY 14 BY 15 BY 16 BY 17 BY 18 BY 19 BY 20 BY 21 BY 22 BY 23 BY 24 BY 25 Accumulated CO2eq Partner sales Direct sales Flex Fix Multicycle BY 1 BY 2 BY 3 BY 4 BY 5 BY 6 BY 7 BY 8 BY 9 BY 10 BY 11 BY 12 BY 13 BY 14 Contribution margin Partner sales Direct sales Flex Fix Multicycle 46 In Figure 16 the accumulated contribution margin can be seen. Both Partner sales and Direct sales have a positive accumulated contribution margin from the start and reach the final decided contribution margin value at BY 6. Flex has a negative accumulated contribution margin until BY 3 and reaches the final value at BY 7. Fix also has a negative accumulated contribution margin until BY 4 and reaches the final value at BY 8. Since the cars are not sold until 8 years after their introduction, Multicycle has also a negative accumulated contribution margin until BY 8 and reaches the final value at BY 13. Figure 16 - Accumulated contribution margin 3.5 Interpretation In the following section, an analysis of the results, checking uncertain data and how the input parameters change the results of the business models is performed. Thanks to the coupling equations, it is possible to alter both environmental and economic parameters to investigate their influence on environmental performance. One parameter at the time has been changed and evaluated, the model allows however for multiple parameters to change at the same time. Table 23 shows which and how the parameters are changed, and how the new result is compared to the respective business model without any changes. A percentage above 100% is an increase of CO2eq per CM. 100% indicates that the change in parameter does not affect the business model´s CO2eq per CM. A percentage lower than 100% means a reduction of CO2eq per CM. BY 1 BY 2 BY 3 BY 4 BY 5 BY 6 BY 7 BY 8 BY 9 BY 10 BY 11 BY 12 BY 13 BY 14 Accumulated contribution margin Partner sales Direct sales Flex Fix Multicycle 47 Table 23 - A summary of sensitivity analysis, % change of the amount of CO2eq compared to the same business model without changed parameter Sensitivity category Parameter changed How the parameter was changed Partne r sales % chang e Direct sales % chang e Flex % chang e Fix % chang e Multic ycle % chang e Altering revenues Subsidy No subsidy 100% 100% 169% 153% 143% Used car price +20% 100% 100% 71% 77% 79% -20% 100% 100% 166% 142% 115% Altering costs Components and battery costs +20% 178% 167% 151% 140% 133% -20% 69% 71% 75% 78% 80% Manufacturing costs +20% 103% 103% 102% 102% 102% -20% 97% 97% 98% 98% 98% Altering financial factor Discount rate 2.5% 108% 107% 114% 118% 135% 5% 115% 115% 129% 140% 185% 10% 130% 129% 164% 198% 385% Altering CO2eq- intensity Electricity mix EU-27 2020 86% 86% 86% 86% 86% Sweden 2020 66% 66% 66% 66% 66% Global grid mix 118% 118% 118% 118% 118% CO2eq from battery and components +20% 111% 111% 111% 111% 111% -20% 89% 89% 89% 89% 89% Altering product factors Fuel efficiency +20% 107% 107% 107% 107% 107% -20% 93% 93% 93% 93% 93% Car lifetime +50% 148% 148% 148% 149% 149% -50% 91% 91% 91% 91% 91% Altering functional unit Business period 5years 66% 66% 109% 297% N/A1 10years 76% 75% 75% 74% 123% 1due to negative CM, the results from Multicycle with a business period of 5 years are not possible to calculate. The subsidy is currently a revenue only given to Flex, Fix, and Multicycle from the government since VCC is the owner of the car. In the nearby future, there are considerations of reducing and removing it entirely, therefore, it is of interest to change this parameter and check the new result. Removal of subsidy would negatively affect the three business models, making Partner sales and Direct sales more competitive, see Figure 17. 48 Figure 17 - Subsidy The value of used cars depends on the current market and is out of VCCs scope to adjust. Issues with global production can lead to fewer cars on the market and thus fewer used cars, triggering the price for used cars. A 20% increase in value reduces the relative emissions for Flex, Fix, and Multicycle by 29%, 23%, and 11% respectively. A 20% decrease punishes Flex the hardest, resulting in a 66% increase in relative emissions per contribution margin, see Figure 18. Fix and Multicycle are also affected, however not to the same extent since they have a higher rate of subscription fee revenues compared to sold used car revenue. Figure 18 - Used car value A discount rate is argued to play a significant role in business decisions since when revenues and costs occur are vital for an organization's cash flows. Three discount rates with values of 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 Partner sales Direct sales Flex Fix Multicycle Subsidy Subsidy No subsidy 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 Partner sales Direct sales Flex Fix Multicycle Used car value Default + 20% value of used car -20% value of used car 49 2.5% (red), 5% (green) and 10% (purple) have been tested compared to 0% (blue) discount rate, see Figure 19. With a higher discount rate, business models where revenues appear later than the costs, are negative for the result. With a rate of 10%, Flex and Fix have similar results as Partner sales. Multicycle is the most affected business model, with an almost twofold amount of gCO2eq/f.u compared to Partner sales. Figure 19 - Discount rate During the lifetime of the car and the chosen business period, the electricity mix will probably increase its share of low-carbon intensive electricity. With a specific Swedish energy mix, all business models