Underlying motives affecting an original equipment manufacturer’s make-or-buy decisions in the reverse-flow of electric vehicle batteries

Abstract: Background: Electric vehicles have been getting increasing attention due to their possibility to deliver multiple environmental, social, and health benefits. This has started a technological shift from the traditional combustion engine towards electric vehicle batteries. Because the inherited value in reverse- flow batteries is high, aftermarket activities such as remanufacturing, repurposing, and recycling become increasingly important to take part in value-added margins. However, these activities battery manufacturing have not historically been a core business of the automotive industry. In times of technological change, firms need to evaluate how the organization can integrate, build and reconfigure both internal and external competencies to respond to the dynamic environment. The dynamic environment puts pressure on operational and dynamic capabilities for original equipment manufacturers to reorganize to be a competitive force in the evolving industry. Purpose: Make-or-buy decisions have in extant literature been investigated thoroughly. However, in the context of the aftermarket of electric vehicle batteries, underlying motives affecting original equipment manufacturers’ make-or-buy decisions has not. The purpose of this work is to explore how underlying motives are affecting the original equipment manufacturer’s make-or-buy decisions in the reverse-flow value chains of electric vehicle batteries. This thesis helps explain the varying integration alternatives that firms confront when facing external pressure, and limitations within the firms’ own capabilities. Method: A qualitative embedded single case study was conducted in the context of the Swedish vehicle manufacturer Volvo Group. The case was analyzed using an abductive approach. The three aftermarket activities remanufacturing, repurposing and recycling were investigated to find out how underlying motives affect the make-or-buy decisions. This was done by adopting a paradox view looking at external factors, through an institutional lens, and internal factors, using dynamic capability theory. Underlying motives were identified by conducting dialogue-based informal interviews, semi-structured interviews, observations, and using corporate documents which were triangulated to improve the accuracy of the findings. The underlying motives were identified by coding first- and second-order motivations and thereafter connecting these with identified make-or-buy decisions. Results: The six second-order motivations: learning, business potential, compliance, cooperation simplicity, industry competitiveness, and ambiguity were identified to affect make-or-buy decisions. These underlying motives are related to the identified decisions: make, buy, collaborate, and limbo. Besides traditional responses to make-or-buy decisions, limbo was also an identified choice, defined in this thesis as a state of not doing anything while waiting for ambiguity to be reduced. This make-or-buy choice was not anticipated and is considered to be an anomaly from the findings. Conclusions: The identified underlying motives come from both internal and external factors, which shows that the firm must use a system perspective when conducting make-or-buy decisions. Furthermore, the capabilities of the firm are crucial whether the firm has the potential of integrating the operation or collaborating. However, in an environment highly influenced by ambiguity, as the present state of the electromobility industry is, the firm may end up not committing to making, buying nor collaborating at all. Instead, they end up in a state of limbo where they organize to have flexibility in the decision by not committing to any of them. The strength in the firm’s dynamic capabilities to handle the ambiguity is proposed to determine how long the firm is stuck in limbo. Based on this, a new proposed framework for how capabilities influence the make-or-buy decision is introduced.