Cover photo: The Stern team includes Ben Gottesdiener, Jessica Tou, Leslie Chao and Phil Schroder.
From design to production, BMW’s i3 and i8 models represent today’s standards of sustainable automobiles. The global automobile leader approached the Stern Signature Project team on the commercialization of electric vehicles (EVs) and kicked off their engagement by posing two questions: What are sustainable business models of dismantling electric off-lease vehicles? How can the most valuable component, the released battery capacity, be marketed most efficiently?
“BMW asked us to help them think through how to most effectively monetize its fleet of off-lease (cars being returned from lease) electric vehicles,” said Ben Gottesdiener (Stern MBA ‘20). “Our recommendations centered around repurposing the vehicles for a mobility service and improving certified pre-owned process for EVs, both serving as ways to prolong the life of the vehicle and provide value uplift.”
While the Stern team was initially drawn to the opportunity of developing a circular economy business case, one executive presentation and pricing model later, they found themselves with a unique perspective into the value of electric vehicles for both automobile manufacturers and customers. The Stern team evaluated opportunities in certified pre-owned and mobility programs to enhance current off-lease offerings of BMW’s electric fleet. Their creative recommendations included a leasing business proposal through university partnerships, market sizing for relevant universities and estimating realistic penetration.
Having wrapped up the successful project with BMW executives as key stakeholders, the Stern team sat down with the Stern Opportunity to share their experience.
Stern Oppy: Thanks for taking the time to share the BMW project and your experience with the Stern community! To start, did you have any background on circular economy? Did any courses or work experiences help you dive into the project?
Ben Gottesdiener: I had a bit of background covering energy infrastructure as an equity research analyst but no direct experience with the circular economy. I took Professor Tensie Whelan’s class on “Sustainability for a Competitive Advantage” that opened my eyes to many of the key circular economy issues that [also] surfaced during the project.
Jessica Tou: I have followed circular economy ideas for a while now but did not have any business experience directly related to it. I was also in Professor Whelan’s “Sustainability for a Competitive Advantage” class, so this project was the perfect opportunity to jump in. BMW has been incredible in thinking through their electric vehicles in terms of sustainability. Up to 95 percent of the BMW i3, for instance, is sustainable.
Stern Oppy: The future clearly banks on the success of circular economies. Can you describe what a circular economy is?
Jessica Tou: While BMW’s electric vehicles are clearly part of the circular economy movement, our project direction veered away from the topic of the circular economy. As we learned the challenges that car manufacturers like BMW are facing with EV value, we started to focus on the business opportunities to helping EVs retain their value and have a longer lifetime.
Stern Oppy: Your presentation materials are so thorough and show such expertise! Who was your audience for the presentation and recommendation?
Ben Gottesdiener: The audience for our presentation was the BMW Financial Services North America executive team (CEO, CFO, Chief Risk Officer, Head of Used Cars, among others) along with our two project sponsors.
Stern Oppy: Can you walk through the pricing model you created for BMW? What were some key assumptions or research you did to strengthen the model?
Ben Gottesdiener: The pricing model was built to optimize a positive IRR to BMW while still setting a price point that was competitive in the marketplace. We worked with the BMW team to help identify many of the inputs into the eventual pricing model and figure out what we viewed as the right price. In addition to our model, we provide a sensitivity analysis in order to show the range of options.
Stern Oppy: Was there a moment when the team faced a roadblock or fell into a rut? What helped to overcome that phase of the project?
Jessica Tou: We started off with many ideas that we pitched to our BMW counterparts. One of the hardest moments of the project was choosing which ideas to leave behind.
Stern Oppy: Great work team and thanks again for sharing your insight with us!