Optimal pricing strategy for electric vehicle battery swapping: Pay-per-swap or subscription?

Abstract

Electric vehicles (EVs) contribute to carbon emission reduction, but the limitations of existing charging technologies impose a bottleneck to their further diffusion. Addressing the root issues of long waiting time and range anxiety, battery swapping demonstrates great market potential. A swapping service provider may choose between two pricing strategies based on battery rental: pay-per-swap and subscription. This study establishes a game-theoretical model to portray a simplified EV replenishment market including one charging station, one swapping station, and one battery renter, and explores the optimal pricing strategy. To capture the influence of consumer preferences, the model considers high versus low opportunity cost of time. In either scenario, consumers choose between charging and swapping to maximize surplus utility. Equilibrium prices, demands, and profits under pay-per-swap and subscription strategies are obtained through backward induction. The results indicate that pricing strategy choice-making hinges on provider-side operating cost, battery depreciation and reserve size, as well as consumer-side time sensitivity and opportunity cost. Numerical and extended analyses suggest that the subscription strategy is conducive to initial market development, whereas the more consumer-friendly pay-per-swap strategy is preferred afterwards.