assignment
Hybrid & Electric Cars in United States
The first thing to note is that in the hybrid & electric cars industry, there are other industries that complement it. The North American Industry Classification system says that In total there should be around 7 other industries within the Hybrid & Electric cars industry. Some examples are Automobile and Light Duty Motor Vehicle Manufacturing, Automobile Manufacturing or Motor and Generator Manufacturing. This division in other industries is due to the complexity of the components in automobiles, having their own industry code for some specific parts of the cars.
1
Introduction to the industry
The hybrid and electric cars market consists of the initial retail sale/registration of new electric and hybrid passenger cars. Passenger cars include saloons, SUVs, hatchbacks, 4x4s and other related vehicles
The electric cars segment refers to all-electric vehicles only. The hybrid cars segment refers to all types of hybrid electric cars such as plug-in hybrid electric vehicles (PHEVs), Extended Range Electric Vehicles (EREVs) and Hybrid electric vehicles
2
Hybrid & Electric Cars Market Share
Hybrid cars market share represented almost 70% in 2019, while electric cars only represented around 31%. The latest data suggest that sales have increased dramatically since 2019, even during covid. According to Reuters sales of hybrid vehicles jumped 76% in 2021, while sales for EVs increased 83%. Source: https://www.reuters.com/business/autos-transportation/us-hybrid-electric-car-sales-hit-record-highs-2022-01-06/
3
Biggest Players
Some companies in the Hybrid & Electric industry are only focusing on electric vehicles or both electric and hybrid. The electric segment is a more recent industry and is mainly controlled by Tesla with a 69% market share (Source: https://insideevs.com/news/553972/us-bev-sales-october-2021/) Tesla was the first to bring electric vehicles to americans and this can be reflected in their dominance.. However, many other companies are trying to control the electric vehicle market. Lucid Motors for example is the second largest american EV company, in terms of market cap (41.33b). Rivian is the 3rd largest company with a market cap of 35.76b. Now the issue with these companies that I just mentioned is that they haven’t been able to produce vehicles at a mass production level, hence their sales are much lower than Tesla. For example Lucid motors is only able to produce between 12,000 and 14,000 vehicles a year, while Rivian only produced 1,015 vehicles in 2021 (Source: https://www.electrive.com/2022/02/01/rivian-aims-to-manufacture-200-bevs-per-week/). Other companies more established in the automobile industry such as Volkswagen, managed to sell 37,200 units in 2021 (Source: https://insideevs.com/news/560278/volkswagen-group-sales-2021/#:~:text=The%20company%20was%20able%20to,%2Dyear)%20and%205.1%25%20share).
When it comes to the hybrid vehicle segment we can see that the top players are companies that have been well established for years, as this segment is more mature than the electric vehicle segment. Toyota is dominating the hybrid segment with its Prius brand which is one of the most affordable cars in this segment. In 2021 they sold around 600,000 hybrids, positioning themselves with a 73% market share. In second position we have Honda, selling more than 100,000 hybrids. (Source: https://www.hotcars.com/us-hybrid-electric-car-sales-hit-record-high/)
4
Industry Performance & Forecasting
Kieran
Photo Source:
https://evadoption.com/ev-sales/ev-sales-forecasts/
This graph shows a long-term forecast for new electric vehicle (BEV and PHEV) sales in the US through 2030. EV sales should grow to reach approximately 29.5% of all new car sales in 2030 from an expect roughly 3.4% in 2021. This would also see sales increase to 4.7 million from a little more than 500,000 in 2021.
Factors that will affect this increase in EV take up include the range of batteries, charging times and the charging infrastructure.
5
VRIO Analysis
Innovative product and strong customer experience leading to a strong brand recognition
Technological advancements such as self driving technology and advanced batteries with the longest range of any vehicles
Pays employees well and has also introduced training and career development programs that help its employees find faster career growth
Kieran
The company’s marketing strategy also affects the brand image and sales overall. Tesla has proved itself outstanding in all these areas, and apart from product quality and innovation, the company’s marketing strategy does not employ heavy promotions. It has achieved strong brand recognition and word of mouth and publicity through consistent focus on innovation and customer experience.
Apart from self-driving technology onboard and the large touchscreen that allows the car owner to manage his driving experience with higher convenience, the company also provides a Tesla app that allows drivers to control their cars from the outside.
More than an automobile brand, Tesla is a technology company. Its focus on technological innovation makes it different from any competing automobile brand. Overall, HR management is a critical source of competitive advantage for the brand but not a source of sustainable competitive advantage since the rival brands also invest heavily in managing their human resources strategically.
6
PESTEL Analysis Political
Political goodwill encourages growth of electric automotive sector
Politicians who support fossil fuels often suppress the growth of the industry
The U.S Department of Energy provides loans and grants to improve the electric automotive sector
Political factors play an integral role in the adoption and promotion of policies that favor renewable energy. Both the United States and European Union, for instance, are slowly embracing alternative sources of energy in line with their environmental sustainability programs. Governments with high environmental standards have a higher propensity to promote the public usage of electric cars than those that over rely on fossil fuels. The United States Department of Energy granted Tesla Motors a loan of $456 million to fund research and development programs for designing and distributing environmentally sustainable vehicles across the country.
7
Economic
Economic conditions affect the growth of all industries
High poverty levels and unemployment rates reduce customers’ purchasing power
COVID 19 pandemic has stagnated the growth of electric vehicle sector
In US, however, citizens still buy electric cars on credit deals such as zero percent financing
The economic conditions of a nation significantly affects the growth and development of the electric car industry. Factors such as job availability and the number of middle- and high-income earners affect the purchasing power of the population, which reflects in terms of demand for electric cars (Debye, 2014). The COVID 19 pandemic, for example, reduced the gross GDP of many countries, thereby crippling their capacity to purchase such products. While the United States has witnessed slow growth rates, citizens still buy cars on credit deals such as zero percent financing. Thus, new cars have been rising significantly since the recession in 2008. These sales patterns are back to the same level that they were before the market collapsed.
8
Social
Customers are becoming environmentally conscious
Citizens are seeking clean air and green energy
These changes in consumption patterns improve the popularity of electric vehicles
The desire for a sustainable economy drives the growth of the electric automotive sector
Sociocultural factors such as lifestyles and the changes in people’s views towards environmental conservations. Many citizens, for instance, are supporting government and private sectors’ efforts to adopt sustainable fuels and products using sustainable resources. Even after most firms that were given large government loans to materialize into successful companies, citizens continue to support endeavors aimed at creating a sustainable economy. In the electric car industry, mobility habits and trends become decisive. Since the massive and growing need for mobility are basic requirements, the space density enlarges the need for mobility differentiations and flexible vehicle concepts.
9
Technological
Technological advancements have improved the design of electric cars
However, long charging hours are the leading challenges
Greater autonomy and shorter recharging time should be addressed
Many countries also lack charging stations for electric cars
Technological changes have paved the way for the emergence of electric car technologies. However, their main challenges relate to autonomy and long recharging time. Energy technologies have been evolving to the extent of allowing greater autonomy and shorter recharging time. The emerging bet for these points’ solution is that some lanes for some stretches of highways and avenues through the cities comprise systems that accommodate the batteries’ regeneration while the vehicles are running them. Another technological challenge is the scarcity of charging stations. In many countries, charging stations for electric cars are few along major highways, posing challenges to users of such vehicles.
10
Environmental
Customers and organizations are becoming environmentally conscious
Many are demanding to know the carbon footprint of companies that they promote
Electric cars comply with environmental laws, thereby attracting positive publicity
However, electricity derived from coal to power vehicles is discouraged
Customers, governments, and policymaker are increasingly becoming environmentally conscious of the products that they consume. Many motor vehicle firms are also beginning to comply with environmental laws, which require them to reduce their carbon footprints and emissions. Thus, driving vehicles without consuming and burning gasoline is being acknowledged, but using electricity derived from coal plants defeats the purpose. In response, leading firms such as Tesla Motors are adopting battery packs that are used in conjunction with solar panels to help utilize the sun’s abundant energy (Gilson & Abott, 2017). This effort goes a long way in making them eco-friendly.
11
Legal Factors
Countries that support environmental laws promote open opportunities for the industry.
In the U.S, laws such as Clean Air Act and EPCRA offer electric car industry competitive advantage over traditional sector.
At global levels, the Kyoto Protocol and the Paris Treaty recommend the adoption of clean energy transportation.
Legal factors play an integral role in the operations and success of the electric car industry. Many environmental laws at both local and international levels continue to be passed to promote the reduction of carbon emissions (Contestabile, Tal, & Turrentine, 2020). These conditions provide prospects for the growth of the industry. In the United States, for instance, the Comprehensive Environmental Response, Compensation, and Liability Act (EPCRA), and the Clean Air Act are supportive of the sustainable technologies that firms in the industry are adopting. Such factors grant them opportunities for accomplishing a sustainable competitive advantage. At the global levels, the Paris Treaty and Kyoto Protocol paved the way for the introduction of environmentally friendly transportation solutions.
12
Porter’s 5 Forces - Competitive Rivalry
Compared to the Internal Combustion Engine (ICE) industry, electric cars face much less competition.
This limits effect of competition, but allows larger companies like Tesla & Volkswagen to achieve large portion of market share.
There is a strong force of aggression from firms, large levels of innovation and strong marketing activity this means entering the market would become more expensive and keeping up means a lot of work is necessary.
There are very few switching costs, apart from the initial cost of the product, which further strengthens competitive rivalry.
The market is rapidly growing, many are entering and so the intensity of the competition is expected to rise.
Porter’s 5 Forces - Supplier Power
Large companies in the industry are vertically integrated, owning the raw material provider, processing plants, design process, manufacturing and retailing. This reduces the power that suppliers can have over the producers.
One material that is absolutely vital, industry wide, is lithium batteries. These are often produced by external companies that already produce these for other products (Panasonic for example). There are many substitutes for these companies, giving EV companies more power. However, the price of this material remains incredibly volatile due to untapped resources. This has effected production rates of EVs.
With businesses growing larger and larger, their bargaining power has increased, shifting power slightly away from suppliers and towards larger buyers.
Porter’s 5 Forces - Buyer Power
Negotiation on price is not an option for customers, there is an opportunity for this on larger fleet/commercial purchases, where large amounts of vehicles are supplied.
One time customers are often left with little/no power and there are large waiting lists for vehicles due to production/supply bottlenecks.
There are premium options that the customer can opt in-against in their product, giving them a level of customisability and shifting some power in their direction. This means the customer has more say in the product they receive.
Porter’s 5 Forces - Threat of Substitution
The largest alternative to EVs is using ICE vehicles, but this transition over to electrification is reliant on governments. Governments have been making it cheaper to transition over to EVs by incentivising the industry and making it cheaper and more attractive.
The sharp rise in oil, gas and other fossil fuels has left alternatives to EVs the even more expensive option. With diesel reportedly reaching the £2.07 mark, filling an average ‘family car’ has reached £91. For reference the cost to fully charge a Tesla at a k/wh cost of £0.10 would make it £10 to fully charge.
Porter’s 5 Forces - Threat of New Entry
The threat of new entry is low due to some large barriers to entry into the market:
High cost of production
High cost of brand development
High economies of scale amongst existing
Research & Development costs
The largest share of new entries are from existing automobile manufacturers e.g. BMW & Volkswagen.
Overall the threat of new entry is reasonably low due to the massively high costs needed. However, more and more firms are going to look to enter the market due to the high growth in the market.