Question.3972 - Homework 2
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Homework 2 Anthony Allen Fall 2024 Strategic Management Dr. John Humphreys October 1st 2024 Porter's Five Forces Analysis for the Electric Vehicle (EV) Industry The Electric Vehicle (EV) is a developing market having numerous environmental, technological, and political benefits. As the world turns to green energy, key market actors comprising Tesla, BYD, and Volkswagen among others battle for market supremacy. This analysis employs Porter’s Five Forces to define the competitive environment of the EV industry. The following analysis for this report aims at identifying the major opportunities and threats that arise from the developing threat of rivalry in the strategic environment of the industry, through the empirical analysis of the threat of new entrants, supplier and buyer power, industry rivalry, and threat of substitutes (Mckinsey, 2021). Industry Competitors Today the demand for the EV market is growing significantly; many leading companies propel the market with innovations, scale, and penetration. Tesla continues to be the market leader in EV manufacturing; currently, it has a market capitalization of $ 835.81 billion driven by the technological integration of its inventions into the mainstream markets. As such, other players like the Chinese BYD and Rivian from the United States are also intensifying their invasion, intending to depict the stiff nature of the EV market. Since conventional automobile manufacturers are entering the electric vehicle market and new players are coming up, the incumbents’ competitive rivalry has increased (IEA. 2024). Top EV Competitors Tesla was valued at $835.81 billion and hence is the global market leader in EVs. Launched models such as Model S, Model 3; and Cybertruck remain instrumental in incrementing the global demand for electric automobiles. It is also clear that Tesla and other American automakers have the best self-driving systems and battery technology. The Chinese car maker, BYD Company has sold more units of electric cars than Tesla with the help of rich governmental policies in China and a very vast product line ranging from small electric sedans to electric buses. Its market capitalization is around $70 billion, and it is strengthening its position in the global segment. Rivian has a market capitalization of $ 11, 31 billion; they concentrate on electric trucks and SUVs with off-road capabilities aimed at outdoor lovers. Among the drivers of its growth, the production of electric delivery vans with Amazon stands out. Li Auto has a market capitalization of $29.50 billion and is popular for its extended-range electric vehicles, which provide distance. Basically, it has been conducting its operations in China and is planning to go global. Headquartered in Shanghai, NIO has a market capitalization of $15.15 billion, and targets luxury EVs with battery swapping being their tech solution to a range of issues. Lucid has a market capitalisation of $8.18 billion and aims to take on luxury electric cars with high-energy density batteries. Its first model, the Lucid Air, is aimed at Tesla’s Model S. Currently, XPeng, the Chinese company with a valuation of $12.90 billion, also addresses the mid-range of EVs which are integrated with autonomous driving functions and are Tesla's counterparts in China. The Vietnam-based carmaker VinFast, worth $8.93 billion, is considering markets beyond Southeast Asia, including the United States and Europe, for affordable EVs. Other players consist of Polestar from Sweden, Ola Electric from India as well as the traditional automotive players such as Volkswagen which is already in the EV market globally. Potential Entrants The market segment of electric cars is still relatively young, but the interest of investors continues to rise, and many of them are ready to introduce their products into this segment. Several factors are driving this influx of new players: Traditional Automakers: Main car giants such as Ford, General Motors, Volkswagen and others are investing intensively in the development of their electric vehicles’ production lines. These companies understand the importance of shifting their fleet from internal combustion engines to electric cars to survive. A combination of heavy manufacturing knowledge and already established distribution channels also gives firms a compliance box for quickly penetrating the EV market (Brown, 2021). Startups: New entrants such as Canoo and Faraday Future designs and business models differentiate themselves from traditional automotive manufacturers, and they are targeting narrow segments. Such companies depend on Venture Capital, looking for a niche on the competitive map of the industry. Global Players: Other car makers from emerging markets like India’s Tata Motors and China’s Geely are also aspiring to break through into the international markets with cheaper EVs. Both their strategies of affordability complement the current market trends where consumers demand cheap and sustainable means of transport. Since the adoption of EVs is expected to increase in the future and become more competitive, this force will drive existing and new entrants to innovate for them to satisfy the ever-adapting needs of the buyers. Substitutes In the context of the EV industry, substitute is a term that is used to describe those products or technologies that have the potential to displace or decline the demand for EVs. Among them, the ICE vehicles can be considered as the nearest substitute, however, there are other types of substitutes which may hinder EV diffusion (U.S. Department of Energy, 2023). Hybrid vehicles have an internal combustion engine (ICE) and an electric motor providing better fuel economy and low emissions without going fully electric. This makes them attractive to consumers who may not want to invest in EVs because of some plights such as limited charging stations, fear, or worry over battery durability. People use public transport since they do not own private cars, and it is common, especially in cities. Better environmentally friendly transport systems such as electric buses or subway help in de-coupling transport demand from the use of private vehicles including EVs. Ride-sharing (Uber, Lyft) and car-sharing also reduce vehicle possession among the populace. Another possible substitution might be Hydrogen fuel cell electric Vehicles (FCEVs). While FCEVs are not yet mainstream, they present an energy efficiency option that gives longer driving range and far shorter refuelling time compared to EVs. However, with improvements in both the technology of hydrogen and its infrastructure, FCEVs remain a huge threat to EVs in the future. The developments in the battery solutions such as solid-state batteries or other energy storage solutions may create alternatives that will change the competitive structure of the transport industry. Overall, EVs are quickly displacing internal combustion engines, options such as hybrid vehicles, public transportation or hydrogen fuel cell vehicles, may ultimately chart consumers’ decision-making. Suppliers In the EV supply chain, the suppliers are well involved in the manufacturing process chain and influence the cost, quality, and performance of the EV makers. There are several other main industries for key components such as for battery, semiconductors, electric drive trains and software systems. Separately each company operating within the supply chain of the EV industry is specialized and intricate (Reuters, 2023). Lithium -ion battery that forms a major part of the EVs cost cannot be overlooked when designing an EV. Some of the main battery providers are CATL, Panasonic, LG Chem and Samsung SDI. These firms control the international battery industry and have capability to manage production timetable, prices and stock of BEVs. Pursuing stable partnerships with battery suppliers is essential to low material costs and sustainable production, in general, for EV makers (IDC, 2023). Besides batteries, semiconductor suppliers are also critical inputs since the EVs of today demand what is essentially a microprocessor to control every aspect of the automobile, from the power train to the self-driving features. These include Intel, NVIDIA, and Texas Instruments, who deliver the semiconductor device that enables digital and connectivity in EVs. These suppliers are valuable because, in a world where the chip shortage has disrupted supply chains, the loss of production is significant. Ventures involved in the procurement of raw materials with special emphasis on materials like lithium cobalt and nickel are also important. All of these materials are crucial for battery manufacture, and the accessibility of these compounds determines both the price and feasibility of EVs. The main stakeholders in the electric vehicle industry are battery manufacturers, semiconductor manufacturers, and material suppliers which significantly interfere with the price level supply line and technological flexibility of electric vehicles. Buyers Buying is a key powerful force in the electric vehicle (EV) industry because consumers determine key factors such as market trends, prices, and even the nature of new products. The base of buyers for e-vehicles which is the most popular category of automotive is broad and includes individuals, organizations, corporations and even the government at large. Since the adoption of green automobiles continues to rise, it is important for EV makers to more adequately respond to the needs of such consumers (Carrington & Stephenson, 2018). Individual consumers are one major group as they prefer four-wheel vehicles that are eco-friendly, with superior technology, ample power and reasonably priced. They include price sensitivity which may be observed from the high entry cost of Jaguar’s EV and its overall impact on the financial performance of this group. However, this is an issue of concern, because of high manufacturing costs, due to the incorporation of expensive metals and technology, which makes the EVs costly to purchase. Governments have introduced incentives, tax rebates, and other attractive operating costs which help in making people accept, and buy EVs (Watari et al., 2018). Other fast-growing groups include corporate buyers, particularly fleet consumers. Any organization that is seeking to cut their emissions in the current world is deliberate in investing in electric fleets for delivery, taxis, and ridesharing. These buyers are concerned with costs, effective operation and sustainability of the products. Another significant customer is the government, who demand electric public transport and has near-term goals for zero-emission vehicles. Governments around the globe are putting money into the procurement of EVs for governments’ and cities’ fleets, and buses, among others, and providing incentives in an attempt to push the market forward (Cao et al., 2019). Customers are demanding an ecological approach to automobiles along with a global sense of sustainable and progressive elements such as autonomous driving capabilities, connectivity, and the best looks. Rising environmental awareness and changing technological competency have shifted the power balance to the buyer who wants more innovation at affordable prices. Therefore, these buyer requirements pose significant challenges to the competitiveness of the market for EV manufacturers. Opportunities and Threat Opportunities: Rising Global Demand: Transformations in the transportation sector are rapidly advancing, due to policy measures, climatic change awareness, and customer-consciousness. New demand from emerging markets such as India, South-east Asia and Latin America remains abundant with opportunities for EV makers. Technological Innovation: Pioneers in battery systems, self-driving cars, and connectivity create new opportunities for new forms of competitiveness. Enhanced power density, longer driving distance and shorter charging time can contribute towards more sales. Government Incentives: In Europe, China and North America subsidies, tax incentives and policy support for the production of EVs are driving the market. For instance, governments are also putting their stakes on charging infrastructure to support the uptake of EVs. Corporate Sustainability Goals: An increasing number of firms are introducing green fleets, opening up opportunities for manufacturers to market electric buses, delivery vehicles and company cars to corporate buyers. Threats: High Production Costs: Currently, EVs are in a higher cost frontier to produce than traditional vehicles mainly because of battery costs. This may not work well for the mass market if the cost does not decrease rapidly. Supply Chain Vulnerabilities: Most of the components used in EVs and almost 90% of the key components such as permanent magnets, alloys, etc., and especially batteries, depend on rare earth materials that are produced in specific countries. It also means that any hitches in the supply chain result in production losses and hence high costs. Intensifying Competition: The market of EVs is growing, and more and more classic car manufacturers and IT giants are entering it. Pricing war and cut throat competition may occur, which will translate too much pressure on the profit margin. Consumer Resistance: This is because while interest in autonomous vehicles is increasing over time, several consumers may still be reluctant to own the technology due to factors such as the limited charging stations, and limited range which may discourage adoption. These factors suggest that although there are immense opportunities in the EV industry, deeper strategic management is required to overcome the kind of problems faced by the industry. Reference Brown, C. (2021). Mobility 2030: Implications for Ireland. KPMG. https://kpmg.com/ie/en/home/insights/2021/06/mobility-2030-strategy.htmlCao, J., Chen, X., Qiu, R., & Hou, S. (2021). Electric vehicle industry sustainable development with a stakeholder engagement system. Technology in Society, 67, 101771.https://www.sciencedirect.com/science/article/pii/S0160791X21002463Carrington, G., & Stephenson, J. (2018). The politics of energy scenarios: Are International Energy Agency and other conservative projections hampering the renewable energy transition?. Energy research & social science, 46, 103-113.https://www.sciencedirect.com/science/article/pii/S2214629618307242IDC (2023). Electric Vehicle Market Dynamics and Competitive Strategies | IDC Blog. https://blogs.idc.com/2023/09/01/electric-vehicle-market-dynamics-and-competitive-strategies/. IEA. (2024). Trends in the electric vehicle industry – Global EV Outlook 2024 – Analysis. IEA. https://www.iea.org/reports/global-ev-outlook-2024/trends-in-the-electric-vehicle-industryMckinsey. (2021). Why the future involves e-mobility | https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/why-the-automotive-future-is-electricReuters. (2023). In 2023, bold EV strategies took a punch from reality. https://www.reuters.com/business/autos-transportation/2023-bold-ev-strategies-took-punch-reality-2023-12-11/U.S. Department of Energy. (2023). Alternative Fuels Data Center: Electric Vehicle Benefits and Considerations. Afdc.energy.gov; U.S. Department of Energy. https://afdc.energy.gov/fuels/electricity-benefitsWatari, T., McLellan, B. C., Ogata, S., & Tezuka, T. (2018). Analysis of potential for critical metal resource constraints in the International Energy Agency’s long-term low-carbon energy scenarios. Minerals, 8(4), 156.https://www.mdpi.com/2075-163X/8/4/156More Articles From Management
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