Automotive E-Mobility. Industry Analysis

Table of Contents

Executive Summary of the Analysis results

STEEP Analysis for the e-Mobility industry

Porters 5 Forces Analysis for the e-Mobility industry

Conclusion and Forecast

Works Cited

The automotive industry is one of the biggest industries, however there is still uncertainty over how electric vehicles (EVs) will affect the industry and if they will become a key part of the mainstream car-buying market. Electric Mobility (e-Mobility) relates to the electrification of the automotive powertrain, and this a

nalysis will refer to EVs as all vehicles for which an electric motor is the primary source of propulsion (including hybrid, range-extended, battery and fuel cell electric vehicles). This paper will analyze the driving forces and key variables of the industry to support company strategies and decision-making.

Executive Summary of the Analysis results

The global hybrid & electric car industry has been projected to increase its market value by 240% from 2015 until 2020. The compound annual growth rate of the market for electric vehicles in the period 2011 – 2015 was 30.3%. The industry is innovative and constantly growing due to changing mobility needs and concepts, increasing demand in eco-friendly and efficient transportation, and improving technology. These driving forces will reduce barriers and lead to an increased competition in the industry in order to satisfy high demands; overall resulting in a change to a higher percentage of electric vehicles in the automotive market.

STEEP Analysis for the e-Mobility industry

It is crucial to be aware of the driving forces that can impact the e-Mobility industry, as they play a major role in the strategy analysis and formulation. Therefore, the key macro-environmental variables of the e-Mobility environment are analyzed using the STEEP Analysis technique (Bensoussan, 2013).

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Table 1: Key STEEP Variables for the e-Mobility Industry.
Sociological Variables – Consumer expectations for EVs are different to conventional cars and must be addressed in development, marketing and sale strategies. The relatively high purchase cost of EVs remains as a significant barrier. Consumers do not see the long-term savings in an investment in an electric vehicle (Turrentine & Kurani, 2007). Features such as top speed and acceleration are valued more than long-term benefits. Furthermore, the absence of an engine noise from electric cars is a sociological question mark. Consumers might miss this as a desirable feature or society might have safety concerns (e.g. for visually impaired people) (Thomas, 2010). These factors need to be addressed in future marketing campaigns of EVs. In addition, changing consumer mobility behavior leads to a higher number of shared vehicles and on-demand mobility solutions (Gao, Kaas, Mohr, Wee, 2016). This does not only affect the sale channels, but also social features in the car become more important, which should be taken into account in the development process of EVs.

Technological Variables – Further technological development needed to eliminate key barriers. Strong demand and support are boosting the innovation rate in the e-Mobility industry. This applies for the supporting infrastructure (different charging technologies) as well as the components used in the automotive (Bullies, 2013). However, the long recharge times that come with the majority of EVs at an affordable price point and the limited mileage compared to conventional vehicles remain as the biggest barriers for further mass adaption. Economic and political variables are affecting the technological development positively, but 2-5 more years are needed to reach a plateau of productivity (Tsang & Pederson & Wooding & Potoglou (2012).

Environmental Variables – Environmental awareness is increasing leading to a higher demand in EVs. The global awareness from society and governments for environmental challenges (e.g. climate change) is increasing. The climate agreement from 195 nations in December 2015 (Business Insider, 2016) and other initiatives lead to a stronger need for energy efficient transportation. As a result, more and more governments are tightening the average CO2 emission limits, forcing manufacturers to have zero-emission vehicles in their portfolio. Additionally, the primary fuel source for conventional cars (gasoline) is limited and has become much more expensive, then it used to be 30 years ago (Statista, 2016). This is boosting EV sales, as electric vehicles are not only more energy efficient (Accenture, 2016), but also independent on limited resources such as gasoline. Overall the environmental variables are a key driving force and chance for the further growth of the e-Mobility industry.

Economic Variables – The e-Mobility industry will remain on high growth rates in the upcoming years. The global e-Mobility market volume grew in the period 2011 – 2015 by an annual growth rate of 27.2% (Marketline, 2015). Forecasts for the market vary to reach a global market volume starting from $300 billion (Marketline, 2015) up to $390 billion (Accenture, 2014) in 2020. Factors for this growth are a moderate growth in economies, job creation, low interest rates, and strong stock markets which motivate consumers to invest in new cars, resulting in a higher demand. Additionally, large investments are being made from EV manufacturers and suppliers, indicating a further growth for the industry (e.g. 500million euro investment from Daimler AG in its plant to enhance the supply of electric key components (Kable, 2016)). Finally, an increasing fleet age of cars (Naughton, 2015) in most countries drives more consumers to invest in a new car. This increased demand will result in a need of further differentiation for EVs, forcing a stronger competition and an increased market presence.

Political Variables – Strong governmental support boosts further EV sales & growth. Governments around the world keep supporting a stronger focus on EVs with subsidies, incentives, tax exempts and loans for manufacturers and buyers. Already in 2012 the U.S. government invested $5 billion in electric cars, including loans and incentives to automotive companies and key suppliers (Automotive News, 2012). More recently, the German government announced to give a total of $1.4 billion in incentives for EV sales, both to manufacturers and buyers (Nichols & Jennen, 2016). Additionally, in more and more global cities actions are taken to improve the public infrastructure, so that electric vehicles can be ideally deployed and recharged (Accenture, 2014). While there are still restrictions on sale channels for EV in some regions, the overall trend shows that these restrictions are being discarded by governments over time (Gas2, 2015). Examples like this are an opportunity for the industry, as they result in a greater industry participation and adoption in the automotive market. On the other hand, lobbies from conventional automakers and suppliers need to be considered, as they are working hard to keep conventional cars on the road.

Porters 5 Forces Analysis for the e-Mobility industry

The underlying competitive structure in the e-Mobility industry is analyzed by a `Five Forces Industry Analysis` (based on Michael Porters Model). It shows the key forces and their impact on the industry attractiveness and long-run profitability (Bensoussan, 2013).

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Chart 1: 5 Forces Analysis for the e-Mobility Industry.

Barriers to Entry – There is a high number of barriers to enter the e-Mobility industry. The e-Mobility industry has various barriers to entry. For example, the manufacturing of electric vehicles requires high investments in production lines, machinery and technology. Besides that, expertise in the automotive business is needed, in order to invest efficiently. Since the cost for technology (e.g. batteries) is still very high, the margins on electric vehicles are reduced. These barriers result in high fixed costs once investments have been done, which requires additional investment capital to secure a market share in the beginning especially for new competitors. Because of that, the growth in the e-Mobility industry will for the most part come from conventional automotive manufacturers, who already have the knowledge about processes and the needed infrastructure.

Bargaining Power of Buyers – Customers have the choice; brand loyalty can help to mitigate the power of buyers. The demand for cars is very high. Cars are a commodity for private customers as well as businesses. An increased environmental awareness and the benefit of long-term savings on fuel costs, motivates more customers to switch from a conventional car to an electric vehicle. However, due to a strong competition and substitution in the industry, the power is with the buyers. Another factor that increases the power of the buyers is the limited switching costs. To switch from one model to another has little to no costs for the customer. Therefore, buyers tend to choose their model based on quality, price and service. An answer to mitigate the power of buyers is a better customer service and a stronger focus on brand loyalty.

Bargaining Power of Suppliers – Suppliers hold comparatively little power. There is a large number of companies supplying the conventional as well as the electric automotive industry. In addition to that, the automotive industry is a key market for the most suppliers. Innovations happen more often on the side of the manufacturer than on the side of the supplying vendors. All these factors result in a comparatively low threat of suppliers.

Industry Competitors – Key automotive companies are highly competitive and maintain an intense rivalry. There are various automotive companies who fight for potential buyers of electric vehicles. A strong competition and a high power of buyers results in an intense rivalry in the electric vehicle industry. This is further increased, by a strong growth rate and a huge market prediction in the upcoming 2-5 years. Because of that, new companies are entering the industry (e.g. Tesla), which leads to an even stronger competition. As an answer to that, existing key players in the automotive industry are willing to invest a large budget to make the switch from conventional cars to electric vehicles in time (Kable, 2016).

Threat of Substitute Products – Intense competition and emerging mobility concepts make the threat of substitutes very real. The e-mobility industry has a similar competition structure as the traditional automotive industry. Even though the model mix of electric vehicles is not as broad as it is for conventional cars, the threat of substitutes is still tremendous. Emerging mobility concepts (such as mobility on demand, rideshare, autonomous driving, etc.) as well as traditional alternatives of transportation (e.g. bus, train, plain, etc.) are a serious threat to electric vehicles. In addition to that, the still high price difference of an electric vehicle compared to a conventional car, also adds conventional cars to the list of substitutes for EVs.

Conclusion and Forecast

The e-Mobility industry is currently in its early phase and is expected to grow during each of the five upcoming years (Marketline, 2015). This growth is expected for several reasons. Investments from key automotive companies, new technological development, and a strong support from governments all over the world are positive factors that support a growth in the industry. Environmental awareness and long term savings from electric vehicles will drive demand and with that sales figures higher. The automotive industry is one of the largest industries and if only a medium amount of customers will switch from conventional cars to electric vehicles in the next 5 years, then this will lead to an enormous growth in the e-Mobility industry. One could see the trend of new mobility concepts as a threat for the growth of EV sales. The reality however is, even ride share options or autonomous driving require an efficient automotive. Electric vehicles will become the foundation of new businesses founded from new mobility concepts, because of lower variable costs.

Works Cited

Accenture. (2014). The Electric Vehicle Challenge. Retrieved from

https://www.accenture.com/us-en/~/media/Accenture/Conversion-Assets/DotCom/Documents/Global/PDF/Industries_15/Accenture-Electric-Vehicle-Challenge.pdf

Automotive News. (2012). Obama's $5 billion delivers slow jolt to electric vehicles. Retrieved from

http://www.autonews.com/article/20121016/OEM05/121019888/obamas-$5-billion-delivers-slow-jolt-to-electric-vehicles

Bensoussan, B. E. (2013). Analysis Without Paralysis, 2nd Edition. Pearson FT Press PTG, 2013.

Bullies, K. (2013). How Tesla Is Driving Electric Car Innovation. Retrieved from

https://www.technologyreview.com/s/516961/how-tesla-is-driving-electric-car-innovation/

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http://www.businessinsider.com/r-french-parliament-adopts-bill-to-ratify-paris-climate-agreement-2016-5

Gao, P. & Kaas, H. & Mohr, D. & Wee, D. (2016). Disruptive trends that will transform the auto

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http://gas2.org/2015/03/27/georgia-senate-passes-pro-tesla-bill/

Kable, G. (2016). Mercedes-Benz set to release four EVs by 2020. Retrieved from

http://www.autocar.co.uk/car-news/industry/mercedes-benz-set-release-four-evs-2020

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Business Source Complete, Ipswich, MA.

Naughton, N. (2015). Average age of U.S. fleet hits record 11.5 years, IHS says. Retrieved from http://www.autonews.com/article/20150729/RETAIL/150729861/average-age-of-u.s.-fleet-hits-record-11.5-years-ihs-says

Nichols, H. & Jennen, B. (2016). Germany Plans $1.4 Billion in Incentives for Electric Cars. Retrieved from http://www.bloomberg.com/news/articles/2016-04-27/germany-planning-1-4-billion-in-incentives-for-electric-cars

Statista. (2016). Average annual OPEC crude oil price from 1960 to 2016 (in U.S. dollars per barrel). Retrieved from http://www.statista.com/statistics/262858/change-in-opec-crude-oil-prices-since-1960/

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