Factors that Are Important to Be Considered by the Electric Car Manufacturers - Research Paper Example

 A report on the trends to be considered for developing a new type of battery that can extend the range of electric cars between charges from about 100 miles to about 500 miles. Abstract Electric cars in UK are emerging to be one of the most important growth drivers of growth for automobile companies. But due to the low range offered by the electric cars on production at present, companies have started thinking on developing more powerful batteries. This report will analyse the trends that are most important for companies to consider in the future while developing powerful batteries. The main part of the report has used PESTLE framework to identify the factors that are important to be considered by the electric car manufacturers. The listed factors are then classified as highly relevant and less relevant. An impact analysis is then performed on the highly relevant factors to arrive at the most important trend to be considered. The trends as identified by the impact analysis are Government spending, Government deficit, Economic Growth, Research spending, Innovations, Safety regulations and Environmental awareness. Based on the analysis of the above factors, it is identified that the main opportunity for the electric car companies in the next 5 years is the increased environmental awareness among the people. Similarly, the main threat for electric car markets is the uncertainty about government policies. Sl. No. Topic Page No. 1 Introduction 4 - 5 2 Main body 2.1 PESTLE Analysis 2.2 Analysis of four trends 6 – 10 10 – 15 3 Conclusion 15 – 16 1. Introduction Developing a powerful battery for electric cars is a challenging task for all electric car manufacturers due to the various challenges associated with it. Those main challenges will be discussed here in this report. The topic is “A new type of battery that can extend the range of electric cars between charges from about 100 miles to about 500 miles.” This study will deal specifically about the electric car market in UK. The various aspects that are relating to the UK car market are dealt in detail in this report. The objective of the study is to identify and analyse the four key factors that are important for the electric car market in UK. A very comprehensive PESTLE analysis is done in order to identify the key factors affecting the UK electric car segment. Before getting into the core area, it is important to have an idea about the UK electric car market. British automobile industry is one of the most established and fastest growing automobile industries in the world. UK shows good growth figures for all car segments. The trend until some years back has been the small car segment. But now, the trend is getting shifted to the electric cars irrespective of whether it is big or small. The main motivating factors for such a shift in trend is the continued awareness regarding the ill effects caused by vehicle emissions and the low cost of operations. Due to this high potential that exists in the region, companies from across the world are targeting to introduce electric cars for the UK market. This is evident from the fact that the even the super luxury car maker Rolls Royce will unveil the electric version of their Phantom in the 2011 Geneva Motor Show. As of 2008 electric cars represented around 0.004 percent of cars on the UK roads. The committee on climate change then expected this figure to reach around 40 percent by 2020. (Webster, 2008) (Ref. 1). The following chart gives the electric car growth estimate by region. (Reed, 2010) (Ref 22) To make things easier for the car manufacturers as well as the potential buyers, the UK Government is very keen on supporting the segment through their subsidy programme and other policies. The government has planned to provide subsidy of up to £5000 to those who acquire an electric car in future. (House of Commons, Page 40) (Ref. 2) But when it comes to the sales of electric cars, government support is not the only factor that works out. The practicality of the car is the most important success factor of the segment. It is where the relevance of this report lies. There are many limitations that affect the practicality of electric cars. Some of the main limitations of electric cars are limited range, long charging hours and cost associated with batteries. This report specifically deals with the most important limiting factor of low range. Almost all the electric cars present on the roads does not run more than 100 miles on a single charging. (Plunkett, 2009) (Ref 13) Longer range is important because frequent recharging is not possible every time. Moreover the electric cars cannot be taken to longer distance because of the fear of limited range and the recharging stations being unavailable. The main body will identify and explain the core factors that are to be considered for developing a battery that can extend the range of electric cars from 100 to 500 miles. The first part of the main body will deal with a PESTLE analysis of the UK electric car market to identify the four most important factors affecting concept. The PESTLE analysis will help to understand the big picture in relation to the new concept battery concept. (Haberberg and Alison, Page 105) (Ref 3) The four factors are then dealt in detail to know the way it impacts the new concept. Based on the comprehensive analysis in the main body, possible recommendations and action plan for the new idea is drawn out in the conclusion of the report. 2.1 PESTLE Analysis The above diagram shows a list of influencing factors under each category. The implications of each factor can be first analysed in order to identify the most crucial factors. Political factors: UK was undergoing unhealthy political conditions for several months now. The 2010 general elections have paved way to a new government. As a result of the recent general elections, Britain has set up its first hung parliament ever since 1974 the largest party being The Conservatives. Therefore, the future of electric car market in UK is wholly depended on the sustainable government policies for the industry. (Ref 17) Economic factors: Economic growth is a very important determinant of the success of electric cars. Economic growth is directly related to the market growth of a company. The UK economic conditions are on turmoil for until sometime now. Among the economic conditions government deficits, consumer confidence and economic growth, exchange rates, interest rates and inflation are some of the most important determining factors for the success of electric cars. (Ref 19) Social factors: Social factors consist mainly of demographic factors, lifestyle changes, and social awareness. Among this demographic factors, lifestyle changes, living conditions and social awareness are the most important factors for the success of electric cars. Technological factors: Technological factors mainly consist of research spending, innovations and technology lifecycle. Research spending is very much important for the concept of new battery development. Only through sufficient investments for R & D activities can a company develop such a new battery. Legal factors: Legal factors mainly consist of tax policies, safety regulations and competition regulation. Tax policies will determine how well the government is supporting the sector and how profitable it is for the customer to buy an electric car. Safety regulations determine how well a car is built in terms of the safety standards. UK is one of the few markets where vehicle safety regulations are very stringent and perfect. It is challenging for most electric cars to meet the safety regulations of the region. Environmental factors: Environmental factors mainly consist of climatic conditions and environmental awareness. Both are determining factors for the success of electric cars. We have seen many factors under each categories of the PESTLE framework. In order to identify which factors are relevant for the industry for the future it is important to have a proper analysis of those factors. One most useful tool for such analysis is the Impact-Uncertainty-Matrix. (Recklies, 2007) (Ref 4) The factors identified under each categories of the PESTLE framework can be charted in the above matrix to identify the most relevant trend for the future. Based on the relevance analysis, the factors can be classified as less relevant and highly relevant. Factors Highly relevant Less relevant Political Government spending Government attitude Political stability Trade relations Economical Government deficit Economic growth Exchange rates Interest rates Inflation Consumer confidence Social Social awareness Demographic factors Lifestyle changes Living conditions Technological Research spending Innovations Technology lifecycle Legal Safety regulations Tax policies Competition regulations Environmental Environmental awareness Climatic conditions The above table gives a classification of factors as less relevant and highly relevant. Now, an impact analysis on the above listed highly relevant factors can be performed to identify the four most relevant trends to be considered in the future. (Mindtools, 2011) (Ref 5) Factors Impact on sales Impact on market share Impact on technology Overall Govt. Spending High High Low High Govt. Attitude Medium Medium Low Medium Government deficit High Medium Low High Economic Growth High High High High Social awareness Medium Medium Medium Medium Research spending High High High High Innovations High High High High Safety regulations High High High High Tax policies Medium Medium Low Medium Environment awareness High High High High From the above analysis it can be concluded that some of the major important trends to be considered are Government spending, Government deficit, Economic Growth, Research spending, Innovations, Safety regulations and Environmental awareness. For the purpose of this report four of these trends are discussed below. 2.2 Analysis of the 4 Trends Government deficits: Government deficit is a factor that will have a great impact on the proposed idea of new battery development. UK government deficits are at a record high at present. In the year 2009 – 2010 the government net borrowing was 11.4 % of GDP. “At the end of March 2010 general government debt was £1000.4 billion, equivalent to 71.3 per cent of GDP.” (Office for National Statistics, 2010) (Ref 6) This is a cause of concern for all business enterprises in the region. Too much of debt implies that there will be slower economic growth and low demand for goods and services. (Ref15) Therefore, the main challenge that awaits the government is to improve the economic numbers of the region. The new government is forecasting a deficit of 11.1% of GDP for the coming year. This is a historically high figure. The government is forecasting to bring down the figure to 4% of GDP by the year 2015. Therefore, the new government is all set to keep its focus on improving the deficit situation. (Great Britain HM Treasury, 2010) (Ref 7) All the above factors show that there is a big challenge for the electric car market in the coming years. Government deficits can impact the electric car market in many ways. The most direct impacts are two. Firstly, the government will focus more on reducing the deficit and might cut down the grants for the industry. Secondly, if the government is not able to tackle the deficit problem, it will lead to sales contraction for the industry. Government’s excessive focus on reducing the deficit will affect the electric car market to a great extend. Development of new battery for electric cars requires huge investments in technology, manpower and facilities. The car manufacturers are ready to make such huge investments as they see a very potential market. But this becomes a successful strategy when there is also support from the government in the form of subsidies and grants. The UK government had initially decided to provide a grant of £230 million to subsidize the electric car segment. But in June 2010, the government announced that the grant will be cut down by about 80%. (Vaughan, 2010) (Ref 8) This decision by the government will force the car makers to cut down the sales forecast which was set at a high level. The second impact is the general impact that is caused on all industries. This will happen if the government is not able to tackle the deficit problem in the coming years. (Ref 20) Historically, the car market has moved in the same direction with that of the GDP growth of the region. (House of Commons, 2009) (Ref 9) The new government has only started implementing the policies. How fast the government is able to reduce the deficit and improve the economic numbers is an uncertainty. The UK economy is however not expected to perform well in the near future. IMF has recently cut its forecast of the UK economic growth rate. (Monaghan, 2010) (Ref 10) The above two factors have great impact on the idea of developing new battery for electric cars. While framing the strategies these economic factors should be considered to a great extend. Safety regulations: Safety regulation is the second major trend that has a great impact on the electric car market. World over the awareness of vehicle safety has paved way for introduction of more stringent vehicle safety regulations. Automobile companies are not only investing for developing safer vehicles but also for developing vehicles that take care of pedestrian safety as well. (Ref 11) UK is one of the regions where vehicle safety standards are given high importance. With increasing awareness regarding road accidents caused by defect of vehicles as well as the drivers, the car buyers have become more demanding in terms of the safety standards. ABS and airbags are being introduced even in the smallest of the cars to meet the safety standards. Unlike the petrol or diesel powered cars, there is a potential hazard of electric shock in the case of electric cars. It is also projected that going forward electric cars will penetrate the UK market much faster than before. It is in the light of this fact that the UK government has recently proposed new safety standards for electric vehicles to ensure the safety of passengers on electric cars. It can be noted that the safety standards proposed for electric cars are mainly in terms of protection from electric shocks. This is where the new policy becomes a challenge for the concept of developing a powerful battery. The given concept is mainly about developing a more powerful battery. It obviously involves storing more electricity than in a normal electric car battery. Therefore, this is a challenge for the companies that develop such battery. Safety features have to be more advanced than the one that is present now. It is usually very difficult for an electric car to meet the safety standards. The reason being the cars are usually smaller than the one that run on petrol and diesel engines. The size of the battery will be higher than the usual one thus making it a challenge for the car design team as well. The famous automaker Volvo has recently demonstrated a crash test of its concept electric car C30. The crash test revealed that its safety standards are at par with that of fossil fuel powered cars. Volvo has separated the batteries from the car’s crumble zone to make the passengers safer from electric shocks in the event of a collision. The method used by Volvo can be used by other companies too. But in the case of a more powerful battery it is more challenging to place the battery inside the front tunnel. If the electric car companies can meet this challenge half is done for them to be successful in the market. (Ref 14) Environmental awareness: One of the recent trends that started emerging all over the world is environmental awareness or the necessity to ‘go green.’ Go green has in fact emerged as a branding strategy of the 21st century. This is one trend that acts as a highly positive factor for the electric car markets. Increased vehicle population and commitment by the UK officials to reduce their carbon footprints have paved for more environmental awareness in the region. (Ref 12) As vehicles are found to be one of the most crucial polluting factors, people are encouraged to use electric cars. Even the government has announced subsidy and grants in order to support the car buyers as well as the manufacturers. This has become a motivating factor for potential car buyers to prefer electric cars. But many car buyers are still staying away from electric cars due to the primary limitation of low range. (Ref 16) This is where the new concept of powerful battery gains advantage. A more powerful battery powered car will help the car buyers to have a ride of up to 500 miles on a single charging. A lot of marketing activities are essential to take advantage of this trend. Only through proper marketing efforts will more awareness be created regarding the essentiality of using electric cars. When the marketing efforts and government subsidies work together, the sales will do better. Potential buyers should feel that electric cars are really greener and its usage will lead to zero harmful emissions when compared to that of fossil fuel powered cars. This implies that companies will not only have to allocate fund for research and development but also for wide marketing activities. The situation also demands that the electric car manufacturers influence the government to receive more grants than the currently approved one so that the market will even grow even wider. (Ref 18) Research spending: Excessive research spending is the next trend that has emerged in the electric car segment. As the awareness of electric cars spread wider, the need for developing safer, powerful and affordable cars have also increased. The cars have to be safer in order to meet the safety standards of the market. It has to be powerful in order to meet the needs of the customers. It has to be affordable in order to make it available more potential buyers. Bringing all these three factors together needs a lot of research and development activities. Developing a more powerful battery requires excessive research spending by the car manufacturers. UK government is providing all support for the car manufacturers to set up their plants in the region. Nissan has successfully rolled out its electric car ‘The Leaf’ from its Sunderland plant with good government support. But unlike that the challenge here is on developing powerful batteries. This requires recruitment of more skilled engineers. As per the current trend more of engineers are being sourced from Asian countries as they provide a good pool of well qualified human resources. Man power from Asian countries is available at much lower cost than from UK. This will give an edge for the companies to cut the cost too. 2. Conclusion The above analysis has given a clear insight about the UK electric car market and the factors to be considered by companies to take advantage of the emerging trends in the segment. Based on the above analysis the opportunities and threats for the new business concept are as follows. Opportunities: The major opportunity for electric car manufacturers in the next 5 years is the increasing environmental awareness among the people. As more and more social awareness are created among the public, it is quite easy for the companies to build the marketing strategies on the customer knowledge. Investments should mainly be done in two main areas. That is R & D and marketing. Huge investments in Research and Development are necessary because the challenge is to develop a powerful battery and meet the safety and design needs accordingly. Investments in marketing will then supplement the benefits of R & D and technology. Threats: The main threat for electric car manufactures in the coming years is the uncertainty about government policies. It is very much important for the companies to tackle this situation. However for a direct strategy cannot be recommended for this. The government has already cut the allocation they initially planned for the sector. It is very much important to convince the government for providing additional grants to the segment. Therefore, one possible strategy for this is to convince the government to provide grants or tax reductions to cars based on their range. Government can be convinced to provide more tax reductions to the cars with higher range than the one with less range. If this works out, more companies will be motivated to introduce cars with higher range. Works Cited (Ref 1) Ben Webster, 2008. Electric shock as sales of electric cars go into reverse. [Online] Available at: http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article5282698.ece [Accessed 1st March 2011] (Ref 2) House of Commons, 2010. Low carbon technologies in a green economy. United Kingdom: Stationery Office Ltd. (Ref 3) Adrian, Haberberg., Alison, Reiple., 2008. Strategic Management: Theory and application. United States: Oxford University Press. (Ref 4) Dagmar, Recklies. 2007. PEST Analysis. [Online] Available at: http://www.themanager.org/models/pest_analysis.htm [Accessed 6th March 2011] (Ref 5) Mindtools, 2011. Impact analysis. [Online] Available at: http://www.mindtools.com/pages/article/newTED_96.htm [Accessed 6th March 2011] (Ref 6) Office for National Statistics, 2010. UK Government debt and deficit. [Online] Available at: http://www.statistics.gov.uk/cci/nugget.asp?id=277 [Accessed 1st March 2011] (Ref 7) Great Britain HM Treasury, 2010. Budget 2010. UK: Stationery office limited. (Ref 8) Adam, Vaughan, 2010. UK Electric car grant scheme cut by 80%. [Online] Available at: http://www.guardian.co.uk/environment/2010/jul/28/electric-car-grant-scheme [Accessed 1st March 2011] (Ref 9) House of Commons, 2009. The Automotive Industry in the UK. United Kingdom: Stationery Office Ltd. (Ref 10) Angela, Monaghan, 2010. IMF cuts UK forecast for 2011. [Online] Available at: http://www.telegraph.co.uk/finance/economics/7614651/IMF-cuts-UK-growth-forecast-for-2011.html [Accessed 2nd March 2011] (Ref 11) Reuters.com. 2011. EU proposes electric car safety rules. [Online] Available at: http://in.reuters.com/article/2010/06/15/idINIndia-49327520100615 [Accessed 7th March 2011] (Ref 12) House of Commons, 2008. Reducing Carbon Emissions from UK Business. United Kingdom: Stationery Office Limited. (Ref 13) Jack, W, Plunkett. 2009. Plunkett’s automobile Industry Almanac 2009. Texas: Plunkett Research Ltd. (Ref 14) David, Schroder, 2009. Entering the electric car market in Germany. Germany: GRIN Verlag. (Ref 15) Great Britain HM Treasury, 2010. The spending review framework. United Kingdom: Stationery Office Limited. (Ref 16) Michael, Boxwell., 2010. Owning and Electric Car – 2010th Edition. United Kingdom: Greenstream Publishing. (Ref 17) HM Treasury, 2009. Budget 2009. United Kingdom: Stationery Office Ltd. (Ref 18) House of Commons, 2006. Reducing carbon emissions from transport. United Kingdom: Stationery Office Ltd. (Ref 19) BBC, 2010. UK Economy Growth to slow in 2011. [Online] Available at: http://www.bbc.co.uk/news/uk-11920548 [Accessed 3rd March 2011] (Ref 20) House of Commons, 2007. Success and Failure in the UK Car Manufacturing Industry. United Kingdom: Stationery Office Ltd. (Ref 21) Anthony Henry, 2008. Understanding strategic management. United States: Oxford University Press. (Ref 22) Arvid, Linde, 2010. Electric Cars The Future is now. England: Veloce publishing limited. (Ref 22) John, Reed, 2010. VW joins rush into electric vehicles. [Online] Available at: http://www.ft.com/cms/s/0/224a0132-2ad7-11df-886b-00144feabdc0.html#axzz1GF39rxJh [Accessed 10 March 2011] Read More