Electric Car Infrastructure Developments - Essay Example

? Executive summary THINK has been in the field of manufacturing electric cars for decades but has suffered three bankruptcies in its history. Currently, its US partner, FORD has divested and THINK has lost all credibility with suppliers. They need to prepay for all parts including batteries, the main component for the EVs. The potential for EV in the US is very high and the federal government is providing support for innovation. Green energy and eco-friendly cars have high demand and THINK needs to leverage advantage. Competition is intense and so is opportunity. The company has to make a strategic move by selecting partners as it needs financial as well as technical and marketing assistance. THINK should not tie-up with an established player, and maintain its own identity. It should enter into partnership with some Chinese firm as a short-term strategy. However, focus should be to enhance relations with Ener1 to overcome their internal weaknesses. Table of Contents 1. Introduction 3 2. Core proposition and long-term customers 3 3. Success strategy for the US and Europe 4 4. Strategic partners 5 5. Industry analysis 5.1 Auto industry within US 6 5.2 Risks 7 5.3 Future trends 8 6. Company analysis 6.1 Strengths 9 6.2 Weakness 10 6.3 Opportunity 10 6.4 Threats 11 7. Competitor analysis 12 8. Recommendations or the way forward for THINK 13 References 15 Table & Charts Chart I: Global Oil prices & US gasoline prices in 2030 8 Chart II: Per-Mile Fueling cost 10 Table I: US supply of electric vehicles from 2011 through 2015 11 1. Introduction THINK, the electric car company, has faced three bankruptcies but has now been able to draw investments from companies from different countries such as the US, Finland, and Norwegian government-backed investment fund. The company is now faced with the challenge of introducing and achieving success in the US market. The potential in the US is very high due to government support for electric vehicles (EVs) and hence THINK wants to be in the US from the beginning to take advantage of early-mover benefits. THINK has been positioned as a modern, efficient and responsive brand. Initially the core customers comprised of the fleet buyers including the government buyers and companies that valued association with green transport. Moreover, electrical vehicles (EVs) have low operating costs apart from the fact they are exempt from congestion charges. They are allowed to operate in otherwise vehicle-restricted parts of the city. The government-bodies are also able to comply with the urban emission regulations. Using and leasing environment-friendly vehicles enhances the corporate image of the government and private organizations which also plays upon the image of the potential employees who value eco-conscious employers. 2. Core proposition and long-term customers The core proposition of the vehicle is to provide cars with zero-emission while making it affordable and user-friendly. These cars may not be able to drive long distances per day but then the customer segment that THINK proposes to tap, would not require daily long distance driving. The car-sharing and rental agencies can be long-term customers of EVs as these can be rented out in congested urban areas as EVs have strong political and economic support. The clients of the car rental agencies become the potential owners of the EVs as they try out the cars first. Another long-term customer segment for the EVs includes the baby boomers who are environmentally conscious and for whom two-wheeler cars are sufficient. Then there are the women shoppers who use the car for day-time shopping and just need a child-fit arrangement in the car. The urban professionals also need a “cool car” that provides them a distinct identity and demonstrates their desire to change the world by being the trend setters. Apart from the green concept, since THINK uses the latest technology, it allows the driver to remain connected with the world outside. In fact the car can be used as a high-powered mobile computing, and communications platform, which is the reason it is appealing to young urban professionals. 3. Success strategy for the US and Europe The core strategy and the success criteria for Europe were to take advantage of the various incentives offered on manufacturing electric cars. There were strong political and economic incentives for adoption of EVs. Many countries in Europe actively support the use of EVs. It was thus expected that the EVs would meet with success in Europe. The US had no national mandate so far but after the financial meltdown and oil price explosion things had begun to change. The launch of the massive $25bn AVTM (Advanced Technology Vehicle Manufacturing Loan Program) has changed how the federal government looked at the automotive industry. There has been a new attitude in Washington towards electric cars where they provide loan to new entrants with battery and electric operate cars. The US aspires to be the leaders in the new century with new cars and this is precisely what THINK wants to capitalize on the situation because the electric driven cars would be the key component of the success strategy in the US. The focus should be on the urban areas such as Seattle, Los Angeles, New York, and Boston (Sandru, 20110. These cities have a high concentration of colleges and universities and the citizens in these areas are environmentally conscious. The EVs provide an alternate means of transport to the urban dwellers. This is required in the cities as they have registered the highest level of pollution. However, these would work equally well in the rural areas as the gas prices have soared up and the rural masses have no alternative. California has the zero-emission vehicle (ZEV) mandate and it has become necessary to meet this requirement. 4. Strategic partners Technologically Japan has been leading the electric car sector but since several Japanese car manufactures are independently manufacturing and marketing electric cars globally, Canny should look towards China as prospective suppliers of motor parts, as one of their strategic partners. Chinese technology trails behind those in the West and also behind those of the Japanese car makers (Boslet, 2010) but with technical collaboration from US companies such as its largest investor, Ener1 Inc. they should be able to maintain quality control and gain from the marketing know-how. At the same time, THINK would be able to derive mileage from the Chinese infrastructure and low cost of production. Besides, Sino-US ventures are likely to gain financial support from both governments. This would aid THINK as they have been facing financial crunch and losses. Chinese banks would be willing to support such ventures as in the case of Lio Energy systems, a joint venture of CODA of Santa Monica and Lishen Power battery of China. Germany’s Daimler AG has also entered into collaboration with Chinese car makers for electric cars for the Chinese market. This demonstrates that Chinese car makers are improving in technology and receiving joint venture interests from the Western countries. The second strategic partner should be Ener1 Inc. from the US because of their financial investment and high stakes, as well as for their technical support in lithium-ion automotive battery systems. Strategic alliance with Investinor of Norway is essential to receive the government-backed investment support. With these three strategic partners, THINK can be assured of financial aid from three governments – the Chinese, the US and the Norway governments. It would also gain from low cost production facilities of China while benefitting from the technical and marketing know-how from America. It is essential to have marketing support from the US companies as they know the local market the best. The US government support is unquestionable because its goal is to make regular use of the EV a reality (Sandru, 2011). 5. Industry analysis 5.1 Auto industry within US The auto industry in the US faces several challenges. The economy is volatile and the downturn reduced the demand for vehicles to a large extent. In North America, the sales stood at 0.20.6 percent in 2009, with 3,271,321 fewer new cars bought than in 2008 despite incentives offered by the federal government (Xia & Tang, 2011). This demands organizations to be flexible and agile and respond quickly to the changes in the business environment. The price of gasoline has been uncertain which inversely affects the auto manufacturers’ performance. Auto makers switch to low cost countries to save on stocks and capital but this again can affect demand if customers do not receive the required spare parts when necessary (Xia & Tang, 2011). The entire supply chain gets affected and loses its agility which again implies that the auto makers need to be flexible in their approach. The North American auto industry is not just an industry but a symbol of the nation. The people of the US have great expectations from the auto industry as it would help to maintain jobs in local communities and make quick turnaround profits (Xia & Tang, 20110. Alternative energy or green energy can revive the auto industry and this demands structural changes of the automobile transportation system. The executive also have to be ethical in their approach and discharge social responsibility. The rate of future adoption for electric car sales in the US is forecast to be very high. The forecast for electric cars is expected to be 64% of U.S. light-vehicle sales by 2030 and comprise 24% of the U.S. light-vehicle fleet (Becker & Sidhu, 2009). The rate of adoption of EVs is driven by the low purchasing price and low cost of operations. EVs are exacted to make an impact on several associated industries. For instance, the heath care costs would reduce as pollution decreases. Employment is expected to go up as battery manufacturing facilities would have to be set up. New sources of investments and higher production of batteries could make US a potential exporter of batteries. EVs, most importantly would lead to reduced greenhouse gas emissions by 2030 and it is expected that it would decline by 20-69 percent. 5.2 Risks Charging stations are essential for the success of the electric cars. Japan has 600 charging stations while there are just 40 charging stations in all other countries combined (ECPA Urban Planning, 2011). In the US the infrastructure is still in the developing stage. However charging stations are available at parking garages which is open to EVs from all manufacturers. They also offer convenient features such as variable fees based on usage, access without subscription, 24x7 driver support, and smart phone applications whereby the users can locate unoccupied stations. Developments such as these demonstrate the high potential for the EV car market in the US. Driving range of EVs is much lower than conventional cars but safety aspects outweigh the gasoline-powered vehicles (EPA.gov, 2010). The maintenance cost is also low as the EVs do not require oil changes or tune-ups. However, it is feared that more pedestrians are likely to be hit by the electric vehicles as they cannot hear the car approaching (UN Radio, 2010). 5.3 Future trends California has the world’s strictest environmental regulations where vehicles have to meet zero-emission requirements (Kim, 2010). A study conducted by Zypryme Research indicates that 40% of the respondents have shown inclination to purchase EVs in the next two years (ECPA Urban Planning, 2011). One-third of all respondents indicated that they are willing to pay a premium for the EVs, thereby showing that purchasing power has also risen. At the same time, it also shows consumer consciousness for eco-friendly cars. Consumers must perceive the benefits of electric car ownership. The prices of gasoline expected to rise by 2030 is a definite measure of the costs benefits to the electric car owners. Rise in fuel prices is forcing the vehicle manufacturers to increase the supply of fuel efficient vehicles. Higher oil prices have already shown decline in the purchase of large SUVs. The chart below shows the global oil process and the US gasoline prices in 2030: Chart I: Global Oil prices & US gasoline prices in 2030: Source: Becker & Sidhu (2009). One of the concerns is the prices as the battery costs are high. This could dissuade the individual consumers but businesses consider the return on investment while making any investment decision. Companies like FedEx and GE have committed to buying electric cars, which is very promising (Kuo, 2011). The government support is also there to spur sales and innovation. The government has pledged to invest in electric vehicle research on subjects such as advanced batteries and drive trains. It is also proposing to turn the $7500 federal tax credit for electric car buyers into rebate so that the customers can perceive the savings even when buying the car and not when they file the tax returns. In addition, customers can expect return on investment through savings on fuel and maintenance costs. 6. Company analysis 6.1 Strengths THINK had initially grown on Ford’s automotive technology, purchasing power and production quality assurance systems. However, even after detachment from FORD, THINK continues to have the support from other sources. The batteries used by THINK are more advanced than the big auto makers. Demand for fuel efficient cars in the US is forcing all manufactures to bring in innovation. THINK already has a plan ready for electric cars which also provide numerous benefits to the consumer as well as to the economy. It is also essential to achieve the CAFE (Corporate Average Fuel Efficiency) fuel economy average, which is possible through electric cars. THINK has several investors ready and also enjoys excellent leadership in Richard Canny. Chart II: Per-Mile Fueling cost Source: Becker & Sidhu, 2009 6.2 Weakness The company has a long history of ups and downs and has faced three bankruptcies so far. THINK had the support of FORD which divested in THINK after the zero emission mandate was removed. THINK is financially weak and has to seek support from investors and the governments. Thus, it is financially and technically dependent on other organizations. Their supply chain was affected as the credit system was locked up. Suppliers refused to extend credit and all payments had to be made in advance. THINK does not have patents to protect it from competitors or imitators. Its technology is fairly easy to replicate. 6.3 Opportunity Compliance with legal regulations should be considered as an opportunity (Nidumolu, Prahalad & Rangaswami, 2009). Corporate Average Fuel Efficiency (CAFE) needs to be achieved and this is an excellent opportunity for THINK to gain from. Moreover, with technical know-how in battery production, over time, THINK could also start exporting batteries to other countries where electric cars are under consideration. Greenhouse gas protocol should not be taken as a pressure to perform but as an opportunity to grow. Other factors that provide opportunity are changing public policy particularly involving domestic jobs in the automotive sector, global warming and local pollution concerns. President Obama, in his efforts for clean energy, wants one million electric cars to be on American roads by 2015. According to the chart given below, the market share of THINK is estimated to be much below the established players such as Nissan and Tesla. Table I: US supply of electric vehicles from 2011 through 2015 Source: Kuo (2011). 6.4 Threats Threats exist from existing traditional auto manufactures as they are investing heavily in R&D to bring out fuel-efficient cars based on gasoline consumption. Government extends support for R&D as well as incentives for buying fuel efficient cars. Even in the EV category, competition within the US is high as several manufacturers have entered the sector. The price of the battery is very high which is expected to drive up the overall cost of the car thereby making competition more intense. The car batteries account for almost half the cost of the finished car (Kuo, 2011). Besides, lithium is the main battery component and it is expected that the lithium supply globally will not be sufficient globally to power the batteries needed for electrical vehicles. 7. Competitor analysis In 2010, THINK committed to bring out the very first commercially available approved highway-safe cars in the world with zero-greenhouse tailpipe emissions. However, competition in the sector has since become very high. THINK can face competition from other modes of transport or from the EV sector. Competition from other modes of transport is high as gasoline-powered cars can run for longer distances any single day than the EV cars. The traditional car makers pose potential threat to THINK and other EV manufacturers, including the technology used by the EV makers. However, with trends changing towards environmentally friendly cars and with the government goals to make the EVs a reality, the focus of study should be on competition from the EV sector alone. Competition is expected to be high in the EV car market in the US as several auto manufacturers are expected to launch their EV vehicles in the mainstream market (ECPA Urban Planning, 2011). EVs in the form of passenger cars, minivans, sport utility vehicles, pickup trucks and buses are being manufactured (EPA.gov, 2010). Toyota Motors of Japan is also expected to unveil the electric RAV4 in collaboration with Tesla Motors, at the LA auto show. Honda Motor Co. is also expected to launch a pure electric car by 2012 (Kim, 2010). Nissan Motor Co will become the world’s first mass volume electric cars. Mitsubishi Motors also sees very high potential for electric cars as commercial vehicles used by businesses in Japan (WSJ, 2010). However, none of the electric car manufacturers has yet targeted the sector. Mitsubishi launched the i-MiEV, a small passenger car designed for city driving in 2009. However, their focus market in Australia. These cars can ran only on fixed distances everyday based on fixed charge. With a single charge the i-MiEV can run 160 kilometres which is a fair distance but does not offer a significant outing. 8. Recommendations or the way forward for THINK Electric cars are the way forward for cars globally and are increasingly being accepted by many nations. Major car manufacturers in Europe, North America and Asia have announced battery electric cars for 2013 (Eco-business, 2011). Thus, by 2014 the consumers would have a choice even in electric cars. Electric cars have become a viable alternative to petrol and diesel cars. However, according to the forecast, THINK is far from being the leader in electric car manufacturing sector. Approaching a new market can be done in several ways. Competition is intense even in the US markets and one must have some differentiating factor to obtain a fair amount of market share. Opportunity that exists is tremendous and how THINK leverages this opportunity is what has to be ascertained. Most US EV makers are based in the US and long term established in the US. Merging with an established player in the field will not bring recognition to THINK as all companies have their own corporate image and brand identity. Moreover, FORD had earlier partnered with THINK but divested and hence it would not be wise to have alliance with another auto maker from the US. THINK is moving as a differentiated product as it plans to offer clean, economic, environmentally sound second vehicle for individuals. They intend to focus initially in the cities where the car is most suited. As a long-term strategy, to apply and get loans from the US federal government, THINK necessarily needs alliance with Ener1. Ener1 has already raised some equity capital and its subsidiary has applied for loans from the federal government. The federal government has launched the Advanced Technology Vehicle Manufacturing (ATVM) Loan Program, to which Ener1 subsidiary is an applicant. This would help to produce battery packs for up to 1.2 billion electric vehicles by 2015. Currently, Ener1 subsidiary is currently the first and the only one producing lithium-ion automotive battery. Thus, Ener1 has to be a strategic partner. Partnering with Ener1 would provide THINK the opportunity to export batteries to other EV makers in the world. China and Japan have several such makers that would like to buy lithium-ion batteries. Japan, particularly, after the recent devastation would need help to come out of the grim industrial situation. Having alliance with China is essential to compete against prices. This should be a short-term strategy to source other parts for the car. However, having partners from different nationalities could pose other challenges in communication. Ener1 already has 31% stake in the company and may claim dominating influence considering the weaknesses that THINK has. Work style and approaches may also vary between different group and teams and these are issues that THINK has to consider. Training is one such solution which should start at the early stage rather than after production starts. Thus, THINK should not tie-up with an established player, and maintain its own identity. It should enter into partnership with some Chinese firm as a short-term strategy. However, focus should be to enhance relations with Ener1 to overcome their internal weaknesses. 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