Electric Motor Manufacturing Industry Analysis - Essay Example

? Management Management Industry Analysis (P5F) Threat of New Entrants In the electrical motor manufacturing industry, this is primarily a very low threat (Etzion & Struben, 2011). Factors that Better Place takes into consideration comprise of all barriers to entry for instance upfront capital necessities, in that it costs extremely a lot to establish an electrical motor manufacturing facility, government policy and legislation (that is, safety, emissions and EPA), brand equity (a new company might have none), capacity to distribute the product for instance, a number of electrical vehicle (EV) companies have been out of business in some major countries of the world since the early 90s mainly because of the incapability of re-establishing a dealer network (Etzion & Struben, 2011). Threat of Substitute Products or Services If EV car buyers can rely on the competition or other substitute goods, and easily switch, then there might be a huge threat to Better Place’s venture (Etzion & Struben, 2011). However, with very few EV cars, the switching cost is relatively low since there are not EV car producers in the world. Better Place also included product differentiation in its endeavours. In the car industry, normally there are numerous cars that are similar. For instance, someone can easily locate a very similar Nissan, Toyota, Mazda or Honda. Nevertheless, if they are looking at amphibious vehicles, then Better Place faces little threat of substitute products or services, which can be considered an extreme example (Etzion & Struben, 2011). Bargaining Power of Customers There are primarily two types of markets that Better Place competes in; the market for outputs, in which the firm sells its products to consumers and the market for inputs, in which the firm buys components, raw materials and financial, as well as labour services (Etzion & Struben, 2011). These transactions establish value for both sellers and buyers in both markets. With regards to the output markets, Better Place experiences the bargaining power of customers whereas, in the input markets, the company experiences the bargaining power of its suppliers. This bargaining power of customers explains how tough the client’s attitude, as well as their position is (Etzion & Struben, 2011). Bargaining Power of Suppliers Suppliers can put to practice their bargaining power through increases prices or dropping the quality of products. Materials such as raw materials or labour are vital to Better Place’s existence (Etzion & Struben, 2011). Therefore, Better Place has developed a dependant relationship with its suppliers. However, such suppliers can take more Better Place’s likely industry potential value if they are more powerful. This can make Better Place’s profitability drop if they cannot transfer the greater costs incurred to their clients. Such suppliers seem to be more powerful because Better Place is a single company. However, if Better Place was composed of a number of firms, then the suppliers would be less powerful (Etzion & Struben, 2011). Intensity of Competitive Rivalry In the world EV market, the number of developed competitors is over 50, but Better Place is the first of its kind in Israel. Nevertheless, since diverse firm’s product ranges, product positioning, as well as target consumer groups, are fairly diverse and the volume of EVs that are launched are limited, in comparison with the traditional automotive industry, the competitive strength of EV in Israel is fairly low (Etzion & Struben, 2011). However, established competitors around the world can be split into four clusters according to their capital scale, production capacity, product ranger, as well as operation pattern. They can also be large firms or small firms according to their capital size (Etzion & Struben, 2011). Scenario Planning Better Place’s business models could be simply summarised as they buy car batteries, as well as electricity and offer miles, on the other hand (Etzion & Struben, 2011). The model is rooted in the idea that the battery and the vehicle would be sold independently. Not having to count the battery in the car purchase placed Better Place on with an ICE company, with the vehicle’s prices estimated to be at US$ 20,000 (Etzion & Struben, 2011). As visualised by Better Place, car drivers would sign for a service scheme with an ERGO – Electric Recharge Grid Operator – wherein electricity would be sold in miles rather than kilowatt hours. ERGOs would be in a capacity to offer a menu of service scheme to their clients, similar to those provided by mobile telephony firms. Better Place estimated that its customers would be provided three tiers of service plans – fixed monthly fee, all-you-can-drive, as well as pay-as-you-go (Etzion & Struben, 2011). The company’s market research discovered that over 25% of car drivers used over 66% of gasoline in the United States only and considered that this ratio to be widely exact in other target nations (Etzion & Struben, 2011). Everyday drivers, therefore, would be well-matched to a service with a permanent monthly fee derived from a locked-in price signifying that they must pay more if energy prices rose, for an approximately 4-year contract (Etzion & Struben, 2011). Likewise to cell phone firms, car drivers who opt to sign for the top tier service scheme, projected to be $500/month, would mostly obtain a refund from Better Place, likely offsetting the whole capital cost of the car (Etzion & Struben, 2011). So as for Better Place’s business model effectively to work, the firm would be needed to establish and maintain the recharging infrastructure for the electrical vehicles (EVs). The infrastructure for recharging would include two main components – switching stations and charge spots. Resembling an undersized post through an electric socket, charging spots would allow drivers to recharge their vehicles at opportune locations, when the car was motionless for some period, such as when the driver is at work, at a restaurant or while shopping (Etzion & Struben, 2011). Charge spots, with a projected fixing cost of $1,000, would be profusely placed in significant locations – train malls, stations, grocery stores, offices, parking lots or even along sidewalks. In addition, for a charge of $250-$300, car drivers would also have the alternative of installing a charge spot at their homes. A complete recharge of an Electric Vehicle battery with present technology needed many hours of connectivity to a charge spot; therefore, considerably constraining the vehicle’s mobility (Etzion & Struben, 2011). Finally, cars would be fitted with computers, which would track the period to exhaustion, the distance the vehicle could drive with lasting power, as well as the site of switching stations. In addition, data on driving behaviour will be conveyed to ERGOs, allowing them to place vehicles in priority succession for charging when electricity demand is high (Etzion & Struben, 2011). Driving patterns will also be assessed so that, for instance, drivers who are normally parked at their offices for over 8 hours a day will simply receive their charge when electricity demand is relatively low, and energy prices are fairly high (Etzion & Struben, 2011). Key Success Factors Some of the key success factors of Better Place include defining the solution, realising the idea and personality of the firm’s founder, Shai Agassi. Selecting a wide and challenging issue made sure that the answer to the firm’s problems would make a huge difference. This was for instance how to convert an entire nation to use electric cars instead of how to attain 5% percent hybrids by the year 2015 (Etzion & Struben, 2011). Better Place found the solution in the boundaries of the science available currently. The firm also required the solution to be self-funding, which made it accessible for a wide variety of stakeholders. The EV1, which was launched in California, was favoured by drivers since it was quite silent; did not lead to tailpipe emissions and was simple and cheap to maintain, mainly because it had only a fifth of the number of moving parts installed in the ICE (Etzion & Struben, 2011). The 100% recyclable and lightweight body parts also meant that much less electricity was needed to move the vehicle itself. Even though, the EV1 was praised as a technological achievement and was admired among users, General Motors willingly recalled its vehicles in 1999 owing to alleged low consumer demand, as well as the firm’s incapability of turning a profit from the plan (Etzion & Struben, 2011). The second success factor for Better Place was quickly realising and engaging a wide network of partners, as well as associates with vital interests in the early stages of its endeavours. The firm has a much stronger commitment as its partners are not motivated simply by genuine interests: for instance, commercial advantage independence from Israel, as well as financial returns (investors) (Etzion & Struben, 2011). Better Place engaged in skill capabilities and sets, which cannot be contributed by partners and made it likely to create an exceptional competitive advantage (Etzion & Struben, 2011). The firm recruited greatly skilled software experts and centered their efforts on the software for operating the network. Better Place also aligned their objectives, which gave direction and security motivations to the firm’s endeavours (Etzion & Struben, 2011). Finally, Better Place invested much of its time to study the issues, root causes of the issues, as well as the likely solutions. The firm signaled its seriousness to partners, investors and supporters, through investing its own career. The founder resigned from a very promising managerial job at an international giant to establish Better Place. The founder did not also lose sight of the significant technical details or the client; he exploited the skills he established as software executive: comprehending business models, viability of solutions and system complexities. The firm’s capacity to link technical skill with business insight set it apart with other technical models but lacked the business momentum. The firm’s founder was also widely considered as an extremely charismatic leader because he naturally concerned and included many people in his dealings, tapping each and every available resource and skill (Etzion & Struben, 2011). This approach proves that goals or objectives cannot be over ambitious. On the contrary, the impetus Better Place achieved in the former stages was perhaps persuaded by the importance of the problem. Resource and Capabilities One significant criticism of electronic vehicles was that, in areas with low amounts of renewable energy creation, the production of greenhouse gases were only transferred from the vehicle engine to substantial energy production facilities, which transformed carbon-intensive feedstocks like coal into electricity (Etzion & Struben, 2011). For this firm actually to make the world a better place, they could not just transfer emissions from vehicle tailpipes to customary energy production facilities, but the energy source was required to be renewable. Even though, renewable energy creation had not exceeded the 10% threshold in most nations, Better Place devoted itself to purchasing simply clean electrons, which could only be gotten from renewable energy sources (Etzion & Struben, 2011). Better Place considered that it would be in a position economically to buy electricity from renewable sources at wholesale or comprehensive prices in the markets where it operates. Challenges in raising the EV market shot up not just from the hurdles of restructuring the supply-side, but questions loomed concerning how rapid the demand-side of the market would appear. Supposing Better Place was able to get the infrastructure and cars in place, factors associated to client adoption could still likely limit fast uptake of electronic vehicles. In essence, Better Place considered that when renewable energy creation had arisen to meet the augmented demand stemming from the transport sector, the charge to drive an EV would be equal to or below driving a petrol-powered car (Etzion & Struben, 2011). In the United States, the normal cost per mile for electricity was at $0.06-0.08 even though most electricity was produced by coal-fired plants, in comparison to $0.10- $0.12 per mile for petrol. In Denmark, petrol cost as high as $7 to $8 a gallon, or approximately $0.20 per mile (Etzion & Struben, 2011). Peeking into the future, electronic vehicles could provide extra value as a means of capturing and storing renewable energy. One of the major challenges with renewable energy was that solar and wind energy are irregular; hence, completely to make use these sources, Better Place knew that they required large batteries in order to store excess energy for use when creation was fairly low (windless periods and night-time) (Etzion & Struben, 2011). Denmark for instance, already created 20% of its energy from renewable sources such as coal, but was required to export electrons when creation surpassed demand because of lack of proper storage capacity. Since the regular car is parked for 90% of the day, it formed a potentially perfect source of renewable energy storage for firms such as Better Place (Etzion & Struben, 2011). Through joining arms with ERGO, Better Place would not be needed to get rid of excess production since capacity could be kept in car batteries, presuming vehicle owners were offered an incentive also to offer storage services (Etzion & Struben, 2011). And certainly, the “smart grid technology”, which applications had begun developing, would permit drivers to purchase energy from the grid when their vehicle needed recharging and also vend to the grid when the battery was full. Although the stars seemed to be in agreement with Agassi and his ground-breaking business model to take hold, industry stakeholders comprising of governments, as well as auto manufacturers, were chasing other plans to reconceptualise transport (Etzion & Struben, 2011). Business-Level and Corporate Strategies For its original launch sites, Better Place had sought areas with large consumer awareness, as well as a high demand for electric vehicles (Etzion & Struben, 2011). In Israel, the firm’s former site, 57% of car drivers argued that they needed their next cars to be power-driven with electricity. In the US, Canada, Australia, and Denmark, the numbers were 30, 35, 39 and 40 percent respectively (Etzion & Struben, 2011). So as for its business model, as well as technology, to be distributed in the most affable settings possible, Better Place had chosen a number of small nations and “islands” (Etzion & Struben, 2011). Islands were imagined as areas with a high number of people and restricted traffic to “off-island” destinations. For instance, Israel’s population is intense within over 6,500 square miles. 90% of drivers commute below 43 miles each and every day and urban centers are mainly less than 70 miles apart. Car travel past the nation’s borders is insignificant. Denmark was projected to convert into the second Better Place Island, in 2011. In Denmark, firms such as DONG energy were increasing their renewable energy mix, whereas the government had pledged to electric vehicle incentive programs (Etzion & Struben, 2011). Jens Moberg, the Chief Executive Officer of Better Place Denmark had already made public the firm’s plans for distributing its charging infrastructure in the country’s capital, Copenhagen. Better Place had set up shop in other islands as well, including the San Francisco Bay Area and Hawaii (Etzion & Struben, 2011). Hawaii was buying oil to meet 90% of its energy demands and had the highest petrol prices of any state in the US. The state had launched its HCEI – Hawaii Clean Energy Initiative – to work with the United States Department of Energy to create clean energy choices for meeting 70% of the state’s energy demands by the year 2030 (Etzion & Struben, 2011). Australia, the biggest island in the world, was also striking for Better Place, which considered it to include three main urban centers associated by one highway, making it specifically appropriate for the Better Place business model. Portugal and Spain were also potential locations as Better Place estimated a need for 50,000 plug-in electric vehicles in the two countries by 2011 (Etzion & Struben, 2011). In the beginning months of 2010, Better Place started establishing partnerships, as well as carrying out market research, in order to evaluate the viability of entry into areas with much fewer boundaries and more elements blocking the transition to electric vehicles. Evidently, Better Place’s intention fundamentally to change personal transportation was ground-breaking and naysayers faced small challenges in uncovering likely flaws in the Better Place’s business model. These challenges comprised of technological hurdles vital for mechanical battery switching (Etzion & Struben, 2011). Other individuals called into question the freedom of movement, which Better Place customers, in reality, would benefit from citing the elevated costs of roaming, which often typified mobile telephony. However, other individuals warned that extensive embracing of electrical vehicles would place agonising loads on the electric grid leading to large scale power shortages (Etzion & Struben, 2011). More significantly, critics questioned whether or not Better Place, in reality, could turn a profit, and the level to which it needed subsidisation from utilities and governments. Stakeholder Mapping Better Place visualised that utility firms would play a vital role in mainstreaming electronic vehicles and offer the much required support through providing lighting fixtures, laying underground electric cables, as well as installing other infrastructure (Etzion & Struben, 2011). So as for ERGOs and utilities to obtain the highest benefit from Better Place’s model, the ERGO software would have to be harmonised with utility software, permitting the local grid to decide optimal distribution of energy to cars during off-peak and peak hours. Better Place had started creating software to track data and interact with the grid and distribute electricity as need fluctuated; therefore reducing expensive spikes in electricity demand. So as to manage this flow of data, the cars’ aboard computers would be linked to a data system, which would discern when a car was connected to the grid (Etzion & Struben, 2011). Through establishing a proper communication system, ERGO would have the ability to balance the grid so that the demanded of recharging could occur in off peak hours. Rooted in its discernment that it could increase value to utilities, Better Place was working directly with utilities to create long term investment goals in clean and renewable energy. Israel, for instance, had set an objective to have 10% of its electricity resources from renewable energy and solar power by 2020 (Etzion & Struben, 2011). Israel Electric Corporation formed a committee managed by Yakov Hain, the senior vice person of engineering projects, in order to aid ongoing talks between Better Place and IEC. Hawaii Electric Company declared a non-exclusive accord with Better Place to advance in renewable energy and develop a recharging network linked to the grid, but the utility noted its tolerance to partaking with similar firms (Etzion & Struben, 2011). In Toronto, Better Place held meetings with Bullfrog Power, which provided 100% clean and renewable energy in the country. To help utilities in achieving renewable energy plans, some regimes were providing tax rebates on electric cars (Etzion & Struben, 2011). Israel, which normally taxed ICEs at 70%, decided to tax EVs at 10% till 2019. Rather than the 180% ICE tax in Denmark, car drivers would be allowed to buy EVs at 0% till 2015. As of 2010, the United States was providing rebates varying from $3,200 to $7,500, relying on the battery’s capacity (Etzion & Struben, 2011). To finish, Better Place was in debates with the Big Three auto fabricators in Detroit, but no partnerships had emerged. John Hanson, Toyota’s director of environmental communications, went on the record articulating his views on creating a car well-matched with Better Place technology. In reality, Renault-Nissan was the only vehicle manufacturer, which promised to offer automobiles well-suited with Better Place specifications (Etzion & Struben, 2011). Renault-Nissan had already started manufacturing an electric version of the Fluence in Bursa, Turkey and had committed to producing 100,000 units by 2016 (Etzion & Struben, 2011). The firm intended to develop a second plant outside of Paris when need arose and started designing electric vehicles versions of the Laguna Sedan and the Kangoo Z.E. Van, along with the two-seater Twizy. Reference Etzion, D & Struben, J 2011, Better place: shifting paradigms in the automotive industry, viewed 28th December, 2013 http://oikos-international.org/wp-content/uploads/2013/10/oikos_Cases_2011_Better_Place.pdf Read More