The E-Car - Report Example

Name Course Instructor Date Introduction Since the first automobile was invented in 1885, the automotive industry has greatly grown with new innovations hitting the market from time to time. Currently, over 70 million cars are produced in the world annually. Over 73.2 million cars were sold worldwide in 2008 even though there had been a significant decrease in sales in 2007. The economic crisis, environmental expectations and the oil price shock has shifted the attention of buyers to fuel saving and high quality vehicles. Basing on this, the e-car was started six years ago to exploit the works of professor Jacques. Currently, the company manufactures three models of cars. These include: the Ecoplus, the Eco and the EcoLite. The EcoLite is a considerably cheaper car that uses 70% similar components as in the Eco. Other components are entirely specific for EcoLite. The eco-plus on the other hand is a luxury model of the Eco and they share 95% of the components. The external macro-environment and marketplace (industry) environment of E-Car According to John Stredwick and john Kew (2005), a business environment is greatly outside the influence and control of any organization and factors in the external business have potential benefits and passive effects on the present and future of the organization. The economic environment is often divided into macro and micro environment. Middleton (2003), explains that the macro-environment contains factors like the government policies, the economy and social change which are beyond the reach of the firm’s direct control. These factors can have a great impact on the success of a business even though the relationship is almost one way. In this case, these factors are used to evaluate the macro-economic environment for E-car and its place in the market. The macro-environment for any company can be best analysed using the PEST; a method designed by Francis J. Aguilar in the year 1967. PEST stands for political, economic, social and technological environment in which a company operates. The political environment of E-CAR The political environment relates to the government policies that regulate business activities. These include trading policies, trade regulation and political stability. As such political decisions have a great impact on integral aspects of the any organizations. The automotive industry has greatly been a beneficiary of government incentives. E car has already greatly benefited from this. For instance, when skilled workers in the production of vehicles had been made redundant in South Midland, an area that was already suffering from an employment, free interest loans from the government and grants from the council in the region allowed E-car to buy and re-innovate a part of Lags lane site to take on the skilled workers. The operations of E-car in Northland are supported greatly by the government including creation of tax policies that promote the consumption of E-car products. The economic environment Analysis of the economic environment for e-car involves considering the potential for growth of the economic, population, interest rates and availability of credit and unemployment. Generally, the industry is expected to sale more cars when the economy is much more stable and less during recession. The automotive industry was greatly hit by the economic recession of 2008-2009. As the cost of living high and there was little disposable income, sales automatically went down. E-cars were considered an option by the government of Northland as the prices of oil and gas went high. However, it was equally expensive due to the use of heavy lithium-ion batteries that had high charging fees. After the economic recession, the automotive industry has increasingly enjoyed higher sales thereby increasing the prospects that the e-car will see even much higher sales in future. The market for electric-cars in the whole world has expanded steadily and is expected to grow farther. In 2013, December, there were about 400, 000 electric utility and passenger cars used in the world. Of this, the US has the largest stock of over 170, 000 electric cars. Norway is currently the country with the highest market penetration per capita in the world due to its small population. In 2013, Estonia completed the deployment of electric vehicles charging networks, with several charging points along the highway at a distance of 40 to 60 km. This move enhanced the market for e-cars placing the country second after Norway in per capita market penetration of electric vehicles. Market sales have been increasing steadily since 2009 and the population using e-cars has greatly increased in different countries including china, Belgium, Brazil, United Kingdom, Australia and others. This trend is greatly enhanced by government incentives favouring the use of e-vehicles and is expected to grow greatly in future (Mom, 116). Additionally, it is hoped that lighter and cheaper batteries will be invented which shall improve the performance and convenience of electric vehicles against petrol cars. Currently, the charges for recharging batteries compared to those for re-fuelling using gas or petrol are much different, but these vehicles are limited by their performance and the need to recharge batteries within short intervals. Few charging points thereby cause great inconvenience to users making them prefer petrol to electric cars. The table below shows a comparison of a petrol fuelled car with a similar eco. It also compares the two with a hybrid car whose power from an electric motor is supplemented by a petro engine. Model Eco Kyuta 215 Xdos-hybrid c Power source Lithium-ion batteries electric motor Petrol Petrol with assistance from an electric motor Price $9,999 $7,999 $9,500 Emissions (C02 Zero 180 gram/ kilometre 95 gram/kilometre Economy Approximately $1 per 20 kilometres (electricity charge) 8 litres/100km 5 litres/100km Performance 0-100 kph: 18 seconds Max speed: 120kph 0-100 kph: 10 seconds Max speed: 180kph 0-100 kph: 12 seconds Max speed: 170kph Range 160 kilometres until the battery needs recharging 550 kilometres on a tank full of petrol 1,200 kilometres on a tank full of petrol To attend to these issues and compete favourably with other models that are already established in the market, universal motors should invest in innovation of to improve the performance and thereby convenience of E-cars. This involves making use of cheaper batteries that would hold power for longer distances and improving the speed of the vehicles to match or outdo petrol cars. This is in attempt to shift the attention of the market to e-cars. In northland, with heavy taxes directed towards vehicles emitting excess CO2 and tax incentives on e-cars, the e-car is becoming popular despite its lower performance (E-CAR). Social environment for e-cars Green consumers residing in Northland, prepared to pay extra for cars that have little effects on the environment greatly buy the E-car. E-cars are also growing popular in Midland region where local population prides in their car making tradition and thankful to the government and professor Jacques for ensuring the survival of this industry at a reduced cost. In midland, only 5% of all E-cars manufactured are exported (E-CAR). The rest of the world’s population that cherishes environmental conservation is also expected to prefer electric cars thereby expanding the demand for them. Technical environment for E-car When universal motors purchased E-CAR, they understood the fact that lithium-ion batteries will need to cheaper lighter and improve their performance and range. This is the technological challenge that the company needs to overcome and hopes to accomplish as soon as possible. In its initial growth, E-car enjoyed the technical skills and capabilities of three managers. However, the managers are now over 50 and the company faces the challenge of replacing them with others that will effectively fit in their shoes. There is a general concern that the thirst for innovation and technical expertise enjoyed is diminishing (E-CAR). Currently, all the electric vehicles in the market are propelled by electric motors which are powered by on-board batteries. The batteries are recharged in a charging station or any other standard electrical outlet. Alternating current motors are considered better particularly for continued power hills. The starting power for ac suppliers is lower and the motor can move at very high RPMs with no overheating. The motors can also move heavier vehicles and they do not require transmission. They best suit the regenerative systems that they are in both hybrids and electric vehicles. The regenerative breaking that returns the breaking power to the battery is quite economical. Generally, ac motors move more smoothly, and can be easily controlled. However, the AC motors have great disadvantages. They are more expensive than DC motors and they require a converter as battery output is DC. Even though there is sill a debate on the pros and cons of DC vs AC motors, DC motors are for DIYers who convert cars powered by gas to electric. However, DC motors have a tendency of overheating (Boxwell 53). Basing on this, batteries remain the main technological challenge in the production of electric vehicles. The cars sometimes required many batteries housed in a pack and installed in an array. These batteries are heavy thereby reducing the speed of the cars and they occupy a large volume. The fact that the batteries have to be recharged very often while the car is in transit reduces their competitive advantage over regular cars that have to be refuelled lesser times. Batteries also take a longer period to be recharged and there would be a parking problem if refuelling centres are replaced with recharging centres. These form a number of technological issues to be handled by universal motors in order place the E-car in a good competitive position. Basing on the PEST analysis of the macro-environment, it can be deduced that the environment presents both opportunities and challenges to universal motors desires to succeed in the manufacture of electric cars (Boxwell 112). The financial and non-financial case for and against the outsourcing option Outsourcing refers to a strategy used by many companies to decrease costs by transferring parts of work to outside companies rather than completing them internally. This strategy is effective in cost saving particularly when appropriately employed. In some cases, it is more convenient to buy an item from a company with a cooperative advantage than to produce it internally. As such, the decision of universal motors is shaped by this idea. There are different factors that favour outsourcing and others that disfavour it. To start with, even though E-car was established in a region where a pool of skilled workers already existed, the aging and subsequent retirement of many of the workers has left behind a gap of skills. The applicants for the jobs left by this experienced group do not have the necessary motivation and skills to take on the challenges ahead of them as the old ones. As such, the company is having it hard time to recruit skilled and self motivated labour, an issue that is directly reflected in increased staff costs and wages and lesson production and innovation at Lags Lane site (E-CAR). Additionally, the urban location of Lags lane poses problems due to expensive inbound logistics caused by congestion of main roads in Midland and relative inaccessibility of the same site. The current demand for products from E-car is or not made by the insufficient production capacity at the site. This constraints places the E-car in a need to outsource to cut some of the costs of production, improve the quality of the products and meet the market demand. With the prospects that the market is deemed to grow larger, universal motors should lay the necessary strategies to cut off costs and increase both production and the efficiency of the cars. If universal motors do not intend to permanently outsource, then the move could be expensive in the long run. It would be harder to re-establish the production of the vehicle internally when the outsourcing period. Making the adjustments, employing and training new stuff to continue the internal production could be cumbersome and costly. Additionally, the company could lose some of the loyal Northland customers who pride in cars that are produced locally. In outsourcing however, universal motors should calculate the financial obligations involved to determine the profit margins and consider whether or not it is the rightful alternative. In outsourcing the manufacturing of the Eco Lite model, the potential manufacturer has stated the production price as $3,500 per car. The plant is 300 hundred miles away from northland including crossing 40 miles of the Gulf of Berang. This is projected to add on the costs of production which would either reduce the profit margins or increase cost of the car. There is a total of 112 weekly hours of production at Lags Lane site. This can be used to combine all the three production lines. The overhead costs per week are $35,000 at Lags Lane and are expected to fall by a sum of $1,250 per week after outsourcing. For every Eco Lite produced in the external company, the transportation fee is estimated to be $250. Consequently the total cost of production each Eco Lite is calculated by transportation fee plus the production price (E-CAR). $250 + $3,500= $ 3750. The current working system does not allow an enough number of hours to produce vehicles that meet the demand making the company to loose some [potential profits. A single Eco car goes at the price of $ 9,999 at a variable cost of $ 7,000. The weekly demand for this model is 6 vehicles. It takes nine hours to produce each vehicle. For the company to make 6 Ecos to meet the demand needs, it thereby requires 54 hrs. An Ecoplus on the other hand goes at the price of $ 12, 999 with a variable cost of $10,000. For this model, 5 cars are demanded per week. If each car takes 10 hours to produce, then a total of 50 hours will be required to produce cars that meet the demand needs. Finally, an Eco Lite goes at the $ 6,999 at a variable cost of $ 4,500. A single Eco Lite car takes 8 hours to produce and six cars of this model are demanded per week. As such, 48 hours are required to produce cars that meet this demand. In total, 152 two hours are required to produce vehicles that meet the demand. With only 112 production hours at Lags Lane site, it implies that the company has a deficit of over 40 hours (E-CAR). The most profitable combination by the current system is thereby as indicated in the table below. Cars produced Hours of production Contribution per car Total contribution Eco 6 54 $2,999 $17,994 Ecoplus 1 10 $2,999 $2,999 EcoLite 5 48 $2,449 $14,994 Total 112 $ 35,987 Basing on the table, the ecoplus model is sacrificed in order to work within the weekly production time frame. However, when the EcoLite is outsourced, more time is created to produce more EcoPlus models to meet the weekly demand. The most profitable combination after the EcoLite is outsourced as deemed to as in the table below (E-CAR) Cars produced Hours of production Contribution per vehicle Total Contribution Eco 6 54 $2,999 $17,994 EcoPlus 5 50 $2,999 $14,995 Grand Total 11 104 $32,989 Basing on the information in the table, outsourcing of EcoLite allows time for the production EcoPlus which increases sales and thereby the companies profit margins. Selling the a single Eco Lite car at $ 6,999 and a variable cost of $ 3750 after outsourcing, the contribution per an Eco Lite car would be $ 3246. If six cars are produced per week, then the total contribution would be $ 19 494. Summed up to the total contribution of Eco and EcoPlus ($32,989) produced internally, the total is $ 52 483, a profit margin much bigger than $ 35,987 when all the three models are produced internally. This justifies universal motors to outsource EcoLite. How any two of the three weaknesses might be addressed at E Car Lack of control and co-ordination To address the problem of lack of coordination and control, the organization should seek to strike a balance between decentralization and centralization of the decision making process. E-car should appoint a team or a person that takes responsibility of the general tasks. The management should also pay a special attention to governance and coordination issues. This includes undertaking strategic actions plans during a particular time frame defined by employees to facilitate their interest and commitment to planning (Hill and Jones 48). The management should also share with new employees the principles and values of the company to allow them understand how to participate. E- car should also spend time and resources on designing and implementing a training program on how to collaborate and participate in activities and to ensure each employee of the company attends to duties assigned to them in a particular time frame. Communication in the company is a vital issue and the objectives of the company should be clearly stated and each employee’s role in achieving the objectives clearly defined. Monitoring and evaluation programs should be designed and communicated to each employee to determine how the company performs at every stage of the production process (Hill and Jones 62). Finally, to ensure that everything is in order central unit of command should be established in the management to give direction to all activities of the company to avoid unnecessary confusion and omission during the production process. The understanding of risk Understanding and managing risks is quite an essential part of any company’s management particularly in the current competitive market. The main reason at E car, as we can see is not to assess the risks but to attend to them. On several occasions, risks are discussed but less no action is taken to cover them. To address this, the management should employ risk analysts and managers who will work to lessen the levels of risk through identifying the nature of the risk and its possible impacts on the company and initiate mechanism to improve and broaden risk coverage. In doing this, the company should also understand that the ultimate goal of the management is to reduce costs (Hopkin 94). As such, there is need to control the costs through easing the burden of insurance and administration which improves the value of the company for the risk manager. References Hill, C. W. L., & Jones, G. R. Essentials of strategic management. Mason, OH: South-Western/Cengage Learning, 2009. Print Hopkin, P. Fundamentals of risk management: Understanding evaluating and implementing effective risk management. London: Kogan Page, 2012. Print Kew, J., & Stredwick, J. Business environment: Managing in a strategic context. London: Chartered Inst. of Personnel and Development, 2005. Print Middleton, Paulette. Renewable Hydrogen Forum: A Summary of Expert Opinion and Policy Recommendations, National Press Club, Washington, Dc, October 1, 2003. Boulder, Colo.?: American Solar Energy Society, 2003. Print. Mom, Gijs. Electric Vehicle: Technology and Expectations in the Automobile Age. S.l.: Johns Hopkins Univ Press, 2013. Print. Boxwell, Michael. The Electric Car Guide: G-wiz: Discover the Truth About Owning and Using an Electric Car on a Day-to-Day Basis. Warwickshire: Greenstream Pub, 2010. Print. Read More