Impact of Hybrid and Electric Cars-Free-Samples for Students

Question: Discuss about the impact of hybrid and electric cars in the world automobile industry. Answer: Introduction: The report is a discussion on strategic management based on a case study provided. The case study is based on the impact of hybrid and electric car on the worlds automobile industry. A hybrid vehicle makes use of two or distinct power types such as internal combustion engine for driving the electric generator that helps on powering electric motor. An electric car on the other hand is an automobile propelled by electric motors and uses the energy stored in the rechargeable batteries. The report deals with a discussion on impact of production of electric and hybrid cars on the automobile industry through porters five forces. There is also discussion on the strategic options adopted by premium automobile manufacturers like Mercedes and BMW for defending their competitive stance. Impact of Production of Hybrid and Electric Car on the Worlds Automobile Industry using Porters Five Forces Bargaining Power of the Customers The bargaining power of the customers is determined by the presence of a large of competitors (Fabbri and Klapper 2016). The purchase of a car is considered costly and consumers at the same time are quality conscious so they show a greater inclination towards the Western brands. There is a thorough search undertaken by the consumers before they actually they make a purchase. Therefore, a higher criterion for the purchase lowers the bargaining power of the industry because of limited quality offerings. The history in relation to the battery quality of the Chinese electric car shows the fact that buyers prefer brands that ensures best battery range and technology. Producers such as BMW and Tesla should therefore build a charger network that will help them in the expansion of the car range (Porter and Heppelmann 2014). This will not only help them in ensuring a competitive advantage but also ensure offering a complete ecosystem that helps in benefiting the customers. This will also help in decreasing the bargaining power of the consumers. However, at this point it also vital to note that the presence of other hybrid and non-electric cars can contribute in increasing the buying power of the consumers (Abu-Rub, Malinowski and Al-Haddad 2014). However, the difference lies in quality offerings made in the electric vehicle segment that seems to lows the consumer buying power. Moreover, there always lies a probability for the consumers to opt for a substitute and therefore the overall bargaining power of the customers stands at medium (Linxweiler 2017). Threat of Substitutes Threats of substitutes are substantial since there are innumerable alternatives for buying the electric car (Li et al. 2013). The hybrid cars with the combustion engine have dominant share in the market and happen to be the largest competitor of the electric cars of China. The hybrid cars provide same utility as that of the electric car although they differ in the aspect of environmental friendliness. Automakers like the Hyundai and Toyota have made plans for the release of first commercial cars with fuel cell (Hua et al. 2014). Manufacture of such cars also requires huge investment in infrastructure and technology in order to be successful and thereby reach a broader market. This aspect could make them a potential threat in future. Threat of New Entrant The electric vehicle has higher entry barriers and in order to be successful there is a requirement for large amount of capital investment along with specific set of technologies and skills (Wesseling, Faber and Hekkert 2014). There has been a release of patents by Tesla and at the same time pressure from the Chinese government for the electric vehicle producers for sharing their technology for accessing the Chinese market. This provides a platform for the new entrants as they can concentrate on the understanding the technology instead of doing research and development from the scratch (Stringham, Miller and Clark 2015). As a market leader of electric automotives Tesla, is taking initiatives for investment in the new manufacturing plants for increasing their economies of scale and offer affordable products (Bohnsack, Pinkse and Kolk 2014). The Chinese electric vehicle market is predicted to be one of the largest by the year 2019 thereby providing an opportunity for the existence of the new entrants (Zhou et al. 2015). There have been a number of incentives put forward by the Chinese government in support of the battery producers and electric automotive manufacturers (Brown and Zhou 2013). This makes the national as well as the local officials in setting goals for the increase in the number of the environment friendly vehicles. There is however uncertainty about the fact of the amount of goodwill earned by the foreign brands since they are produced locally. The Chinese government however wishes to build and protect the local producers. However, around 26 percent of the car buyers showed interest in the green technology (Sha, Huang and Gabardi 2013). These figures can attract newer entrants and can be a threat to the new players entering the market (Christensen 2013). Many entrants undertake partnership with the local fi rms like the BMW or Mercedes for making an entry. There are also additional barriers that the new entrants have to overcome in spite of the entry strategy. Therefore, the threat of newer entrants ranges from medium to high (Acharya 2014). The Bargaining Power of Suppliers Tesla along with its suppliers in the Industry is secretive and therefore it becomes difficult to derive information regarding the suppliers (Heimeshoff and Klein 2014). Producers of the electric vehicle are however facing higher switching cost because of the higher quality of the parts that were required for the manufacture and there is a limited supply of some of the components. This aspect enhances the power of the suppliers (Fabbri and Klapper 2016). Tesla depends highly on Mercedes-Benz since the company supplies certain interior car parts and components like airbags. It also provides Mercedes with batteries for electric drive of its B class. Thus, higher cost of technology leads to the higher pricing of the electric vehicle in comparison to the conventional cars (Moatti et al. 2015). For instance, the key battery supplier for Tesla is Panasonic and therefore the company tries to impose certain bargaining power since Tesla cannot find a new supplier that produces the similar quality and amount. However, the overall suppliers of the industry comparatively possess higher power since the manufactures relies on few suppliers for providing higher product quality (Van Alstyne, Parker and Choudary2016). Therefore, there exists a trend in the automobile industry where there exist mutual benefits between the producers and the suppliers that help in reducing the bargaining power to medium (Shi, Zhang and Ru 2013). Threat of Rivalry Although the automotive industry considered as highly competitive, the fully electric car industry is not only different but at the same time modestly competitive. Increasing number of companies are making investments in the electric cars. This can make the future market highly competitive (Sperling 2013). There are however fewer options of the electric vehicle in the exclusive segments and they remain differentiated by other attributes and price. The players are mutually dependent since they supply each other and try to expand in the electric vehicle market for making it profitable to all (Colmorn and Hulsmann 2014). Strategic Options Adopted by Automobile Manufacturers for Defending their Competitive Stance Mercedes Mercedes defended their competitive stance by the introducing plug in hybrids. Such hybrids represent a technology on road that leads to emission free future for the automobiles. These hybrids ensure offering the customers best of both the worlds (Mercedes-benz.co.uk 2018). This is because within the city the hybrid versions drive through its electric mode while on longer journeys the range of the combustion engine benefits the car. Further, hybridization also enhances the combustion engine with a unique dynamic performance thereby making the drive absolutely pleasurable. Mercedes have also adopted a strategy for production of batteries and electric vehicles across the globe (Mercedes-benz.co.uk 2018). Mercedes announced that the electric vehicles would be manufactured in the six plants across the three continents thereby setting the ground for the creation of the global battery network that would also ensure production of batteries for vehicles. Mercedes thus have plans of launching the fully electric EQ brand, set for the production in the year 2019. In addition Mercedes will have an investment close to $11million for converting the entire Mercedes Benz category into hybrid or fully electric version by the year 2022. This indicated that the company adopted an aggressive approach for the production of the electric cars compared to the competitors. Although other brands have expressed their ambitious plans regarding electric vehicles, the intention of Mercedes in building the battery range signaled towards the seriousness of the brand in becoming one of the key players in electric market. The doubling down of the battery factories of Mercedes showed that company stands just after t he business of Tesla. BMW BMW defended its competitive stance by creating charging corridors along the greatly travelled routes on the west and the east coast (Bmw.co.uk, 2018). This initiative will help in meeting the growing demand for the publicly available fast chargers of the electric vehicles. The company aims at selling around 100,000 electrified vehicles and by the year 2025, the rise in demand for the plug in hybrids and the electric models would be around 15 to 25 percent of the sale. This is applicable to the electrification of all the models of BMW since they believe in the goal of sustainable mobility. BMW also hedges the bets on future by implantation of plans regarding the hybrid and electric versions of the core nameplates thereby ensuring that all the three varieties come from similar assembly line. The approach will also aid the automakers to keep the factories in a working condition compared to the other plants. BMW also put forward strategy for the development of future proof platforms that have the capacity to handle the power trains and the combustion engine. However, the factors like incentives, regulation and infrastructure for charging plays a vital role in determining the electrification scale from one market to the other. Thus, for reacting appropriately and quickly to the demands of the customer the BMW has ensured developing a flexible system across the global network for production. The group in future will therefore help in creating production structures that helps it in building plug in hybrid, fully electric drive and combustion engine together. 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