World Electric Vehicle Journal Vol. 5 - ISSN 2032-6653 - © 2012 WEVA Page 0911 EVS26 Los Angeles, California, May 6-9, 2012 OEM’s Electric Vehicle Strategies: Risk Assessment Oriol Saperas1, Elixabet Legarreta2 1SCOPE, Automotive Intelligence Center, P.E. Boroa, P 2A-4, 48340 Amorebieta, Spain, [email protected] [email protected] Abstract In order to analyze the approach of the main automotive players regarding the electrification path each one is following, this report assesses those aspects required for a consistent corporate product strategy. As distinctive differences are found in terms of the scope of products, some boundaries are defined based on the mobility concept, establishing the differentiation of the current automotive business into two separated industries. After analyzing each of the industries, the report focuses on four automotive OEMs and the way they are coping with the competition for profit in each scenario. The paper also analyses and assesses both each OEM strategic choice and business model. Keywords: hybrid, electric, positioning, business model, strategy. 1 Scenario. How have we got Public institutions, with the acquiescence of the car here? manufacturers, have introduced restrictive regulations in CO2, NOX, particles and other In recent decades, the automotive industry has emissions. The European Unit for example, has been pointed out largely responsible for the imposed from 25 to 50% emissions reductions production of greenhouse gases. Data from the every four years. For some certain gases, the Euro European Environment Agency show that the VI, to come into effect in 2016, proposes 0% CO2 emissions from the transport industry reduction rates over current levels, since there is present a regular increase since the nineties, no real possibility for further reduction in these while other sectors have a decreasing trend. cases. The effort required by each car manufacturer varies depending on the starting emissions’ level and the technological development each one can assume. The lack of fulfillment of the rules will result in penalties. Figure1.1: CO2 emissions by sector EVS26 Electric Vehicle Symposium 1 World Electric Vehicle Journal Vol. 5 - ISSN 2032-6653 - © 2012 WEVA Page 0912 Figure 1.5: Oil price volatility 2007-2010 The financial crisis initiated in 2008 has deeply affected the automotive industry. The sales have decreased in all mature markets that have Figure 1.2: NO and PS emission reduction by region stagnated, and only China has witnessed an X important increase during the last years. For the specific cases of North America and Europe, it could take from five to ten years to re-establish the pre-crises sales volumes. Figure 1.3: CO2 emission regulation objectives by region Figure 1.6: Vehicle sales’ trends by region Apart from the restrictive regulations, the oil The public administrations got involved in most dependence on politically unstable countries has of the mature markets; public funds and even led to high volatility in oil prices. Furthermore, partial nationalization of important OEMs have the depletion of oil reserves has worsened the been part of a general strategic reassessment status-quo. involving major manufacturer as well as small and medium industries involved with the sector. The main goal has been to establish more solid positioning required to face the economic recession outlook. The most visible examples of these initiatives have been the acquisitions and mergers among the OEMs and among Tier companies. Figure 1.4: OPEC Share of World Crude Oil Reserves 2009 Figure 1.7: Leading manufacturers redefine their position EVS26 Electric Vehicle Symposium 2 World Electric Vehicle Journal Vol. 5 - ISSN 2032-6653 - © 2012 WEVA Page 0913 Most of the player’s commitment, regarding the catalyzed the development of several technical development of the electric vehicle, must be alternatives (hybridization, range extenders) that understood in this context. can provide attractive and affordable price- performance trade-offs. This new scenario becomes visible when observing the product portfolio of most of the In order to understand the strategic movements of big OEMs; most of them, are proposing green the main car manufacturers, it is crucial to clearly technologies among their core segments’ models. set whether the pure electric vehicles and ICE In parallel, small car manufacturers are equipped vehicles belong to the same industry or proposing niche products that, as first-movers, not. can become rivals for the classical car manufacturers. The following figure represents the advantages and drawbacks of the multiple current technical solutions. Figure 1.8: OEMs’ offering regarding the hybrid and electric vehicles Figure 2.1: Current technical solutions’ advantages and drawbacks 2 Defining the relevant industry: What are we talking about? 2.1 The early adopters and the importance of the mobility model The definition of the industry in which In 1908, Henry Ford changed the course of the competition really takes place is important not automotive industry with Ford’s for-the-great- only to properly analyze it but also to define the multitude Model T. The customer value good strategies and set-up the business unit proposition included new aspects that the industry boundaries. Difference among products had ignored up to that date: its product was for customers and geographic regions can be everyday use, reliable and durable, easy to use obscured if the industry is described too broadly, and fix, and affordable for the majority of but a narrow analysis can also overlook some citizens that replaced their traditional horse commonalities and linkages among related carriage for a reasonable price. This strategic move products or markets. Mistaking the relevant created a leap in value for the users and the industry can affect positioning, competitive company itself, but overall established the basis of advantage and profitability. a mobility model that has lasted for decades. As mentioned in Chapter 1, most of the player’s The exercise of replacing the classical ICE commitment regarding the development of the vehicles for EV reveals important drawbacks that EV must be understood as a response to a represent a boundary for both products and business opportunity. However, the approach of geographic scope. the multiple OEMs to this new scenario is diverse and must be analyzed from multiple A survey from Ernst &Young published in 2010 points of view. [1] exposes that the factors that will make people more hesitant to choose an EV as their next new While the full EV seems to be the mid-term vehicle are the access to charging stations, the solution that can satisfy the requirements in battery driving range and the price. consumption and emissions from the authorities, the important drawbacks that it presents have EVS26 Electric Vehicle Symposium 3 World Electric Vehicle Journal Vol. 5 - ISSN 2032-6653 - © 2012 WEVA Page 0914 The first two concerns are closely related because the limited range (125-275 km) of the current battery systems imposes the perception of needing a well deployed recharging net. However, most of the potential users declare that they do not drive, per day, more miles than those considered acceptable as autonomy range. Figure 2.2: Technology adoption life cycle. Diffusion of Innovation Regarding the price, the same survey shows that the fuel saving factor is considered, by far, as As presented in multiple surveys [1][2], the the most influent in order to consider the potential early adopters for the electric vehicles purchase of an EV. This factor is undermined tend more toward females who are in their 30s or by the important over cost currently associated to are younger. In addition, early adopters are much this kind of products. The major product more likely to have an advanced college degree drawbacks that the survey reveals, contradict the and their median household income is slightly pillars of the mainstream mobility model: the EV higher than that of majority and laggards. This it is neither for a transversal everyday use nor profile is also characterized by the fact that urban easy to use and it is not for everybody but for a living is more common than for the other groups, selected minority. But, who belongs to this they are more sensitive to the environmental minority? impact but underline the fuel saving factor as the main trigger for the change. Moderates (early and Based on its propensity to adopt a specific late majority), on the other hand, are more likely to innovation, the population can be broken down be in their 40s and 50s and rural living is more into five different segments: innovators, early common. adopters, early majorities, late majorities and laggards. The innovators are visionary people Two first conclusions can be drawn at this point: that invest great time, energy and creativity on the mobility model for the EV is right now suited developing new ideas and products. No change for an urban use and the potential customer is program can thrive without their energy and limited to the early adopters with a high commitment and it make sense to integrate them willingness to pay for socially respected product. in the project providing support and publicity to their innovations. The role of the early adopters Compared with the other available technical is the key for an innovative product to solutions, the potential buyer profile is quite succeed. This group is ready to make different. Regular combustion engines powered connections between clever innovation and their vehicles are attractive for people that see a high personal needs once the benefits start to become risk in adopting an unproved product with a apparent. With a fashion conscious – trendsetter limited use; pragmatism and established standards profile, what the economically successful early are the drivers of the late majority and laggards adopters say about an innovation, determines its profiles. success. They do not need much persuasion to become an independent test bed in which the The hybrid and plug-in hybrid technologies aim product will be reinvented to become easier, another potential customer.