Electric Vehicle Adoption: Summary Report

James-Earl Léonard Thomas | Roeh Advisory
Electric Vehicle Adoption | Summary Report 24.02.2018
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EVA

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Part I: Electric Vehicles (EV)s and Hybrid Industry Impact
The Global Electric Market Context 3
Scope of the Report 4
Porter’s Five Forces 4
The Five Forces of Automotive 5
Electrification Impact Summary 7
Policy Implications of Electric Mobility 7
Part II: Strategic Options and Responses
Action-oriented Responses to the External Situation 8
Further Recommendations 9
References 10

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Part I: Electric Vehicles (EV)s and Hybrid Industry Impact
The Global Electric Market Context
The Paris Agreement, enforced in 2016, propelled a new global transition towards limiting
the increases in the average global temperature (Climate Action - European Commission,
2018). An active pursuit of efforts to enact deep structural changes to address this climatic
problem; hugely contributed to by petrol and diesel cars in the world, of which there are
more than 1 billion on the road as of 2009 (Number of passenger cars and commercial
vehicles in use worldwide from 2006 to 2015 in (1, 2018).
(Number of passenger cars and commercial vehicles in use worldwide from 2006 to 2015 in (1, 2018)
A prelude to this global agenda is The Electric Vehicle Initiative (EVI), a multi-government
policy forum formed in 2009 under the ‘Clean Energy Ministerial,’ with the dedicated aim
of hastening the deployment of (EV)s globally (Cleanenergyministerial.org, 2018). The
(EVI) membership includes, Japan, the Netherlands, Norway, Sweden, Iceland, the
(United Kingdom), and United States who jointly lead the forum with China.
This syndicated move to precipitate (EV)s into the global automotive market, is reflected
in the respective market shares of (EVI) members, with a systematic integration of (EV)s
in their sustainable central and regional transportation policies (Fridstrøm and Alfsen,
2014). In terms of percentage of (EV)s in their domestic markets; (Lambert and Lambert,
2018) Norway boasts a 52% domestic market share of (EV)s whilst Iceland and Sweden
come in at 9% and 4% respectively. In this current year of 2018, (McKinsey & Company,
2018) (EVI) member China is set to purchase 40% of the world’s growing supply of (EV)s
with global demand hitting a tipping point. This year is widely expected to bring forth a
pivotal shift in consumer perception towards (EV)s (Sethna, 2015). Moving towards 2020s,
the industry is anticipated to produce long range (BBC News, 2018) and cheaper (EV)
models (U.S., 2018) as carmakers such as Volvo and Daimler completely transition to

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electrification (Ft.com, 2018). In this period, it is expected that 1 in 10 cars bought in China
(South China Morning Post, 2018), the global consumption leader of (EV)s (Hirtenstein,
2018), will be electric, as they appeal to a growing number of price and environmentally
conscious consumers. As we progress into the 2040s, automotive production is set to be
50% comprised of electric vehicles with Volkswagen, the world’s largest producer to
deploy more than 300 electrified models in their line-up at a cost of 70 billion euros; the
largest electrification initiative in automotive history (Fortune, 2018).
Scope of the Report
This report brings to discussion the broad impact of (EV)s on the automotive industry,
conveying information from and about (EVI) members and partners to assemble an
accurate image of the current and forecasted structure of the industry, assessing the
dynamism and industry competitiveness through the lens of Porter’s five competitive
forces.
Porter’s Five Forces
(Porter, 1985) Potent awareness of Porter’s five forces enables companies in the
automotive industry to understand its structure and stake out their individual positions that
enables greater profitability and minimisation of vulnerability to attack. (Van den Steen,
2013) The role of the strategist in these firms is to understand the pace of the industry,
and the shifts in the very nature of the products sold; from electric to autonomous vehicles
competing against more conventional forms of transportation. (Wee, 2016) The
configuration of Porter’s five forces as a tool to analyse competitiveness, however, is
unique to each industry.
(Harvard Business Review, 2018)

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The Five forces of Automotive
Competitive Rivalry (Strong Force)
(Calabrese and Vervaeke, 2017) The intensity of competitive rivalry in the automotive
industry, defines its competitiveness. Manufacturers’ positioning pertains to the public
perception of a product’s distinguishability and awareness of the pricing and marketing
strategies competitors employ (Zhang, 2014). The competitive intensities of the
automotive environment with their respective strength are as follows:
• Aggressive innovation and promotion intensity by firms (strong force)
• Low switching costs between products (strong force)
• Low number of significant firms (weak force)
• High investor confidence in prospects (strong force)
This aspect of analysis is a strategically high-priority consideration in this industry
environment, with great emphasis on the impact of electrification on these intensities, vice
versa. Aggressive innovation is driving the growth of mobile computing, facilitating
augmentations of the range these (EV)s can travel (Björnsson, Karlsson and Sprei, 2018)
and reducing the industry’s cost structure. The (EVI) is driving forward a convergence of
production, supply and (IT) infrastructure for a new kind of electronic architecture (Traub,
Maier and Barbehon, 2017). This drive is pushing current technology into obsolescence,
forcing manufacturers to increase the potency of their innovativeness and enticing an
investor push to electrification.
Threat of Substitutes and New Entrants (Moderate and Weak Forces, respectively)
The intensities of the external environmental factors driving the moderate force of (EV)
substitute threat are as follows:
• Low switching costs (strong force)
• Moderate substitute availability (moderate force)
• Moderate performance of substitutes (moderate force)
The green-policy-push growth in investment of public transportation as a substitute to
private transport imposes a strong force against manufacturers producing purely private
transportation. Likewise, firms producing hybrid cars are experiencing the threat of
substitutes from pure (EV)s (Ehsani, Gao and Emadi, 2017) and conventional automotive
is threatened by the substitute of ‘clean’ transportation. However, public transportation has
a moderate satisfaction level of performance when addressing consumer’s practical needs
and with limited range of travel of (EV)s, the life expectancy of hybrids could extend longer
than anticipated (Shen, Shan and Gao, 2011). Though the rise of new entrants could
accelerate the adoption of pure (EV)s, however, predicated upon factors as follows:
• High cost of brand development (weak force)
• High cost of capital investment (weak force)

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• High economies of scale (weak force)
Breaking into the automotive industry is a daunting prospect with limited access to
suppliers, high entry costs of production and safeguarding specialist knowledge, limited
access to distribution channels and the network effect of aggressive retaliation from
incumbents. However, firms outside the automotive industry who have the financial
capacity to enter the market e.g. Apple Inc., could capitalise on the lucrative prospect of
‘autonomous electric’. Leading technology firms producing software and hardware could
threatened the incumbents’ production of vehicle communications software and lead in
vehicle design (Cremer, 2018). In addition, such firms are well equipped to design and
assemble a robust supply chain (Gulf-Times, 2018) and the digitisation of the car (Singh,
2016) could propel their respective boards to drive forward this agenda. This aspect of
analysis is increasingly becoming a high strategic concern for not only prominent (EV)
manufacturers, but leading incumbents of the whole industry.
Buyer and Supplier Power (Moderate Forces)
The customers of firms in this industry determine sales revenues with intensities
maintaining a moderate force of customer bargaining power:
• Current High cost of switching to (EV) (weak force)
• Low volume of (EV) purchases (weak force)
• Moderate substitute of (EV) availability (moderate force)
(Vaughan, 2018) The high cost of switching from conventional to electric increases
barriers in customers tendencies to transition to (EV)s. Nevertheless, firm’s proposals to
produce cheaper (EV)s such as KIA motor’s ‘Genesis-Model’, will lessen transitional
barriers for consumers as electric mobility is now “a top priority for BMW” and firms alike.
However, the rising levels of (EV) models in the industry will increase the strength of buyer
power as competition increases, pushing firms to strengthen their supply chains to ensure
that they are price competitive in the future.
Analysis shows the industry environment is shaped by suppliers influencing materials
availability. The intensities of factors creating the moderate force of supplier power with
respect to (EV) production are as follows:
• Moderate size of suppliers (moderate force)
• Moderate supply (moderate force)
• Moderate forward integration (moderate force)
(Hensley, 2012) Battery technology is increasingly becoming durable and cost efficient.
Suppliers of (EV) manufacturers such as Tesla have moderate levels of forward
integration, highlighting supplier’s limited control in the sale/distribution of their products.
Furthermore, with the moderate size of suppliers, the opportunity presents itself for leaders
of the industry to push strategic vertical alliances/integrations to their respective boards,
for security of their future supply chains. This shift in firm’s strategies is signalling a gradual,

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unpredictable retraction from fossil fuel (DiChristopher, 2018), altering the makeup of the
industry supply ecosystem.
Electrification Impact Summary
The overall impact of electric mobility on the automotive industry are as follows:
• Industry leaders are both the disrupted and disruptors, as they pioneer sustainable
transportation on the back of forceful multi-government clean-energy policies and
changing consumer perceptions; e.g. Porsche axing their diesel production to
transition to electric due to European city-wide bans on diesel cars.
• The cost efficiency of battery technologies is an enabling factor for manufacturers
looking to produce cheaper electric models, in turn reducing the transitional
barriers to (EV) purchase for consumers and catalysing a gradual contraction from
petrol and diesel.
Policy Implications of Electric Mobility
The electrification phenomena elicit robust responses from governments across the globe,
as follows:
• Provision of communications infrastructure that enables cars to understand the
surrounding environment, as part of holistic policy initiatives,
• Trillions of ($) of investment in creating clean energy grids,
• Reducing ambiguity of regulatory frameworks for the (EV) market.
• Pressure on car makers to adopt new technology should also be coupled with
government initiatives to improve public perception of electrification.

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Part II: Strategic Options and Responses
Achieving and maintaining coherent strategies requires discipline and a willingness by
these premium manufacturers to chart an unorthodox path, in relation to their current
operations and strategic agendas.
Action-oriented Responses to the External Situation
In dealing with the external environment and idiosyncratic challenges they face, premium
automotive manufacturers like VW, Mercedes and (BMW) will be compelled to employ
strategic options to defend their competitive stance (McGee, 2017). These strategic
options are measured by the SAF criteria:
• Suitability: the ability of the strategy to address the key opportunities and
constraints.
• Acceptability: assessing the risk, return and reactions; the ability of the strategy
to meet stakeholder expectations. The level of acceptable risk and acceptable
likely return.
• Feasibility: does the strategy work in practice? Can it be financed? Do the people
and skills exist /can they be obtained? Can the resources be integrated?
It is imperative that these firms examine the existing strategic options employed by the
major player in the electric car industry, Tesla. (Stolton, 2018) Options such as the
construction of the Gigafactory, a joint strategic partnership with Panasonic and
diversification into alternative battery sectors. The driving forces propelling these
decisions are:
• The astronomical growth rates of 30-50% in (EV) purchases annually across
different regions globally.
• Major shifts towards electrical energy infrastructure in emerging economies,
most notably China.
• Strong demand for competency in battery innovation which was the major factor
behind this vertical alliance between Tesla and Panasonic.
• The fact that Tesla needs more capacity to meet future global demands.
Measured against the SAF criteria, firms can see that these are indeed sustainable
decisions by Tesla, given the strategic compatibility of internal competencies of the
partners, and the external trends of competency consolidation.
Option (I): Premium manufacturers should Invest in and develop an extensive
supercharger network in the EU, on home soil, faster than Chinese/US competitors.
(Global EV Outlook 2017: Two million and counting, 2017) Extensive government support
towards this industry within (EU) countries is a major motivating factor to adopting this
option, given the locality of these premium manufacturers, coupled with robust sales
across the region. An imperative favourable political climate for companies such as
Mercedes and BMW to capitalise on. (DeBord, 2017) Given Tesla’s highly geared debt
ratio and financial vulnerabilities, and the huge liquidity positions of these premium

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manufacturers (Annualreport2016.volkswagenag.com, 2016), such firms have the
financial capacity to manoeuvre themselves into an optimum position to finance such
projects alone and at a faster pace, as compared to Tesla. Therefore, giving them a
competitive edge over supercharger network infrastructure across the region.
Option (II): Strategic Investment in Dealer and Supercharger expansion in China
China is a rapidly expanding market for (EV)s, driven by both local and central public
policies to counter high levels of pollution in Chinese cities (France-Presse, 2017). The
increase purchasing power of Chinese consumers, makes this market an impossible
market to avoid. However, this option does present its risks, in that the external
stakeholder mentality towards issues of green technology are yet and still in early stages
in China (Zhang, Yu and Zou, 2011). Further risks include the requisite of huge financial
commitments to the region, which itself is the primary means of mitigating the previous
risks akin to the Chinese market; and changing Chinese consumer perception by investing
in Chinese dealers who understand the consumer behaviour that drives the market. It is
widely known that Tesla is stretched resource wise to commit to the Chinese market in
the capacity that premium manufacturers are resource equipped to do so, thus, this option
presents a lucrative defence of their competitive stance.
Further Recommendation
It is important to note that the strategies needed to defend their competitive stance are
active strategies leaving no room for passivity and even greater need for wise decision
making, as ‘impending crises and huge opportunities are usually hidden in plain sight’
(MacIntosh and Maclean, 2015). Consequently, premium manufacturers must
aggressively position themselves for longevity with deep understanding of the risks
needed to mitigate their way to success.

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