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Electric Automobile Industry’s Strategic Analysis Essay

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Updated: Aug 27th, 2021

Introduction

The electric automobile industry is gaining traction in the industrialized countries of the world with each passing year. With the environmental awareness becoming critical for new generations of customers, oil reserves becoming shorter, and electricity-based technologies becoming more refined, many analytics claims that the electrical automobile industry is the future of the automotive industry at large. The purpose of this paper is to compare the three primary competitors in the segment using quantitative data, evaluate the factors in the general environment using PESTEL analysis, and look at the threats to industry profitability using Porter’s Five Forces framework.

Top Three Competitors in the Industry

In order to determine the companies with the best promise and potential for investors, the primary factors to consider include gross margins, profit margin (TTM), and EBIDTA margins. These parameters show the overall profitability rate by the companies in question. Quick and current ratios are also excellent sources of supporting information, as they show the company’s capacity to pay off its debts in the short-term perspective, and the information regarding that tendency in the past few years is very important to the investors. Based on this reasoning, the top three competitors in the industry are Honda, Toyota, and Ford.

These companies have some of the highest gross margins, with Honda being at 20.82 in the latest fiscal year, followed by Toyota at 18.01, and Ford at 15.01. Nissan and Tesla, while having a higher gross margin, have lower scores at all of the other parameters, indicating a lower capacity to either pay off debts or maintaining stable growth. Toyota’s EBIDTA margin is the highest of all, standing at 12.84, followed by Honda (7.95) and Ford (6.34). Tesla and Nissan have lower scores (between 2-3 each). General Motors has the highest score of all (11.76), but due to it being at half the gross margin when compared to everyone else. Therefore, while a prospective competitor, it is not one of the three main leaders in the industry at this moment. Honda, Ford, and Nissan also have the highest TTM profit margins, compared only to GM. Tesla has a negative TTM profit margin, and Ford has the lowest one of all. In regards to quick and current ratios, the three primary competitors have a relative parity, and Tesla is having the lowest scores of all.

PESTEL Analysis

The electrical automobile market in western states like Europe and the US is facing a unique set of challenges that are demonstrated in the following PESTEL analysis:

  • Political: Political favors for electric car development and usage in Europe and the US seem to be favorable, as the pro-green ideas and the reduction on the reliance on oil seem to be among the primary political agendas. In the EU, an estimate of 80 billion dollars is going to be spent in the next decade to support the switch from fossil fuel to electric cars (Krasteva, Bezdzietna, Laugesen, & Bentzen, 2014).
  • Economic: The economic prognosis for electric car sales and development also seems to be favorable, as it is expected for the niche to occupy at least 10-15% of the total European car market by 2020 (Krasteva et al., 2014). The primary issue with the sector revolves around the purchasing price of electric vehicles, which seem available only to the upper-middle class and above.
  • Social: In terms of customer satisfaction, electric automobiles do not have any distinct advantages over fossil fuel cars. However, the majority of social attitudes indicate that the primary negative factors associated with automobiles include air pollution, traffic congestion, noise, and traveling costs (Calabrese, 2016). Electric automobiles help alleviate three out of four of these, thus being seen as favorable by society.
  • Technological: The main advantage that fossil fuel cars have over the electrical ones is technological and infrastructural support. As it stands, an average fossil fuel car can travel up to 600 miles without the need to refuel fully, whereas the maximum capacity for an electric car is 100-120 miles (Krasteva et al., 2014). At the same time, while refueling stations exist along all major roads and highways, few of them offer to service electric cars. Improving the infrastructure and solving the technological barrier would greatly improve the viability of these vehicles versus traditional fossil fuel cars.
  • Environmental factors: While electric cars offer significantly less air pollution than fossil fuel cars, their batteries, and accumulators, if run on lithium, present a significant hazard, with a need for specialized re-utilization (Calabrese, 2016). Nevertheless, in terms of ecology, they are a much more preferable choice. Air pollution is a major issue in many large cities in Europe, Asia, and the US.
  • Legal factors: Given the decreased power and danger that electric vehicles possess when compared to conventional transport, the legality aspect is looking good for the industry. With the EU seeking to reduce the number of fossil-fuel cars to 60% by 2030, it might be a stimulating factor for electrical car growth (Krasteva et al., 2014).

To summarize, the future of electric cars is bright, with nearly all factors of

PESTEL analysis being in its favor. The greatest challenge the industry faces is the technological one, as modern electric cars have yet to be able to compete with fossil-fuel machines in terms of autonomous working range and infrastructure. These issues are bound to be fixed, however, with the support from western governments and changes to legal frameworks.

Porter’s Five Forces and the Electric Automotive Industry

The electric automotive industry can be characterized in relation to the power of buyers and suppliers, the presence of rivalry and competition, the existence of substitutes, and the threat of new entrants to the market. The analysis of these factors is as follows:

  • Competitive rivalry: Strong force. With many companies entering the electric car market at the same time, the rivalry between the major and prospective candidates is going to drive down profits, which would instead be spent on developing better products (Musonera & Cagle, 2019). The chances of being outpaced by others are high.
  • Bargaining power of buyers: Strong force. The profitability of the industry would rely largely on customers choosing to buy electric cars over fossil fuel cars (Musonera & Cagle, 2019). Therefore, buyers would have a significant pull on the industry.
  • Bargaining power of suppliers: Moderate. The influence of the suppliers would not exceed that of conventional car producers.
  • Threats of substitution: Moderate. Although electric cars are professed to be the future of the automotive industry, the discovery of new oil supplies and the introduction of hybrid vehicles may offer substitutes to the customers, at least in the short-term perspective (Musonera & Cagle, 2019).
  • Threats of new entry: Low. It is unlikely for new means of transportation (either using hydrogen or nuclear fuel as potential power sources) to rival the electric car industry for the title.

Conclusions

The three primary competitors in the market of electric cars are Honda, Toyota, and Ford. GM rises as a prospective new competitor, whereas Tesla is losing its positions in the market, as more competition enters the fray. The primary challenge facing the electrical automobile industry is a technological one. Competitive rivalry and the bargaining power of buyers remain the primary forces to shape industry profitability.

References

Calabrese, G. (Ed.). (2016). The greening of the automotive industry. New York, NY:Springer.

Krasteva, G., Bezdzietna, A., Laugesen, M. S., & Bentzen, K. (2014). E-mobility NSR: Web.

Musonera, E., & Cagle, C. (2019). Electric car brand positioning in the automotive industry: Recommendations for sustainable and innovative marketing strategies. Journal of Strategic Innovation and Sustainability, 14(1), 120-133.

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