Impact of Hybrid and Electric Cars on Automobile Industry

The report gives an overview of the impact of hybrid and electric cars in the world automobile industry. The report therefore, undertakes a porter’s five forces analysis along focusing primarily on the electric vehicle market. There report also discusses about the strategic options that premium companies like the Mercedes and BMW adopts in maintaining their competitive stance with respect to the electric vehicle market.

Running head: STRATEGIC MANAGEMENT
Strategic Management
Name of the Student:
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Executive Summary:
The report gives an overview of the impact of hybrid and electric cars in the world automobile
industry. The report therefore, undertakes a porter’s five forces analysis along focusing primarily
on the electric vehicle market. There report also discusses about the strategic options that
premium companies like the Mercedes and BMW adopts in maintaining their competitive stance
with respect to the electric vehicle market.

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Table of Contents
Introduction:....................................................................................................................................3
Impact of Production of Hybrid and Electric Car on the World’s Automobile Industry using
Porter’s Five Forces.........................................................................................................................4
Strategic Options Adopted by Automobile Manufacturers for Defending their Competitive
Stance...............................................................................................................................................8
Mercedes..........................................................................................................................................8
BMW...............................................................................................................................................8
Conclusion:......................................................................................................................................9
References:....................................................................................................................................10

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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 world’s 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 porter’s 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 World’s Automobile Industry
using Porter’s 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

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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

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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 firms 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

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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

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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

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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 the 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

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in creating production structures that helps it in building plug in hybrid, fully electric drive and
combustion engine together.
Conclusion:
The report ends with a discussion on the strategic options adopted by Mercedes and
BMW in defending their competitive stance. There is also discussion on the impact of production
of the electric and hybrid cars on the automobile industry of the world using porter’s five forces.

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