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Project One: Executive Summary

Cole Staats

Southern New Hampshire University

BUS 225: Critical Business Skills for Success

Jennyfer Puentes

November 14, 2022

Project One: Executive Summary

Problem

With the restricted economic activity expected because of the COVID-19 outbreak, and the rise in inflation the revenue for the automobile engine and parts manufacturing industry has been adjusted to decline by 10.9% by the end of 2022 (Pantalon, 2022). Based on the current challenges the automotive industry faces, we must diversify our engine manufacturing and its operations to expand our revenue. In this presentation, I will be using qualitative and quantitative data to explain why I think our company should rapidly explore the ever-evolving and growing popularity of the electric car industry and develop electric motors. I will show the qualitative data which will focus on the industry reports of engine manufacturing inside the automotive industry. The quantitative data that I will provide will estimate the projections for future operations and provide fact-checked historical data on the automotive industry.

Automotive Manufacturing Industry

After conducting extensive research into the current automotive industry status, where I focused on the performance and expectations for the industry's future, the 2021 measured revenue of the US car and automobile manufacturing was $75 billion. This is compared to previous years, such as 2020 $69 billion, and in 2019 and 2018 $92 billion (MarketLine 2021). Although we saw a rise from 2020 to 2021 in revenue the automobile manufacturing industry revenue will continue to not keep pace with previous years. As the domestic demand for new vehicles trends higher, three automotive hubs are expected to gain greater traction over the next few years. With that said the US automotive industry is heavily established in the Great Lakes region. This region represents just over 36% of the automobile manufacturers in the US. Some of the most successful automobile making are located here which include the Ford Motor Company, General Motors, and Fiat Chrysler. All these manufacturers are in Michigan which makes up 15% of all automobile manufacturing revenue in the US. With that said there are 2 more regions where automobile manufacturers operate that make up 50% of all us manufacturers' locations. The Regions are the West Region, making up 25.4% of the industry locations, and the Southeast Region, making up 24.6% of the industry locations. After conducting research, the consumer's current mindset is shifting towards a “greener” option for the automobile. This option would have a smaller carbon footprint, providing an increase in producing vehicles that are more environmentally friendly. As a result of this new stance on a “greener” option by the consumer the hybrid and the electric car are gaining popularity and are expected to multiply over the next five years (MarketLine 2018). “In 2025 the North American hybrid and electric cars market is forecasted to have a value of $36,474.6 million, an increase of 38.4% since 2020” (MarketLine, 2021).

Due to the COVID-19 pandemic and the aftermath of that pandemic and the highest inflation the country has seen in years this past year has displayed limited growth in the automotive industry. With that said, experts expect the automotive industry to recover as our economic conditions improve or normalize. With the recent increase in oil prices during the last year has helped shift the consumer market away from large trucks and sedans. Meanwhile, electric car vehicle manufacturing has experienced significant growth in their industry. The current market is saturated by gasoline and diesel engines, but experts expect a shift to a greener option. Furthermore, competitors are not likely to join the industry based on the high entry barriers within the automotive manufacturing industry. The current industry challenges are better fuel efficiency, safety regulations, and consumer demands. “Recent pressures on consumers and the government to consider alternative fuel options to limit the effects of pollution has been mounting, and the combination of the pressure together with a healthier automotive market has helped to spur o the hybrid and electric car market” (MarketLine, 2021). The impacts that should be considered to cost and profit are the prices of steel and aluminum (MarketLine, 2021).

New Industry

“Due to continued tax incentives, further technology advancements, and rising fuel costs, industry revenue is expected to expand over the next five years to 2027. As oil prices stay relatively elevated as the economy regains steam following the COVID-19 Pandemic, alternative forms of power and fuel are expected to boost the demand for industry products. With environmental concerns at the forefront, industry revenue is expected to rise, increasing at an annualized rate of 11.1% and 29.6 billion over the next five years to 2027” (Roth, 2021). The difference between electric vehicles and hybrid vehicles is the fuel type. The electric vehicle has a sufficient battery and an electric motor that has enough power to deliver adequate range and performance to go along with it. This is done without a gas tank or fuel-powered engine. As it pertains to hybrid vehicles it has an electric motor that will power the car and a gasoline engine; the hybrid vehicles switch performance styles which will allow the consumer to save fuel. As we stand today and with the rising gas prices consumers are tending to select a smaller more fuel-efficient vehicle instead of the larger gas-guzzling trucks and sedans. Among the larger automobile manufacturers, Toyota has a better position than others as they focus on compact cars. They also are continuing the introduction of new models with innovative features with modern styling which are getting consumers to upgrade their vehicles more often (Roth, 2021).

As an automotive engine manufacturer, the next venture we need to explore or consider is the electric motor industry. Our company is established as a manufacturer of automotive engines. We retain both the knowledge and experience within the automotive engine manufacturing space. The prospective entrants would need proprietary, or licensed designs and getting an experienced workforce. The Current market of hybrid and electric vehicle manufacturers makes vehicles from thousands of different parts. The most successful companies enter long-term contracts with several parts companies to ensure that the demands are met to produce their vehicles. With that said this represents the barriers that exist when trying to enter the hybrid and electric vehicles market. “New entrants must comply with strict regular standards for safety and environmental concerns. These standards as subject to periodic revisions, which may require additional research and development. R&D expenses can be reduced by forming a partnership with existing industry players, as many foreign manufacturers have done. Relationships such as these are hard to come by and constitute a barrier to entry” (Roth, 2021). In the current market, there are companies positioned in this industry as it grows over the next several years. Those companies include Toyota Motor Corporation, Tesla, Ford, General Motors, and Chevrolet. “Suppliers mainly include producers of key inputs required for car manufacturing, like commodity items, such as steel, aluminum, and other metals, as well as those companies supplying differentiated inputs such as fabricated components, which are outsourced rather than being produced in-house” (MarketLine, 2021).

The top competitors in the Hybrid and Electric Vehicle Market according to Ryan Roth are

(Roth, 2021):

· Ford Motor Company with a revenue of 3.3 billion and 16.1% of the industry

· Honda Motor Company with a revenue of 3.6 billion and 17.4% of the industry

· Toyota with a revenue of 2.2 billion and 10.5% of the industry

· Tesla with a revenue of 2.7 billion and 13.4% of the industry

While consumers are expected to switch to hybrid and electric vehicles, expected declines in the world price of crude oil are anticipated to slightly slow down industry revenue (Bari, 2022). However, consumers are also expected to be increasingly interested in products that are perceived as evidently friendly, further supporting the demand (Bari, 2022). As a result of these trends, the electric and hybrid industry revenue is expected to rise and will grow at a rate of 17% to 58.3 billion over the next five years to 2027 (Bari, 2022).

With the electric car industry, the production output of materials such as cobalt, lithium, magnesium, carbonate, and nickel. All these natural resources are expected to fall short with the increased demands over the coming years. This can be avoided with continued investments in all mining operations around the world. Also, keeping up with all the new technology trends is critical. With that said Toyota released 24,000 patents on its hybrid technology, aiming to support the widespread adoption of electric vehicles by allowing manufacturers to use them for free (MarketLine, 2021). This is indicating a strategic move by Toyota allowing them to reinforce its place as a supplier in the automotive industry. Also, in doing this Toyota will maximize its declining hybrid technology rather than stimulate mild-hybrid developments (MarketLine, 2021). With that said, there will be a decrease in manufacturers exploiting these patents without using Toyota’s parts and components, all the while Toyota will benefit from this increased demand (MarketLine, 2021).

Porter’s Five Forces Analysis of the New and Automotive Industry

	New Industry	Automotive Manufacturing Industry
Rivalry among existing competitors	The Hybrid and Electric Car industry is concentrated with some key players: Tesla, General Motors, and Toyota, as economies of scale and brand strength, all of which are crucial aspects of competition, dictate, and oligopolistic market structure. With that said, this high concentration in the market with such a small number of players could in theory reduce the competition, but such a large presence of multinational companies with tremendous assets will boost the degree of rivalry among these players while they put the effort in to expand their sales. While the differentiation in products may reduce the rivalry, the key players offer different models that have a variety and characteristics across the hybrid and electric cars industry. For example, such variations include BEVs, PHEVs, EREVs, and HEVs. The prices of these models tend to be highly proportional to the range capacity and the battery efficiency. So, the key players tend to target the different segments	Large incumbents with strong brands compete in this industry. The automotive manufacturing industry is dominated by a small number of large-scale corporations. The presence of large, multinational incumbents intensifies rivalry and makes it difficult for smaller players to compete. These players have diversified their business models by expanding geographically or manufacturing a variety of goods such as automobiles, watercraft, and industrial and farming machinery. Honda, for example, diversifies its revenue stream by serving multiple end markets, including automobiles, motorcycles, power products, and financial services. Diversification reduces dependence on the automotive industry and, as a result, reduces rivalry. However, the vast majority of the major players are heavily focused on automobile production. Overall, the level of competition is high.
Threats of new entrants to the market	Porter’s Five Forces Analysis for hybrid and electric vehicles shows many threats for any new entrants. Those threats are high fixed costs involved in the vehicle's design and manufacture, mass production economies to scale that are gained, and capital that is required for the manufacturing facility. All these factors would make it costly to enter the market and it would be difficult to get new customers to purchase your product. With that said any new entrants would be likely due to incentives from the government through tax credits and rebate programs that are in support of producing environmentally friendly vehicles or a “greener” option. With that said there are many well-known manufacturers in the market and this may make it difficult for anyone to absorb a significant market share.	Brand strength and reputation are critical in the automotive manufacturing industry in the United States. They are making it difficult for new entrants to enter the industry directly, especially given the dominance of incumbents such as Toyota and Honda. New start-up companies are uncommon due to the high fixed costs of design and manufacture, as well as the economies of scale gained from mass production, as the capital requirements for a manufacturing facility of feasible scale are prohibitively high. Scale is critical in this industry because high financial backing is required for new entrants. New entrants into this industry are unlikely.
Bargaining power of suppliers	“Suppliers mainly include producers of key inputs required for car manufacturing, like commodity items, such as steel, aluminum, and other metals, as well as those companies supplying differentiated inputs such as fabricated components, which are outsourced rather than being manufactured in-house” (MarketLine, 2021). With this low difference in the raw material suppliers, there is little to no difference between them. With that said, this little difference would, in theory, reduce their power and it would provide many options for all manufacturers.	Because there are so many prospective suppliers in this market, the power of suppliers is diluted. However, switching costs are considerable due to the high initial expenses associated with developing part designs and requirements. Additionally, it is unlikely that the suppliers will threaten to integrate forwarding. The inputs needed by the auto industry are numerous: labor, components, raw materials, and services. These input costs have a big impact on profitability and create very high entry barriers. Supplier power is diminished since these suppliers must fulfill the demands of the participants. Commodity products like metals and a variety of other inputs, such as fabricated parts or technical improvements, are frequently the primary inputs needed by the automotive industry. These products are frequently produced by third companies rather than internally, while some of the more significant players operate.
Threat of substitute products	The main substitute that can threaten the hybrid and electric car industry is standard fuel cars, alternative forms of transport, and public transportation. With that said, the classic gasoline vehicles are the most effective and the highest bag for your buck alternative, even though this option is not the most environmentally friendly option. Consumers that are price sensitive and those long-distance drivers will be more susceptible to picking the standard gasoline vehicle even with higher costs over the shorter range more environmentally friendly hybrid or electric vehicles.	Other types of vehicles or modes of transportation are the main substitutes in this industry. These threats also vary depending on the vehicle's utility in the country or environment. Such as used vehicles, which serve as a substitute for the automotive manufacturing industry. Dealerships that sell both new and used vehicles are likely to have sold more of the latter during the global downturn as consumers avoided large purchases. Implementing finance packages such as PCP deals for new cars is another alternative to the automotive manufacturing industry. Customers are typically locked into a three-year deal, paying a monthly fee for the vehicle, with a lump sum payable at the end of the deal to purchase the vehicle or renegotiate the terms.
Bargaining power of buyers	The hybrid and electric car market offers a limited degree of choice for customers. With the few manufacturers making limited-range products, particularly in the electric car industry. Many customers are price sensitive and switching to a hybrid the costs are relatively low. With electric vehicles, those costs can be substantially high, which have limited range and a lack of infrastructure to provide adequate charging stations. However, to retain customers these manufacturers have invested in brand building, development of infrastructure, and service relationships. Also, developing manufacturing techniques for alternative powertrain formats, all this meaning that the buyer power is starting to become weaker.	The primary purchasers in this sector are vehicle dealerships, which operate as a bridge between consumers and automakers. Because there are typically not many large dealerships, the power of the buyer is increased. Changes in consumer demand expanded regulatory requirements for safety and fuel economy and increased access to data and information are three strong drivers that are driving change in the auto industry. Manufacturers in this sector make an effort to set their products apart from the competition by including innovative features, such as satellite navigation, heated or massaging seats, parking sensors, a heated or cooled steering wheel, or a stop-start system. Customers in the automotive manufacturing sector depend on producers' goods since businesses would not function without them. Overall, the American car manufacturing sector has limited consumer power

Comparison of the Industries

According to the data comparing automotive engine manufacturing to hybrid and electric manufacturing, there appear to be some similarities between the two industries. Both appear to necessitate significant financial investment, have high rivalry potential, and are both influenced by other modes of transportation. There appear to be minor differences in who holds power in each industry, whether the buyer or the supplier. The buyer appears to have more clout in hybrid and electric manufacturing. In the automotive industry, however, the supplier appears to wield slightly more power throughout the process. Finally, it appears that hybrid and electric vehicles will have more growth opportunities in this technologically advanced world.

Summary of Findings

Diversifying into hybrid and electronic vehicle manufacturing, according to my findings, would be beneficial but would take time to establish. The government is using incentives to push for more environmentally friendly vehicles, and consumers want the latest and greatest in technology. The disadvantage is that it may be difficult at first due to the entrant's barriers and the initial new facility cost. However, these are similar challenges that the company is facing now, with more defined rivalry and less room for growth. I would still recommend diversifying into the hybrid and electric vehicle markets because there is profit with both the government pushing and consumer attitudes shifting to a more environmentally friendly mode of transportation.

Porter’s Five Forces Analysis Chart—New Industry

Rivalry among existing competitors

Moderate because of the fixed capital costs, and the economies the scale gained from mass production.

Threat of new entrants

Moderate because of the high fixed capital costs, and the economies of scale gained form mass production.

Threat of substitute products

Medium because of the standard gasoline vehicles, alternative forms of personal transport, and public transportation.

Bargaining power of buyers

Medium because the market offers a limited amount of choices for customers, with only a few manufacturers making a limited range of products.

Bargaining power of suppliers

Low because of their relatively low differences in raw material suppliers, there is little that distinguishing between the suppliers.

Porter’s Five Forces Analysis Chart—Automotive Manufacturing Industry

Rivalry among existing competitors

High because the presence of significant incumbents with strong brands in this industry increases competition

Threat of new entrants

Low due to high financial is backing required for new entrants.

Threat of substitute products

Medium because other kinds of vehicles or modes of transportation serve as the primary replacements.

Bargaining power of buyers

Low because consumers in the car manufacturing sector rely on manufacturers' goods for survival.

Bargaining power of suppliers

Medium because there are many prospective providers in this industry, which reduces the power of suppliers.

References

Bari, Shahool Al. (2022, June). Hybrid & Electric Vehicle Manufacturing.https://my-ibisworld-com.ezproxy.snhu.edu/us/en/industry-specialized/od4516/industry-outlook

MaketLine. (2021, April 28). Hybrid & Electric Cars in North America. North America – Hybrid & Electric Cars. https://advantage-marketlinecom.ezproxy.snhu.edu/Analysis/ViewasPDF/north-america-hybrid-electric-cars-58394.

MarketLine. (2018, April 5). Electric Vehicles: A deep dive into the technology that is the future of the Auto industry. https://advantage-marketlinecom.ezproxy.snhu.edu/Analysis/ViewasPDF/electric-vehicles-a-deep-dive-into-the-technologythat-is-the-future-of-the-auto-industry.

MarketLine. (2021, April 28). Global – Hybrid & Electric Cars. https://advantage-marketlinecom.ezproxy.snhu.edu/Analysis/ViewasPDF/global-hybrid-electric-cars-130182.

Pantalon, Matt. (2022, August). Automobile Engine & Parts Manufacturing in the US. https://my-ibisworld-com.ezproxy.snhu.edu/us/en/industry/33631/industry-performance

Roth, R. (2021, January). Hybrid & Electric Vehicle Manufacturing. US SPECIALIZED INDUSTRY REPORT OD4516: Hybrid & Electric Vehicle Manufacturing. https://my-ibisworldcom.ezproxy.snhu.edu/us/en/industry-specialized/od4516/about#major-players.