Transportation sector contributes to 18% of
CO2 emissions worldwide and 33% of US total carbon emissions based on a National Renewable Energy Laboratory survey. These numbers will only go up with over a
billion vehicles on road worldwide and this number is expected to increase to
over two billion vehicles in 2050 (Behrens & Glover, 2012). With more
people and governments wanting to reduce their carbon footprint, the outlook is
promising for companies that manufacture sustainable energy transportations.
Tesla Inc is currently leading charge towards
sustainable energy products in transportation, energy generation and battery
products. Traditional automobile giants such
as BMW, Nissan, Porsche are also manufacturing fully electric and hybrid cars.
Although they are introducing electric cars, they are unable to devote
resources fully towards developing them because it might cannibalize their cash
cows. Daimler’s website reveals that they are focusing on broad range of traditional
combustion engine vehicles, hybrid vehicles and fully electric vehicles.
Nikola Corp is a new company that plans to
offer products that use pure electric and hydrogen fuel cell models as well.
Tesla’s new semi- truck also has several orders lined up from Pepsi, Anheuser
Busch, FedEx, Walmart, and Daimler. Recently, Nikola announced “sales to big
customers which includes 800 truck order from Anheuser-Busch and a
multimillion-dollar order from US Xpress Enterprises” (Monica, P.,2020). So
far, Tesla is the only all electric manufacturing company. However, there are
rumors that Nikola Corp trucks could challenge Tesla in sustainable truck
transportation segment due to its lightweight hydrogen fuel-cell system that
could possibly help with long-distance highway runs (Ohnsman, A.,2019).
Porters five forces
Threat of New entrants
Future potential of sustainable energy transportation
will interest new entrants but, currently there are high barriers to enter this
industry. Some of them include high initial investment, expensive technology
and achieving economies of scale. Even major electric car producers like
Nissan, GM, Toyota, etc., built cars that are affordable yet compromised in
performance (mileage for one full charge) with batteries that do not last long
(Joselow, M., 2012). High initial investment along with ongoing costs necessary
for developing technology results in lower margins per vehicle, companies should
rely on economies of scale to generate sustainable profits. Any new entrant in
this market will face the similar challenges as the incumbents. The established
players themselves are yet to find solutions. Overall, we could infer that
threat of new entrants is low because of the high barriers the industry set for
itself.
Buyer Power
According to a Deloitte’s survey, the consumer segment of electric cars includes well educated, tech-savvy, upper to middle class individuals that live in urban areas but more importantly are environmental conscious. There is a good chance that these consumers could be less price sensitive. One major concern about electric cars as mentioned earlier is their limited range per charge. The same survey also highlights that with constant changes in electric car technology, consumers worry about current value of their vehicles as the underlying technology is constantly updating. There are also no costs for customers to switch from one car brand to another. All above factors suggest that the power of buyers is high.
Suppliers Power
The market is still relatively early in its
development and therefore there are only few quality suppliers. Panasonic is
Tesla’s only battery supplier for its Model 3 car. The growing demand for
sustainable transportation is providing a great opportunity to suppliers of
batteries, cell components, chargers etc. Although most automakers import
batteries from other countries, Tesla designs and produces its own batteries
for vehicles which results in superior performance. Major giants could also do
backward integration to reduce supplier power. Overall, the supplier power is
only moderate.
Rivalry among Competitors
Automakers and
battery providers are engaging in partnerships (LG and Renault,) and joint
ventures in order to accelerate the technological change needed for the
development of industry. Since the sustainable energy transportation market is
all about technology, many companies are engaging in the strategic alliances
and partnerships currently. But there is a good chance that these relationships
may be short lived as auto industry is very competitive in nature.
Threat of Substitutes
Even though the models for renewable energy
transportation are not as extensive as conventional cars, the threat from
substitutes is still high. Hybrid cars are cheap substitutes since they offer
value proposition that is different from others. However, they are not
completely environment friendly. Major incumbents of automotive industry such
as Hyundai and Toyota have released fuel cell cars in Asia. Tesla is focusing on differentiation with its fully self-drive features
(FSD) and long range plus models with which customers can enjoy an
uninterrupted 400-mile drive which is first of its kind in electric cars. Overall, the threat of substitutes is high.
|
Porter’s
Force |
Intensity |
Reason |
|
Threat
of new entrants |
Low |
Barriers such as
high initial investments, achieving economies of scale, high battery
technology costs. |
|
Buyer
power |
High |
No switching costs,
constant technology updates, more substitutes. |
|
Supplier
power |
Medium |
Backward integration
by auto giants. |
|
Rivalry among
competitors |
High |
Aggressive marketing
campaigns by incumbents |
|
Threat
of substitutes |
High |
Many products to
choose from such as hydrogen fuel cells, battery operated technologies and
hybrids. |
|
Overall industry
attractiveness |
Low |
Intense rivalry, high buyer power, niche technology, many substitutes |
Table 1:Porter's five forces for
Sustainable Transportation Industry
Conclusion
The industry is
still in its infancy and will undergo continuous changes. Although there seem
to be several positive factors in favor of the industry such as shifts in
consumer trends, changing global policies for the environment, technological
advancements, there are still high barriers to be successful for a new entrant.
The established giants and those players that are competing using
differentiation strategies such as Tesla are yet to find solutions to existing
challenges. Tesla Inc particularly never realized positive earnings so far. It
is not easy for any new entrants to sustain themselves in this industry
considering the high rivalry, high investments, and high fixed costs. The
industry also needs products with higher performance and the incumbents are
struggling constantly to bring better technology. The new entrants will face
cut-throat competition not in the sustainable transportation industry but also
from incumbents in the gasoline-powered vehicle industry.
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