Environmentally Friendly Electric Car - Case Study Example

Overview This aim of this report is to analyse and make recommendations concerning the environmentally friendly electric car, which Research Group 2 is considering launching on the market. Introduction As a guide to transport policy not just in the UK but Europe-wide, the European Commission makes its position clear "Urban transport has to be cleaner, safer and more sustainable" (European Commission, 2007). With emphasis on preserving the environment and the health of the population, the European Commission reports on consumer attitude in the transport market, stating also that "whether in their own cars or on public transport, Europeans want greater personal mobility, but not at the expense of the environment." Although these are far from being the only considerations in the launch of an electric car, they provide a strong start. The message is that while transport has always been a need and a desire and as such continues to grow, people are paying more and more attention to the way in which this need is satisfied. Other highly topical items driving the debate include steadily rising prices for traditional fuels used to power vehicles. The environmentally friendly electric car As the focus of the activities of University Research Group 2, the electric car, with its inherent environmental friendliness, has distinct advantages to offer to the transport market. With the family saloon sector in mind, the electric car has a number of immediate advantages: safety and convenience coming from battery- or solar-power; efficiency from the flexible power of electric motors; economy using the duality of the electric motor and electric generator (Her Electric Vehicle, 2008). In addition, with urban traffic restrictions looming and already in place in London (Edmunds, 2007), the electric car is well placed in terms of practically zero pollution and reduced noise of operation. In a society where transport habits are still centred around the car and other means such as public transport, walking and cycling take a back seat, the electric car promises much as a solution that responds to both the consumer's needs and desires. The size of the market Car manufacturers themselves seem to have some difficulty in gauging the size of the market. Even the major players like Toyota, a leader in hybrid electric-petrol-engine vehicles admits that "we just don't yet know the size of that market" (Calcars, 2007). The main competitor for Toyota, General Motors, recently announced plans to launch its own electric saloon car, the Volt (a PHEV - plug-in hybrid electric vehicle), with a stated 60,000 vehicles for the initial launch year (Green, 2007). Closer to home here in the UK, the specialist car company Th!nk (sic) has made public their goal to produce and sell 9,000 electric cars to sell in the UK as well as Switzerland, Norway and Denmark (Winnie, 2008). Extrapolating from these numbers suggests that the UK market for electric cars for the private consumer runs to some 48,000 units per year at the moment, of which Th!nk is aiming to capture 14%. Competition Competition in this market can be categorised in three ways. Firstly, the direct competition from other companies and organisations similar to University Research Group 2: in other words, specialists in this market, typified for example by Th!nk. Secondly, by the major car manufacturers operating on a global basis who have launched mainly hybrid models but appear to be moving towards a pure BEV (Battery Electric Vehicle) offering. General Motors is an example, as is Nissan and Toyota. Thirdly, there are the other competing elements including but not limited to petrol and diesel engine vehicles as well as low consumer awareness (ILEA, 2001). Macro environmental factors - PESTEL model overview In order to analyse and evaluate the development of the market, the potential for an electric car from University Research Group 2 and how this should be presented to the market, we use PESTEL (political, economic, socio-cultural, technological, legal and environmental factors). In the political arena, George Bush, President of the United States has publicly promoted the use of electric cars (Financial Times, 2008). This is a change in behaviour from some years ago when car manufacturers obliged by Californian laws to introduce electric vehicles then removed them from the market while using intensive lobbying techniques against the laws (documented in the film "Who killed the electric car"). The European Commission states desirable criteria for clean, sustainable transport although it leaves the reader to join the dots and arrive at the conclusion that the electric car is the solution. On the home front, a recent article in the Guardian by Michael Meacher, environment minister from 1997 - 2003 accused the UK Government of a lack of support for introducing more electric cars into the UK transport market (Meacher, 2008). Although the government has made concessions to electric car owners such as zero road tax, it is by no means an obligation for the public to switch from petrol engine cars to electric cars. The government puts indirect pressure on the public to use alternative sources of transport by increased taxation on petrol and diesel fuel , but electric cars are not singled out as a preferred solution in this context. Political and legal factors are not as prevalent as the four remaining factors of the PESTEL model, which are examined in the following sections. Economic Considerations These considerations apply for the consumers who purchase and operate electric cars, as well as for manufacturers who make them and ensure that the infrastructure exists to make them a viable mode of transport. The first shock statistic in favour of electric cars is their low cost per mile. Manufacturer's claims go as low as 2p per mile, one of the companies concerned being Stevens Vehicles, a group with a profile in some ways similar to University Research Group 2: Professor Tony Stevens designed and built the Zecar, a five door car for five occupants (Rutherford, 2008). Compared to petrol engine cars with an equivalent cost of 8 to 40p per mile, the electric car is a clear winner. Purchase prices for electric cars are expected by the consumer to be on a par with classical equivalents or less. The Zecar referred to above will be on the market for between 10,000 and 15,000 depending on options which is compatible with the positioning of the Ford Fiesta for example. Electric cars also benefit from exemption from road tax thus saving their owners 100. From a manufacturer's point of view, as University Research Group 2 have seen, the most expensive part of an electric car is the battery. On the other hand, electric cars have fewer parts than petrol engine cars meaning less production costs and also the possibility to promote lower maintenance costs to the customer. Other electric car manufacturers have taken a different approach concerning aspects of economy. Tesla in the United States (Musk, 2006) states that "Almost any technology initially has high unit cost before it can be optimised and this is no less true for electric cars. The strategy of Tesla is to enter at the high end of the market [with the roadster], where customers are prepared to pay a premium and then drive down market as fast as possible". However it is inadvisable to skimp on quality in an effort to produce a low-cost electric car as the Indian manufacturers of the Reva G-Wiz found out at the end of 2007. The G-Wiz, at the same time a budget car and something of a trendsetter, was tested by the UK government which then pronounced the crash test results unacceptable. The Reva, inexpensive and not subjected to London's congestion surcharge and parking fee policy, had escaped previous scrutiny for crash testing, so it seems, for having been classified initially as a "quadricycle" (Edmunds, 2007). As the opening quote in this report indicates, the electric car still needs to be " cleaner, safer and more sustainable", meaning all three criteria have to be complied with. Socio-cultural aspects and Status Symbols Car culture is a fact of life in the UK, even if it does not attain the excesses witnessed in other countries like the United States .It corresponds to a number of ideals and desires on the part of many people. As David Aaronovitch wrote in the Independent (Aaronovitch, 2001), "we link public transport with austerity. The car is like the semi-detached with garden, in the realm of attainable dreams". Interestingly he also quotes from work done by the Commission for Integrated Transport which asks if the UK will in fact end up with the same level of car culture as the US or manage to put in place a European-style multi-modal system of transport. If public transport in the UK is not up to the standards set by the public, then in some sense people are being pushed back into their cars. But which cars If the car was really only a utilitarian machine, then people would make their decisions rationally on the basis of cost, durability, expected lifetime and other measurable factors. However, cars fulfil other much more subjective needs as well. The car as a status symbol is a well-known and documented phenomenon (Musk, 2006). The more expensive the car, the more prestige attached is the usual rule. By comparison electric cars having grown up historically with the likes of electric milk floats and electricity board vans may not have the same aura. As the following quote, typical of much of the active internet discussions and forums on the topic, states: "perception is often what drives peoples' purchases and the general perception of current electric cars is that they are ugly, don't perform and have poor range" (GreenCarCongress, 2006). This coupled with Toyota's comments on low awareness of electric car technology among customers highlights a considerable problem and a recipe for the "build a better mousetrap" disaster where a technically interesting product flops because of aversion or lack of interest. There are however areas of the consumer mentality where University Research Group 2 can and should explore possibilities, taking a lead from companies such as Porsche who will soon introduce a hybrid petrol electric version of that ultimate car status symbol, the Cayenne. This is just one of the ways to position electric power for cars in relation to consumer preferences. Other possibilities revolve around the idea that "many people on middle to high incomes willwant to own one in order to say something about themselves" (Rutherford, 2008). Making a statement is one possibility, playing on the consumer's guilt about raising CO2 levels is another one. However, rather than trying to be all things to all people, University Research Group 2 will need to target a particular group of consumers with a particular message. Different models of categories can be applied. One model of interest defined by RISC in Paris is the Eurotypes model, which applies to the UK market and also offers natural extensions to the left-hand drive export market. The Eurotypes model divides the population into six categories: traditionalist (18%); homebody (14%); rationalist (23%); pleasurist (17%); striver (15%); and trendsetter (13%). Of these categories, the rationalist (science and technology oriented) and the trendsetter (individualistic) with a combined percentage of 36% would appear to be good target sectors when launching an electric car on the market. Technology University Research Group 2 has already investigated the technology of the electric car in manufacturing and production terms. Our role here is to lay out technological considerations as perceived by, or directly impacting on, the market. Market perception of electric car technology is that it is a poor cousin to petrol engine car technology (GreenCarCongress, 2006). This has been exacerbated by the tendency in the past for electric vehicles to be smaller and less powerful, while suffering restrictions in battery recharging. Ideally, an electric car coming to the market now will have performance in these different areas that will at least stand comparison with that of petrol engine cars. This will mean enhanced travel range which as well as depending on the driving style of the user, is a function of the number and the type of batteries used for the car. This in turn is linked to battery capacity to hold electric charge and for rapid charging. Battery technology is developing at the moment to accelerate the "filling up" time for electric cars to a stage where certain models take no longer to recharge than it takes to refill a petrol engine car's tank with petrol. However, this development must be pursued with the assurance of high levels of safety, meaning that certain techniques that currently risk battery overheating should not be employed (Her Electric Vehicle). Different solutions are evolving in answer to these technology requirements. The "Better Place" project in Israel in conjunction with Renault and Nissan plans to install recharging points all over the state. The plan is based on the fact that the total size of the state is sufficiently small for electric cars available today to have the capacity to travel the distances required and that the charging network can also be implemented in a satisfactory manner (Financial Times, 2007). Greater differences and surface area in the UK mean that other solutions are likely to be required in the form of enhanced battery technology. In addition, a number of technology advantages should be highlighted to the market. Electric motor power characteristics are markedly different with the outstanding characteristic that they produce their full power independently of their speed of rotation. By comparison, petrol engines need to run above a certain minimum number of revolutions per minute (typically 1500 RPM) to generate appreciable power, even if diesel engines do better at lower revolutions (Her Electric Vehicle). Because of this, electric cars and motors do not need the complex transmission system that has evolved for petrol engine cars. The immediate consequences are the electric cars have more even power characteristics and less than can go wrong. The low-maintenance theme can be further extended by what is known as the regenerative braking capability of electric cars that reduces maintenance required on the brakes and as an added benefit makes electric cars yet more economical. Regenerative braking makes use of the capability of the electric motor to also act as an electric generator. In the motor mode, the electric motor consumes electricity in order to turn the wheels of the car. However, when slowing down, an electric motor can be turned by the wheels and become at that moment an electric generator. Part of the slowing down is re-transformed into electricity and put back into the electrical storage of the car. Environmental considerations Environmental friendliness, together with economy, is a common perception of the electric car today (GreenCarCongress, 2006). A major reason for this is the zero pollution operation of electric cars that produce none of the emission gases of petrol cars. A further reason is linked back to the economical nature of the electric car and its ability to use alternative and sustainable sources of energy. Compared to the depletion of fossil fuels of which there can only be a finite amount, solar energy for generating electricity and recharging batteries can be used indefinitely. Petrol engine cars are also evolving in the light of concern for the environment with the development of bio-ethanol fuel, producing "good" emission gases compared to the traditional petrol engine. It is possible also that criticism is levelled at the electric car in terms of battery disposal and what is known as the "long tailpipe phenomenon" (Musk, 2006). In the latter case, the argument is that electric vehicles do nothing more than transfer the generation of pollution back to the power plants that made the electricity. It is instructive to see how Tesla handles both criticisms. On its web site, Tesla points out the alternatives to the "long tailpipe" in the form of a solar power attachment that it also sells, as well as reassuring its readers about batteries: the lithium-ion batteries are not classified as hazardous and can also be sold back to recycling companies at the end of their design life, when the battery is not dead but simply has less capacity. In an age where governments and pressure groups alike push for reductions in energy consumption, the electric car can prove itself to be a good environmental citizen, consuming considerably less energy than the petrol engine car to travel the same distance (Musk, 2006). However the question remains: what is the full environment impact of the electric car for the whole of its life cycle, including manufacture, and how does this compare to traditional internal combustion figures A study by Tahara at Seikei University inTokyo (ILEA, 2001) provides food for thought. The findings of the study are that in the manufacturing process, carbon dioxide emissions measured in milligrams of CO2 for electric cars are approximately twice those measured in the production of petrol engine cars. On the other hand, in operation, using for example electricity generated in a "clean" hydroelectric plant, the electric car even taking into account "long tailpipe" pollution may ultimately be responsible for less than 5% of the CO2 emission of petrol engines. The overall variation for electric cars is a function of the source of the electricity used. If the electricity is generated by coal-burning power stations, then life-cycle CO2 emission for electric cars is only slightly better than for petrol engine cars. If the electricity comes from hydroelectric plants, then overall life-cycle figures can then be as little as one quarter of those for petrol engines. Conclusion The information discussed above establishes the opportunity is for a reasonably priced (not necessarily cheap) electric car. Notwithstanding the SWOT (strengths, weaknesses, opportunities and threats) analysis conducted below, the main issues in founding a business will be financial in nature. This is because of the funding of the development of prototypes and then the move to full production. The location of company in an area such as Manchester may be advantageous for lower operating costs. Possibilities of government aid may be investigated, but only after having created a self-sufficient, profitable wherever possible business plan. The strengths of University Research Group 2 to enter the market for an electric car lie in its understanding of the technology involved, being well positioned to deal with the issue of batteries and charging. Battery technology is the main challenge; University Research Group 2 is unlikely to be able to put in place or use a nationwide power-charging network along the lines of the "Better Place" project. University Research Group 2 should capitalise on experience and research resources to lay claim to technological advances that can truly be shown to benefit the customer. The principal weakness lies elsewhere. Coming from a university research environment, University Research Group 2 has had little exposure to marketing practice that will be key for success. University Research Group 2 is advised to seek external help here, as the best technical solution in the world will fail in the market if the customer does not see the value or identify with the product. Examples of this abound from the unfortunately named Ford Edsel from the Ford Motor Company some decades ago (the name meant nothing to customers and the model was Ford's worst failure) to the technically superior Sony Betamax video system that was supplanted by JVC's VHS. We cannot stress this point enough. University Research Group 2 will have to overcome the "battery-operated toy" image of the electric car to make it sexy enough to appeal to the target groups of rationalist and trendsetter customers referred to above. The opportunity is there: in a sense, existing (Reva) or nascent (Th!nk, Stevens) competition in fact sets the scene for this opportunity. These manufacturers operating at a scale compatible with that of University Research Group 2 lend credibility to an electric car offering whoever the vendor is in such a group. Additionally, initial market size estimations indicate that market demand will as yet outstrip production, facilitating the entry of University Research Group 2. The UK government may contribute to enlarging the size of the opportunity, meaning the number of people who will buy, by appropriate measures such as tax reductions, although this is only speculative at this stage. The main threat as yet unrealised is from the large car manufacturers, the global players who have enormous production capability. General Motors in the US sees the electric car (or at least the hybrid petrol electric) as a solution to its current sales and financial problems. Renault and Nissan, if they are successful in Israel, could well extend their electric car solution to the UK. University Research Group 2 should prepare for such eventualities with a solid, practical and effective marketing plan. The battleground will not be on technology (although good technology is a necessary condition). It will be on the customer perception of the electric car and the extent to which University Research Group 2 's product satisfies both rational needs and subjective wants. References Aaronovitch, D., 2001. Put the car culture into reverse. Independent Online.[Online]. Available at : http://www.independent.co.uk/opinion/commentators/david-aaronovitch-put-the-car-culture-into-reverse-618198.html [accessed 10 Mar 2008] Calcars, 2007. Toyota muses about market size. [Online]. http://www.calcars.org/calcars-news/832.html [accessed 10 Mar 2008] Edmunds, 2007. U.K. government looking into ban of G-Wiz. [Online]. http://www.edmunds.com/insideline/do/News/articleId=120743 [accessed 10 Mar 2008] European Commission, 2007. Moving in the right direction.[Online]. http://ec.europa.eu/news/transport/070925_1_en.htm> [accessed 10 Mar 2008] European Commission, 2007. Europeans back greener travel.[Online]. 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