Which Automotive Technology Will Win? IN THE ENVISIONED TRANSITION away from gas

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Which Automotive Technology Will Win? IN THE ENVISIONED TRANSITION away from gasoline-powered cars, Nissan’s CEO Carlos Ghosn firmly believes the next technological paradigm will be electric motors. Mr. Ghosn calls hybrids a “halfway technology” and suggests they will be a temporary phenomenon at best. A number of startup companies, including Tesla Motors in the United States and BYD in China, share Ghosn’s belief in this future scenario. One of the biggest remaining impediments to large scale adoption of electric vehicles, however, is the lack of appropriate infrastructure: There are few stations on the roads where drivers can recharge their car’s battery when necessary. With the mileage range of electric vehicles currently limited to some 200 miles, many consider a lack of recharging stations a serious problem (so called “range anxiety”). Tesla Motors and others, however, are working hard to develop a network of superfast charging stations. Nissan’s Mr. Ghosn believes electric cars will account for 10 percent of global auto sales over the next decade. In contrast, Toyota is convinced gasoline electric hybrids will become the next dominant technology. These different predictions have significant influence on what technology they decide to back and how much money Nissan and Toyota invest in that technology. Nissan’s fully electric vehicle, the Leaf (an acronym for Leading, Environmentally friendly, Affordable, Family car), built at a plant in Smyrna, Tennessee, was introduced in 2010 in Japan and in 2011 in Europe, the U.S., and Canada. As of 2013, the Nissan Leaf is the best-selling all-electric car, with global sales of some 100,000 units. Toyota is expanding its R&D investments in hybrid technology. Toyota has already sold some 4 million of its popular Prius cars since they were first introduced in 1997. By 2020, Toyota plans to offer hybrid technology in all its vehicles. Eventually, the investments made by Nissan and Toyota will yield different returns, depending on which predictions prove more accurate. An alternative outcome is that neither hybrids nor electric cars will become the next paradigm. To add even more uncertainty to the mix, Honda and BMW are betting on cars powered by hydrogen fuel cells. In sum, many alternative technologies are competing to become the winner in setting a new standard for propelling cars. This situation is depicted in Exhibit MC12.1, where the new technologies represent a swarm of new entries vying for dominance.Only time will tell which technology will win this standard battle. DISCUSSION QUESTIONS Review Chapter 7: Business Strategy: Innovation and Entrepreneurship.

1. Do you believe that the internal combustion engine will lose its dominant position in the future? Why or why not? What time horizon are you looking at?

2. Which factors do you think will be most critical in setting the next industry standard for technology in car propulsion? Do you believe it is possible that the new technologies can coexist, or do you think there will be only one industry standard?

Explanation / Answer

1. Yes, if we are considering the long term future, definitely the internal combustion engine will lose its dominant market position. Several factors including decreasing sup-ply of gasoline and environmental degradation contribute to this. The hope of would-be entrants to the industry may well be that the big carmakers have invested so heavily in internal-combustion engines that they will be lot to switch to electric power. That is overoptimistic. Even if a breakthrough in battery chemistry makes electricity competitive with petrol, big carmakers may yet be able to change course fast. Customer already consider the frequency of refueling when purchasing a new/used car, so customer won’t buy-in if the frequency of recharging is almost doubled, especially when the infrastructure is non-existent because there aren’t recharging stations or battery swap stations anywhere. If an infrastructure of battery swap or recharging stations is built up, the alternative fuel type (AFT) industry will take off.

However, the electric vehicles will not gain the majority of the market share until their prices fall. Currently, they do not offer a price match in energy efficient vehicles as com-pared to gasoline powered cars. At the moment purchasing such a vehicle is so pricey that saving money is less the point than drawing attention to its owner’s green credentials. And in the future what will matter most to make the vehicles competitive is not the oil price but falling battery costs, since recharging is so cheap compared with filling up with petrol. This is the Holy Grail: improving the efficiency and lowering the cost of batteries to such an extent that the economics of the electric car are transformed.

2. Initial purchase cost and cost of ownership are key factors in determining how large or small, or even whether a market will exist with the AFT industry. Right now it’s extremely expensive to do research and develop technologies for hybrids and hydrogen fuels, so all of these expenses may be reflected in the prices of the vehicles, especially towards the beginning of adoption, if companies aren’t expecting to lose money.
Reliability and safety are other factors that are important and that consumers consider very important when purchasing a car. The industry won’t take off if the AFT cars are perceived as more expensive or less safe than regular gasoline cars of today.
Current costs of wind, solar, and nuclear power are also key factors in determining whether the industry succeeds. Many companies can’t afford to take the route of trying to develop AFT cars and this is definitely a barrier to entry. More key players will evolve if the costs of these technologies would ever lower.
Size, design, and brand are also factors to consider because these are considered very important to consumers. Customers tend to like larger vehicles of their particularly favored brand name, and they’ll like it the better it.

Initially New technologies can coexist, but with time and better prospects on the above factors only one industry standard will prevail.

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