Tesla, Inc.: Strategic Report 2020, Summaries of Technology

Download Tesla, Inc.: Strategic Report 2020 and more Summaries Technology in PDF only on Docsity!

Tesla, Inc.: Strategic Report 2020

The Lisbon MBA 2020

Alban Auffray • Miro Osório • Patrick Henrici • Rudelee Merks • Vasco Freitas da Costa

• 1 Executive Summary
• 2 Tesla Inc.
  • 2.1 Company Origin
  • 2.2 Company Overview.................................................................................................
• 3 Environmental Analysis
  • 3.1 Macro Environment
    • 3.1.1 PESTEL Analysis
  • 3.2 Microenvironment
    • 3.2.1 United States Automotive Industry
    • 3.2.2 United States Electric Vehicle Industry...........................................................
    • 3.2.3 Client Segmentation.......................................................................................
    • 3.2.4 Current Segment Sales (SL)
    • 3.2.5 Annual Compound Segment Sales Growth Rate (G)
    • 3.2.6 Margin Assessment based on 5 Forces Model (M)
    • 3.2.7 Risk Evaluation (R)
    • 3.2.8 Sustainability Evaluation (SU)
    • 3.2.1 Sustained Value Calculation
  • 3.3 Competitors
    • 3.3.1 Strategic Groups
    • 3.3.2 Competitive Intelligence
  • 3.4 Industry
    • 3.4.1 Determination of the Industry’s and Product’s Life Cycle
    • 3.4.2 Key Success Factors
    • 3.4.3 Industry Value Chain......................................................................................
• 4 Organizational Analysis................................................................................................
  • 4.1 Resources and Capabilities
    • 4.1.1 Human Resources
    • 4.1.2 Financial Resources
    • 4.1.3 Physical Resources
    • 4.1.4 Organizational/Intellectual Resources
  • 4.2 Capabilities
  • 4.3 Efficiency and Economies
    • 4.3.1 Core Competencies – VRIO...........................................................................
  • 4.4 Strategy
    • 4.4.1 Strategic Fit
    • 4.4.2 Strategic Intent...............................................................................................
    • 4.4.3 New SWOT Analysis......................................................................................
• Strategic Thinking and Value Creation
  • 4.5 Classification of the Business
  • 4.6 Tesla’s Sustainability Impact
    • 4.6.1 Examples for Environmental Sustainability
    • 4.6.2 Examples for Social Sustainability
    • 4.6.3 Examples for Governance Sustainability
  • 4.7 Value Creation for Customers
  • 4.8 Value Creation for Shareholders
  • 4.9 Value Creation Aggregate Indicator
• 5 Mission, Objectives, Strategy and Products-Markets
  • 5.1 Vision and Mission
  • 5.2 Purpose and Value
  • 5.3 Objectives
  • 5.4 Strategy
  • 5.5 Business Model
• 6 Strategic Dimensions
  • 6.1 Products-Markets Strategy
    • 6.1.1 Products-Markets Matrix
    • 6.1.2 Ansoff Matrix
  • 6.2 Generic Strategy
  • 6.3 Innovation
  • 6.4 Vertical Integration
  • 6.5 Strategic Outsourcing
  • 6.6 Internationalization
  • 6.7 Competitive Advantage of Nations
  • 6.8 Diversification
  • 6.9 Conglomerates
  • 6.10 Business Portfolio Planning
• 7 Corporate Development
  • 7.1 Value Creation in Corporate Development
  • 7.2 Mergers and Acquisitions
  • 7.3 Strategic Alliances
• 8 Planning
  • 8.1 Organizational Structure
• 9 Implementation
  • 9.1 Functional Management
  • 9.2 Process & Project Management
• 10 Conclusion and Outlook

1 Executive Summary December 2030, an autonomous Taxi TESLA Model Y second generation is driving me to the airport. The news projected on the brand-new TESLA front window states “another electrifying year for the global leader of Electric Vehicle breaking its target of 10 million cars sold this year”. Is it fiction or the life achievement of a visionary leader called Elon Musk? The fundamental story of TESLA is grounded in the outstanding capacity of its charismatic CEO to drive the acceleration of sustainable energy vehicle adoption globally and to revolutionise transportation with the automation of driving. Since the beginning of the story in 2003, Musk’s objective is to leave a legacy and to be at the forefront of the car industry transformation. Similarly, to Ford in the beginning of the last century with the invention of the assembly line, TESLA aims to outpace the competition where “the second place should need a telescope to see TESLA”. The company aims to master product development and innovation in Electrical vehicle, to lead manufacturing with unprecedent level of automation and to transform the customer experience with the best technology integration ultimately to enable autonomous driving and no service concept. TESLA’s growth is supported by strategic bold choices, focussing first on premium segment in order to gain momentum and by then increasing volume as new offering is introduced and internationalisation developed. Its Gigafactories in US, China and soon Europe should propel the electrical vehicle producer to category champion. The confidence in its growth potential projected the company at the most valued car maker position on earth in 2020, increasing its market value by an outstanding 36% per year over the last decade. The outstanding investor confidence is reinforced by a number of global trends, the VW diesel gate, global CO2 concern and new generations sustainability concerns are few elements to promote even further the adoption of Electric vehicles around the globe. The Norwegian example, with 55% penetration of EV’s for new cars sold, summarises very well how policy markers could influence macroeconomic trends by subsidising Electrical Vehicles to make them as competitive as standard cars. China is no exception, concentrating 25% of global car sales and adopting EV’s at double digit rate, the market is strategic for TESLA. The construction of its second Gigafactory translates the ambition of the company to play a leadership role in the country. Whilst over the last decade, all global car leaders have heavily invested in conventional cars capacity to capture growth in China, TESLA built competitive edge in EV’s with Panasonic strategic partnership in battery construction. This competitive edge on electric powertrain could be a considerable advantage for TESLA but also a major threat as all car manufacturers are now rallying on this new EV trend with an unprecedented proliferation of EV or hybrid models putting pressure on TESLA’s leadership. TESLA also stands out by the ecosystem the company developed in the renewable energy segment, by building a network of superchargers in key strategic countries and by acquiring Solar City to develop sustainable residential charging and energy storage solutions. As Ford at the beginning of the last century, TESLA is different in the vertical integration of its supply chain and is known for rather making than buying while its competitors often quoted as “car assemblers”. To notice the acquisition of Grohmann automation in 2016 and Perbix in 2017 which gave to the company a competitive advantage in automated manufacturing systems. This integrated strategy is the most debated as the company constantly underdelivers on its manufacturing volumes, leaving space for criticism amongst its most loyal customers. Contemplating 2030, important challenges remain for TESLA, the proliferation of new EV’s models by the competition, the evolution of mobility consumption by millennials, the constant

improvement of combustion cars in a context of low oil cost and the emerging hydrogen engines supported by Japanese car makers. Our report reveals how TESLA is well positioned to address the transformation of the car industry in a sustainable manner and what strategic choices the company has made to play a leadership role. Image 1 : Elon Musk

2 Tesla Inc. 2.1 Company Origin Tesla was initially created in 2003 by two Silicon Valley engineers, Martin Eberhard and Marc Tarpenning. The partners had just sold their eReader company for $187 million and were looking for their next big idea. They were inspired by the death of GM’s EV1 electric car that year and they ended up re-inventing the concept of Electrical Vehicle. Elon musk came after in 2004 as the first A series investor with a 7,5m$ investment. Figure 1 : Infographic about EV's early days^1 (^1) Inside EVs: https://insideevs.com/news/336938/teslas-origins-superhero-comic-check-out-this- amazing-infographic/

2.2 Company Overview Tesla, Inc., former Tesla Motors, Inc., is a US-based mobility services and energy company, designing, manufacturing and selling high-performance electric vehicles (EV) with the mission to “accelerate the world’s transition to sustainable energy”^2. Founded in 2003, Tesla claims to have developed the world’s best and highest-selling pure EVs with a high autonomy and zero tailpipe emissions. At the same time Tesla’s automobiles are presented among the safest and highest-rated cars in the world. 4 product lines for passenger transportation have been launched, meaning that they are being produced and delivered: ● Tesla Model S - launched in 2012 ● Tesla Model X - launched in 2015 ● Tesla Model 3 - officially launched in 2018 with deliveries having started in 2017 ● Tesla Model Y - launched in March 2020 Image 2 : From Left to Right: Tesla Model S, X, 3, Y It is not by chance that the combination of these models’ letters can be read as S3XY – model 3 was actually supposed to be named Model E but due to a claim by automobile manufacturer Ford for having produced a Model E already, Tesla had to rethink their endeavor. Above models all incorporate different product line lengths with upgrade options essentially offering an increase in range or performance as well as customization options offering features such as self-parking, navigation systems, traffic light recognition, automatic city street driving, various exterior colours and seating configurations, besides others. Tesla, Inc. further announced the launch of 3 new models, all of which have been presented as a prototype and have been tested for going into production. ● Tesla Roadster - pre-order-marketing until expected launch in late 2020 ● Tesla Semi - pre-order-marketing until expected launch in late 2020 ● Cybertruck - production start targeted for late 2021 (^2) https://ir.tesla.com

The Tesla Roadster is meant for passenger transportation while the Tesla Semi and Cybertruck open access to new customer segments of the cargo transportation sector. The company and its brand is strongly correlated with Elon Musk, who initially served as the company’s chairman of the board, having been responsible for 98% of the initial funding for the Tesla Motors, Inc. which was founded by July 2003 by the 2 engineers Martin Eberhard and Marc Tarpenning. The brand’s name is a tribute to Nikolai Tesla, an electrical engineer, physics scientist and well-known inventor of several technologies in the field of electrical energy. Musk, who laid down his position as a chairman and nowadays is the CEO, said that his vision for Tesla Motors, Inc. is to become a technology company and independent automaker that eventually offer EVs at prices that the average consumer can afford. As of February 2017, Tesla Motors shortened its name to Tesla. Tesla’s strategic planning is composed of 2 main phases so far:^3

1. Build-up : Establish as a high-performance and high-quality producer of EVs with a high brand awareness and a wide reach, producing cars for high-income customers. The main goals were: a. to create a low volume, expensive car, b. to then develop a medium volume car at lower price, c. to then create a high volume, affordable car, d. and to provide solar power.
2. Hypergrowth : Invest all to establish as the long-term leader in the growing EV market. This includes opening access to all major automobile customer segments by lengthening the product line with products for customers with a low to mid-level income. The main goals are: a. to create solar roofs with seamlessly integrated battery storage, b. to expand the EV product line to address all major segments, c. to develop a self-driving capability 10x safer than manual by massive fleet learning, d. to enable cars to generate money while unused. The Build-up phase has just recently been completed with the launch and ongoing deliveries of the model 3 and Tesla already entered the Hypergrowth phase. This is already reflected in their statement to investors: "...we also offer a smaller, simpler and more affordable mid-sized sedan, Model 3, which we expect will truly propel electric vehicles into the mainstream."^4 Tesla’s Common Stock Since Tesla’s initial public offering in 2010 the company has seen an overall growth in common stock value having reached its peak on February 17, 2020 with a value of $ 901 per share at (^3) https://www.tesla.com/pt_PT/blog/master-plan-part-deux (^4) https://ir.tesla.com Image 3: Tesla Roadster Image 3 Tesla Semi Image 5: Cybertruck

close. Some analysts, investors and forecasters around the world have interpreted this in an extreme overvaluation, but in any way, point out that the short-term risk of investments in Tesla remains high due a potentially high chunk of investors being short sellers. As can be seen in the graph below, the value dropped significantly in the weeks after the peak and reached a new high on another upward trend with about $548 at close on April, 8 2020. The difference of $353 (a drop by 39% from $901) is likely to have been triggered by a rapid decline in the shareholders’ and traders’ valuation following the outbreak of the Covid-19 pandemic and the consequently expected global economic decline affecting Tesla’s ability to sell their existing and new products as per initial schedule. The drop was then empowered by mentioned short sellers betting on the decline. Figure 2 : Tesla's Common Stock Evolution Besides its market value, Tesla could not yet achieve any profitable year, only individually profitable quarters such as Q3 and Q4 2018 as well as Q3 and Q4 2019. Being headquartered in Palo Alto, California, US, Tesla operates multiple production and assembly plants, such as in California, Nevada, New York and Shanghai and further owns its own distribution network with which it offers direct sales around the globe. Having established itself as a key player in the market over time, Tesla was able to become a global EV manufacturer with further business models in solar panel and solar roof tile manufacturing as well as in battery energy storage from home to grid scale – thereby Tesla became the first and only fully integrated automobile and energy company in the world. Tesla’s global vehicle sales increased by half from about 245k in 2018 to about 367k units in 2019 and on March 9, 2020 Tesla produced its 1-millionth EV. As will be seen in later chapters, Tesla has been digitizing the automotive industry both with regards to the model offerings themselves and to the distribution and assistance channels. Contrary to traditional car offerings, Tesla’s offerings remain subject to continuous improvement after the point of sale through over-the-air software updates and Internet connectivity. By keeping the products open-ended, Tesla manages to expand the products’ life cycle and ensure that these are continuously tailored to the customers’ needs as well as adjusted to new market trends. Tesla has also been using digital tools to optimize the products’ distribution channels and after-sale assistance. Customers can customize and order their cars online using the company’s website. Furthermore, any issues that the customers may encounter when using

the cars may sometimes be solved remotely with no need for onsite assistance. For example, Model S can wirelessly upload data so technicians can view and fix some problems online without ever needing to physically touch the car. All these innovations, amongst others, have been contributing to set Tesla apart from the traditional automotive companies and to underpin some of its stock valuation, despite Tesla having not delivered any profits so far.

3 Environmental Analysis 3.1 Macro Environment 3.1.1 PESTEL Analysis Automobile industry was started in the 1890s combining steam engine with road wagon technology to serve the need of upper class society discovering new mobility vehicles. The early 1900s marked the first boom of the car industry, France dominating the automobile industry quickly followed by the United States and Germany. This countries remained the largest manufacturer and exporter of automobile till the 1980s. The automobile originally manufactured to cater upper middle class became accessible to every house hold (example of Ford T model sold over 15 million times) and technological evolution enabled a race to produce automobiles in the least possible cost to make it accessible to all class level. Today’s automobile industry is entering into a new era of technical innovation by producing smarter, more eco-friendly and even driver less automobiles. In that context the analysis of the Political, Economical, Social, Technological, Environmental and Legal factors can help to understand EV’s growth momentum in response to the major trends in its environment. Table 1 : PESTEL summary table Context Trend^ Impact on Demand^ Impact on supply Government regulation on CO2 emission

• Demand of EV

• Classic Diesel car Demand +Increased EV/HEV supply competition -heavy competition on battery supply Government incentives on EV & Charging infrastructure +Boom in demand of EV in China +Rapid development of charging infrastructure globally -Fluctuation of policy in Europe and China Chineese governments measures to improve quality of EV +EV immatriculation demand -Proliferantion of low cost/quality cars in China +Reduce production cost with EV volume going up China offering large EV market volume +Growth opportunity and large EV adoption +Opportunity for Global car manufacturer to grow outside legacy markets -high investment needed for development Global economy rise 2015- -EV still higher price vs classic cars +Increase car sales globally +rise of middle class demand +Devlopment of SUV

• Range extension for middle class demand Price of material for EV decline +more affordable EV^ +Additional volume/margin improvement Millenial generation growth +Greener car demand -Different ways to consume transport +EV brand image -Affordability vs thermic cars Shift of ways to consume car transport +leasing boom -Uberisation of transport -emergence of alternatives to car ownership +Green EV taxi in big cities ex-Amsterdam +Autonomous car readiness EV manufacturing requiring high level of investment -Relative high price to consumer -Drive consolidation of global market manufacturers to build scale Battery storage technology advancement "-increase dependance with battery providers +Growth of supplier of powertrain -emergence of rivals in China on battery storage Battery manufacturing strategic regional focus +increased autonomy for EV "-Europe and China declared regional priority and manufacturing investment +increased productivity for EV -decrease barrier to entry Environmental EV best fit for sustainable transportation development +Increased EV car adoption
• strongest Brand echo to environment for pure EV player -recycling challenge due to rapid obsolescence of models -Barrier to entry Safety standards for cars constantly increasing +legislation focus on safety +Barrier to entry premium car category +Safety at the heart of Evs 2030 objectives to be at 30% EV +Support of demand EV globally +Sustainable growth supply +allow long term investment with 10+ year growth perspective Political Economical Social Technology Legal

Political - Policies have major influences on the development of electric mobility Globally, the automotive industry has been under Governments pressure introducing different regulations forcing manufacturers to move towards more fuel efficient cars, promoting the development of electric and hybrid engines and ultimately charging infrastructure. This innovative sector of the industry is benefiting in certain countries of a specific tax credit for buying an electric car. Policy approaches to promote the deployment of EVs typically start with a vision statement and a set of targets. An initial step is the adoption of electric vehicle and charging standards. Procurement programs kick-start demand and stimulate automakers to increase the availability of EVs on the market, plus provide impetus for an initial roll out of publicly accessible charging infrastructure. Another useful policy measure is to provide economic incentives, particularly to bridge the cost gap between EVs and less expensive internal combustion engine (ICE) vehicles as well as to spur the early deployment of charging infrastructure. Economic incentives are often coupled with other policy measures that increase the value proposition of EVs (such as waivers to access restrictions, lower toll or parking fees) which are often based on the better performance of EVs in terms of local air pollution. Measures that provide crucial incentives to scale up the availability of vehicles with low and zero tailpipe emissions include fuel economy standards, zero-emission vehicle mandates and the rise in the ambition of public procurement programs. Regulatory measures related to charging infrastructure include minimum requirements to ensure “EV readiness” in new or refurbished buildings and parking lots, deployment of publicly accessible chargers in cities and on highway networks, and are complemented by requirements regarding inter-operability and minimum availability levels for publicly accessible charging infrastructure. So far only observed in Norway, when the EV and charging infrastructure deployment evolves, some policy measures may need to be adjusted as the markets and infrastructure mature. One example is how fuel and vehicle taxes are adjusted and their contribution to government revenue. Front running countries such as those involved in the Electric Vehicles Initiative are already making progress from their initial phases of EV policy implementation (e.g. establishment of standards, public procurement and early charging roll out, economic incentives). Many of these countries have regulatory instruments in place and, to date, some advanced markets like Norway have started phasing out some aspects of their EV support policies developed standards for chargers. Some (China, European Union, India) are mandating specific standards as a minimum requirement; others (Canada, Japan, United States) are not. Figure 3 : Global Electric Car Sales and Market Share '13 - '

Key policy developments in 2018/19 include: ● In the European Union, several significant policy instruments were approved. They include fuel economy standards for cars and trucks and the Clean Vehicles Directive which provides for public procurement of electric buses. The Energy Performance Buildings Directive sets minimum requirements for charging infrastructure in new and renovated buildings. Incentives supporting the roll-out of EVs and chargers are common in many European countries. ● In China, policy developments include the restriction of investment in new ICE vehicle manufacturing plants and a proposal to tighten average fuel economy for the passenger light-duty vehicle (PLDV) fleet in 2025 (updating the 2015 limits). The use of differentiated incentives for vehicles based on their battery characteristics (e.g. zero- emissions vehicle credits and subsidies under the New Energy Vehicle mandate). ● Japan’s automotive strategy through a co-operative approach across industrial stakeholders, aims to reduce 80% of greenhouse gas (GHG) emissions from vehicles produced by domestic automakers (90% for passenger vehicles) – including exported vehicles – to be achieved by 2050 with a combination of hybrid electric vehicles (HEVs), BEVs, PHEVs and fuel cell electric vehicles (FCEVs). Fuel economy standards for trucks were revised and an update of fuel economy standards for cars was announced. ● India's announced the second phase of the “Faster Adoption and Manufacturing of Electric Vehicles in India” (FAME India) scheme. It reduces the purchase price of hybrid and electric vehicles, with a focus on vehicles used for public or shared transportation (buses, rickshaws and taxis) and private two-wheelers. China European Union United States India Japan Regulation (Vehicles) ZEV mandate X X Fuel economy standards X^ X^ X^ X^ X Incentives (Vehicles) Fiscal incentives X^ X^ X^ X Targets (Vehicles) X^ X^ X^ X^ X Industrial policies Subsidy^ X^ X Regulations (chargers) Hardware standards X^ X^ X^ X^ X Building regulations X^ X^ X^ X Incentives (chargers) Fiscal incentives X^ X^ X^ X Targets (chargers) X^ X^ X^ X^ X Table 2 : Comparison of different regions Economical Globalization of the car industry and the opening of new geographies with booming demand like China has created opportunities of access to larger markets volume. Sales for electric cars have risen as the global economy increased. In 2017, it was projected that the world economy would grow by 3.5 percent. These rises, in Asia and Europe as well as the United States, led to more electric developments. In fact, the sales of electric cars jumped over 30 percent between 2016 and 2017.

Consequently, the price of materials is actually on the decline for EV producers. Particularly, the cost of batteries is lower, which is great for the company. The more popular their cars become to the public, the lower materials prices may drop. This allows for the possible creation of a more cost-effective vehicle for the public. That too can positively impact the price of materials. Results depend on the respective country’s economy, of course. Any country with a declining economy will slice into the company’s profits. In many countries though, consumers are investing in luxury vehicles like SUVs and BMWs. Social The Automobile industry has played a key role in society up until now but the upper class baby boomer doesn’t represent the biggest consumer pool anymore. People in developed countries has now started to believe that automobile has adversely affected their health and environment, pushing millennials towards healthier alternatives like cycle to travel short distance or new ways of travelling. Millennials, this “technology friendly” consumer group is also influencing the automobile sector, they are aware of the latest technology advancement and can easily compare and evaluate offering. This is considering that they still want to buy a car. In fact, the biggest societal trend is the emergence of new ways to “consume” car and transportation in general, the example in Spain with Cabify offering car booking service, Uber revolutionizing the taxi industry, Blablacar digitalizing car pulling. The boom of leasing industry like in Germany demonstrates consumers reluctance to own a car on the long run with further consequences on the car second hand market being flooded with these vehicles. Generation z, native tech. consumers, could be the first generation without the need of a driving licence. The development of autonomous cars industry seemed to be at a cornerstone with recent safety limitations observed in a number of programs. Nevertheless, the automotive industry is made to adopt newest technology and the “part autonomous car” is already around the corner. On the other hand, it doesn’t take much for technology to become obsolete. We, as people, are constantly creating, developing, and advancing what we already have. In a year’s time, the newest gadgets and apps can be absolutely useless thanks to upgrades and updates. Technological Technology advances are delivering substantial cost reductions for batteries Recent technology progress for battery storage in general has been boosted by high demand for batteries in consumer electronics. Structural elements indicate not only that continued cost reductions are likely, but that they are strongly linked to developments underway in the automotive sector, i.e. changes in battery characteristics (chemistry, energy density and size of the battery packs) and the scale of manufacturing plants. Strategic importance of the battery technology value chain is increasingly recognized Policy support has been extended to the development of manufacturing capacity for automotive Figure 4 : Generations share in population

batteries. This reflects the dynamic development of battery technologies and the importance of EVs to achieve further cost reductions in battery storage for a multitude of applications. It also recognizes the strategic relevance that large-scale battery manufacturing can have for industrial development (due to the relevance of its value chain in the clean energy transition). Examples of policy measures related to battery manufacturing include:

• In China, policy support aims to stimulate innovation and induce consolidation among battery manufacturers, giving preference to those that offer batteries with the best performance.
• In the European Union, the Strategic Action Plan for Batteries in Europe was adopted in May 2018. It brings together a set of measures to support national, regional and industrial efforts to build a battery value chain in Europe, embracing raw material extraction, sourcing and processing, battery materials, cell production, battery systems, as well as reuse and recycling. In combination with the leverage offered by its market size, it seeks to attract investment and establish Europe as a player in the battery industry. Increase in battery efficiency allows now EV’s to perform 400km+ autonomy together with the high developing rate of the battery charging station in key market is a positive for the firm. Environmental People love the idea of an electric car. Especially people who have eco-friendliness in mind. An electric vehicle eliminates the need to use as much fuel as a traditional vehicle. And that’s far better on the environment. Not to mention an electric car is supposed to be cheaper to use than a traditional car (over time). A Tesla is environmentally sustainable. It’s also new. Very few cars on the market boast the power and luxury Tesla does. The company has done an amazing job maintaining their place in people’s mind as that electric car. This makes it more difficult for other, similar vehicles, to come onto the scene. Because when you think electric, you expect a Tesla. Legal Automobile safety has been one of the biggest fields for legislation around the world. Regulations are constantly evolving globally putting automobile manufacturers under continuous pressure. Most recently, the diesel gate generated additional legislation pressure to limit automobile carbon emission. The scandal of Volkswagen in Germany had a global impact in terms of re- enforcing law in that matter. Outlooks indicate a rising tide of electric vehicles. Dynamic developments in policy implementation and technology advances underpin the projections to 2030 in the New Policies Scenario, which aims to illustrate the consequences of announced policy ambitions. Projections in the EV30@30 Scenario are underpinned by proactive participation of the private sector, promising technology advances and global engagement in EV policy support. It is aligned with the goal of the EVI EV30@30 Campaign to achieve a 30% market share by 2030 for EVs in all modes except two-wheelers (where market shares are higher).

In the New Policies Scenario, China leads with the highest level of EV uptake over the projection period (see Figure 5 ). It is followed by Europe, where the EV sales share reaches 26% in 2030, and Japan, one of the global leaders in the transition to electric mobility with a 21% EV share of sales in 2030. In North America, growth is particularly strong in Canada (where EV market shares reach 29% by 2030), as well as in California and US states that have adopted zero-emissions vehicle (ZEV) mandates and/or have stated an intention to continue to improve vehicle fuel economy. Other parts of the United States are slower to adopt EVs, bringing the overall EV sales share to 8% of the US vehicle market in 2030. 3.2 Microenvironment With the ‘bigger’ picture highlighted in the PESTEL analysis above, it is prudent to also look at the microenvironment – the immediate industry analysis to determine who the market’s customers are, who competes in the market, and a look at the inner-workings of the automobile (and electric vehicle) industry. To do that we focussed our analysis on the United States automotive market which can be extrapolated for the other part of the world. 3.2.1 United States Automotive Industry Table 3 highlights the total new car sales in the United States from 2000 to 2019. According to this data, it seems that the US has a maximum limit in annual new car sales of approximately 17 million before the market begins to decline or stabilize. As seen in 2008, the automobile industry is at a high risk during financial crisis, and the effects of the crisis can be felt for years afterwards – indicated by the lowest sales experienced in this period occurring in 2009 and the market taking more than 5 years to return to over 17 million sales per year. Before the onset of COVID-2019, the US annual sales of new cars were projected to fall between 16 and 17 million cars. We can assume that the automobile industry will follow the Figure 5 : Electric Vehicle Sales

same recession pattern of 2008 with 2020 maximizing out at between 13 and 14 million cars^5 , and 2021 being hard-hit and selling between 10 and 11 million cars. A 5-year recovery period with constant growth can then be expected. It is also imperative to look at what kinds of cars make up those 17.1 million sales in 2019 and who was buying them. Table 48 , adapted from a study done by Hedges & Company, divides the car sales into Sedan, SUV, Truck, Electric Vehicle and Plug-in Hybrid Electric Vehicle. There are many more ways to segment car types, but these are the segments that were chosen in the study. The study also takes into consideration the ages, income levels, and genders of the car owners, as well as whether they own a home or not. Some interesting insights from Table 4 are gathered below. Car Type While all the car types tend to follow a similar breakdown in terms of demographics, there seems to be two groupings of similarly accessed vehicles - Sedans and SUVs, and EVs and PHEVs. Age Most new cars are bought by people aged 25 - 54, supporting the theory that people younger than that typically do not have the financial capability to buy a new car, and also supporting the theory that new car purchases largely coincide with major changes in lifestyle. As people only retire once, the major change of lifestyle purchases of new vehicles among older people tends to be less than over the larger age bracket. Income The majority of vehicles are purchased by persons whose income is over $100,000 per annum, which is expected because vehicles these days are very expensive relative to other costs of living. However, the US is highly unequal, and the bottom bracket of the income table makes up the majority of individuals. The size of this bracket, coupled with the relatively unconcentrated public transport, leads to a large amount of vehicle purchases across the board by low income persons. (^5) https://www.caranddriver.com/news/a31901914/us-sales-production-huge-declines-estimates/ (^6) https://fesrvsd.fe.unl.pt:2099/statistics/183713/value-of-us-passenger-cas-sales-and-leases-since-1990/ (^7) https://www.cnbc.com/2020/01/06/us-auto-sales-down-in- 2019 - but-still-top- 17 - million.html (^8) https://hedgescompany.com/blog/2019/01/new-car-buyer-demographics-2019/ NEW CAR SALES IN US (MILLIONS)^6 2000 17.4 2010 11. 2001 17.2 2011 12. 2002 16.9 2012 14. 2003 16.7 2013 15. 2004 16.8 2014 16. 2005 17 2015 17. 2006 16.5 2016 17. 2007 16.2 2017 17. 2008 13.3 2018 17. 2009 10.4 20197 17. Table 3 : Car sales in US

The preference for electric and hybrid vehicles skews far more towards high income purchasers only, which is expected as electric and hybrid vehicles tend to come with a higher price tag. They are also generally less all-round practical than gas powered trucks and sedans. In other words, the extra luxury of electric or hybrid is not something that low- and mid-income household are particularly willing to pay for. Gender Across all car types, men purchase more cars. Women tend to prefer traditional Sedan and SUV styles and have shied away from purchasing electric or hybrid vehicles. Home Ownership Most people who purchased a car in 2019 own their own home. Taking these elements into consideration, it appears that the market for car sales in the United States is made up of middle-aged men who earn less than $50,000 in a year and already own their own home. The segments of older men (55-64 years and 65+ years) should definitely not be ignored as together they constitute approximately half the sales of cars in the United States and are more likely to correspond with the $100,000+ income level, which is also a prominent segment. One more interesting trend to note is depicted in Table 5 which looks at the break-down of car purchases by age over time.^9 It appears that in the short time between 2007 and 2017, the age of a new car purchaser has tended upwards with the median age moving from the 45 – 54 year bracket to the 55 – 64 year bracket. (^9) https://www.statista.com/chart/20048/us-buyers-of-new-car-by-age-group/ SEDAN SUV TRUCK EV PHEV AGE < 24 years 1% 1% 1% 1% 1% 25 - 54 years 51% 43% 50% 46% 54% 55 - 64 years 21% 26% 23% 22% 22% 65 years + 27% 31% 26% 32% 23% INCOME < $50,000 39% 31% 37% 20% 21% $50,000 - $74,999 18% 19% 20% 16% 12% $75,000 - $99,000 9% 10% 10% 4% 10% $100,000 + 34% 40% 33% 60% 57% GENDER Female 44% 43% 14% 25% 25% Male 56% 57% 86% 75% 75% HOME Own Home 90% 93% 93% OWNERSHIP Don't Own / Rents 10% 7% 7% Table 4 : New car sales in the US by car type, 2019

3.2.2 United States Electric Vehicle Industry Table 6 below gives an overview of the electric vehicle, plug-in hybrid electric vehicle, and total EV and PHEV sales from 2010 to 2019. At the beginning of the decade, the percentage growth was exponentially higher than the percentage growth at the end of the decade. While this can indicate that the trend of electric vehicles might be slowing down, looking at the actual values of electric cars sold tells a different story with more cars being sold in 2018 and in 2019 than in 2016 and 2017 together. If COVID-19 had not happened, it would not have been unrealistic to predict that by 2025, the United States would be selling over 1 000 000 EVs and PHEVs per annum. They still might reach this value despite COVID-19 as more companies are bringing out their own versions of electric cars and charging them becomes cheaper and more efficient. 3.2.3 Client Segmentation Vehicles can be segmented in a number of ways. In this report, they are segmented by luxury sedan, mid class sedan, SUV, pickup, and by sports car / super car. These segments were chosen to represent the types of electric vehicles already in the market, and are summarized below: 2007 2017 < 24 YEARS 1% 3% 25 - 34 YEARS 15% 11% 35 - 44 YEARS 29% 14% 45 - 54 YEARS 24% 20% 55 - 64 YEARS 18% 25% 65 YEARS + 13% 27% Table 5 : Age of car buyers in the US in 2007 and 2017 EV Sales US (millions) EV Percentage Growth PHEV US (millions) PHEV Percentage Growth Total Sales US EV PHEV (millions) Total Percentage Growth 2010 0.00119 - - - 0.00119 - 2011 0.00975 919% 0.00798 - 0.01773 1590% 2012 0.01465 250% 0.03859 584% 0.05324 400% 2013 0.04769 426% 0.04901 227% 0.0967 282% 2014 0.06342 233% 0.05536 213% 0.11878 223% 2015 0.07104 212% 0.04283 177% 0.11387 196% 2016 0.08673 222% 0.07289 270% 0.15962 240% 2017 0.10449 220% 0.09386 229% 0.19835 224% 2018 0.23882 329% 0.12249 231% 0.36131 282% 2019 0.23972 200% 0.08825 172% 0.32797 191% Table 6 : Electric Vehicle and Plug-in Hybrid Electric Vehicle Sales in the United States

DRIVER VALUES POTENTIAL SIZE OF SEGMENT IN US (MILLIONS) LUXURY SEDAN Luxury, Space, Comfort 30. MID CLASS SEDAN Price, Safety 11. SUV Quality 54. PICKUP Functionality 35. SPORT / SUPER CAR Performance 25. Table 7 : Potential Segment Size Luxury Sedan

• The luxury sedan is usually driven by individuals who are wealthy and status-driven. They have succeeded in their careers and are looking for a way to flaunt that success. The ‘cool factor’ matters, and these individuals will spend more money for comfort, luxury, and convenience.
• One type of people who normally drives a luxury sedan is the Ivy Leaguers. These individuals generally live in urban areas, are college-educated, are between the ages of 35 and 64, and have a net worth of more than $250 000. The Ivy-Leaguers account for approximately 30.3 million people in the United States.^10
• Drivers of luxury sedans value luxury and space over price. Mid Class Sedan^11
• The mid class sedan is normally driven by your typical, young American family. These families are starting their lives together, live in urban areas, and are working towards paying off their own home and car. Most purchases are made out of necessity, with frivolous spending discouraged.
• An example of the type of people that drive mid class sedans are the Simpsons. The occupants of this household are married, have a net worth of between $50 000 and $99 000 in some states, and between $100 000 and $249 999 in some of the wealthier states. They generally have more than one child under the age of 18. The Simpsons account for approximately 11.2 million households in the United States.
• Drivers of mid class sedans generally value price and safety over trendiness. (^10) Wealth, Asset Ownership, & Debt of Households Detailed Tables: 2016 by the United States Census Bureau (^11) Image Src. https://www.esquire.com/uk/culture/tv/a31774974/best-simpsons-episodes/

SUV^12

• The SUV is often driven by families that are established, wealthy, and willing to spend money on items of status.
• In the English language, there is an idiom ‘keeping up with the Joneses’ – one example of SUV drivers are the Joneses. The occupants of this household are married, have a net worth of over $250 000, and are older than 35 years old. The Joneses account for approximately 26.7 million households in the United States.
• The SUV driver generally values quality and status over price. Pickup^13
• The pickup is normally driven by the typical American who likely uses the car for work or for leisure. When used for work, the large vehicle is used for convenience, and when used for leisure, it is used to signal ruggedness and an outdoor lifestyle.
• One type of person who drives a pickup is the Adventurist. According to the Urban Dictionary^14 , an adventurist is someone who would climb mountains, jump out of planes, and dive below the surface of the water in search of adventure. These individuals see seeking out adventure as a part of their lifestyle and are willing to pay (^12) Image Src. https://collider.com/the-joneses-dvd-review/ (^13) https://bananaleafnewyork.com/tips-for-a-more-enjoyable-and-safer-road-trip/ (^14) https://www.urbandictionary.com/define.php?term=Adventurist

for the equipment needed for that lifestyle. These individuals can be of any age, but typically have an average annual income of $100 000 and express a desire to spend time outdoors. Adventurists accounts for approximately 1.65 million people in the United States.

• Another type of person who drives a pickup is the All-round American. These individuals are generally male, are between the ages of 25 and 54, and have a net annual income of $50 000 or above. These All-round Americans account for approximately 33.37 million people.
• Pickup drivers generally value functionality over price. Sport Car / Super Car^15
• Drivers of sports or super cars are individuals who are considered car enthusiasts. They typically purchase to collect, and brand name is very important. These individual buy for their own pleasure, and money is often not considered in the equation.
• One group that buys sports cars are men who are generally older than 55 years old and have a net worth of more than $500 000. In the United States, there are approximately 25.5 million people who would fall into this category.
• Drivers of sports cars are looking for performance over price. (^15) https://www.independent.co.uk/life-style/motoring/a-look-inside-the-car-collection-of-michael-fux- a7950721.html

Using the past trends in US automobile and electric vehicle sales, predictions can be made for the expected sales of electric vehicles in the United States in the future (Table 8 ). These numbers take into consideration the expected sales of all vehicles in the United States (with COVID-19 taken into account), the proportion of electric vehicles sold, the popularity of each type of car, and the price of each car. EXPECTED EV SALES (THOUSAND DOLLARS) Segment Size (m) % of US Population Total Car Sales ‘ 19 (m) EV Car Sales ‘ 19 (tds) 2020 2021 2022 2023 2024 2025 2026 2027 Luxury Sedan 30.3^ 9.23%^ 518.13^ 22.13^2796 1413 1548 1709 2086 2207 2342 2369 Mid class sedan 11.2^ 3.41%^ 191.52^ 8.18^607 425 465 514 627 664 704 712 SUV 54.8 16.70% 937.08 40.02 5372 5223 5720 6317 7710 8157 8655 8754 Pickup 35 10.66% 598.50 25.56 1615 1067 1169 1291 1576 1667 1769 1789 Sports-/ Super car 25.5^ 7.77%^ 436.05^ 18.62^5882 2745 3006 3320 4052 4287 4549 4601 Table 8 : Expected EV Sales 3.2.4 Current Segment Sales (SL) EXPECTED EV SALES 2020 (THOUSAND DOLLARS) LUXURY SEDAN 2 796 MID CLASS SEDAN 607 SUV 5 372 PICKUP 1 615 SPORT / SUPER CAR 5 882 Table 9 : Current Segment Sales 3.2.5 Annual Compound Segment Sales Growth Rate (G) PERCENTAGE GROWTH LUXURY SEDAN 185 % MID CLASS SEDAN 217% SUV 263 % PICKUP 211 % SPORT / SUPER CAR 178 % Table 10 : Annual Compound Sales Growth

3.2.6 Margin Assessment based on 5 Forces Model (M) 3.2.6.1 5 Forces Model on EV industry Analyzing the five forces by Michael Porter, we see a dynamic market that is going through a big innovation process currently. The power structures are being rearranged which offers new opportunities for car producers but also creates tensions coming from all five forces. For further details we applied the 5 forces model assessment. Figure 6 : Porter's 5 Forces Model on EV industry 3.2.6.2 5 Forces Model Assessment To differentiate the influence of the Porter’s five forces on the relevant six segments, the 5 forces model assessment has been applied to each of them. By combining the margin after the 5 forces with the average margin rate in the automotive industry of 6%^16 , we calculate the margin rate by segment. The results show that among the six segments the “Jeep Wrangler Crowd” has the highest margin with ca. 6,8%, while the segment of the “Young Family” represents the smallest margin with ca. 6,3%. (^16) Euler Hermes: https://www.eulerhermes.com/content/dam/onemarketing/ehndbx/eulerhermes_com/en_gl/erd/newsi mport/pdf/profits-in-the-auto-industry-rich-and-richer-snippet-12sep17.pdf (2016) Segments as per Customers 5 Forces Average Margin after 5 Forces Margin index^ Average Margin Rate Margin Rate by Segment Luxury Sedan 4,6 5,4 1,11 6% 6,65% Mid Class Sedan 6,5 3,5 0,72 4,32% SUV 4,3 5,7 1,16 6,95% Pickup 5,0 5,0 1,03 6,17% Sports Car/ Super Car 5,2 4,8 0,98 5,91%

Table 11 : 5 Forces Model Assessment Threat of New Entrants When it comes to the risk of new entrants, EV producers face a moderate risk. To enter this market, R&D costs are considerably high and the benefits of an economy of scale cannot be utilized immediately from new entrants. China just recently announced to raise subsidies for EVs^17 and is also the residence of several EV producers, what makes it harder to control this important strategic region.^18 Considering China as one of the biggest markets in the automotive sector with a current share of 25% and a projected share of 30% in 2025^19 this represents a serious threat. Another threat can be seen in the segment of car enthusiast (sports car/ super cars). Due to the high prices of those cars the manufacturers usually don’t rely on the economy of scale and produce sports/ super cars in small batch sizes. Without the need for big factories, the entry barriers for this segment are lower than for other segments in the car industry. Good examples are producers like Koenigsegg who are producing 20 cars per year but also the first Tesla Roadster of which 490 models left the factory per year on average during its production time from 2008 to 2012. Figure 7 : Threat of new Entrants Threat of Substitute Products The threat of substitutes is high. Since there are almost no switching costs, switching to a substitute represents a high threat. The biggest substitute for EVs are still primary substitutes such as petrol-engine cars and hybrids. Those are highly profitable and efficient cars, that (^17) Electrive: https://www.electrive.com/2020/04/01/china-considers-extending-ev-subsidies/ (2020) (^18) Globalfleet: https://www.globalfleet.com/fr/connected-manufacturers/asia-pacific/analysis/finally-list- chinese-ev-manufacturers (^19) Statista: https://www.statista.com/statistics/225123/chinas-share-of-the-global-car-market/ (2012)