Let’s look at the buyer bargaining power. It is significant and is observed in the relatively low switching costs from one EV model to another. However, with significant entities invested in the industry such as Tesla buyers may find it hard to opt for inferior models that may not mirror the technological and efficiency (Leitman, 2009). Price sensitivity is another element that determines the buyer bargaining power (Porter, 2014). This is because as the EV industry continues to grow so do different vehicle models and prices keep on shifting. The buyer continues to access variety as well as price disparities that may force high-end players such as Tesla to reconsider the prices of its models as they are costly (Zhang, Gover, & Vehicular Technology Society, 2010). For instance, a buyer can opt to buy a Nissan Leaf a relatively cheaper EV than spending more on an expensive model such as a luxury Tesla hybrid sedan. (See Chart 1).
Product differentiation is relatively low within the EV industry. Apart from a few brands, the EV models that are currently dominant in the market can easily be substituted for another easily by the consumers. The power enjoyed by the buyers will continue to grow as the industry expands to various global markets.
The market information is also a chief determinant of the buyer bargaining power (Porter, 1999). This is because many people are yet to comprehend what EV as an industry entails fully. Many buyers may be discerning of the products availed by various players Mom, 2013). The companies must be keen on carrying out product promotion and providing after-sales services to encourage buyers to buy new models emerging in the EV industry or sector.
The threat is very high as many players in the industry have a limited number of suppliers. For instance, a company such as Tesla draws its supply across various global regions (40% in Europe, 30% in North America, and 30% in Asia) (Husain, 2011). This is tied to the innovation and technology used in the production process. The materials are scarce and therefore the value chain that exists in the securing of the supplies and narrows making industry players susceptible to sabotage or supplier inefficiencies. Additionally, there exist high-end models such as the Tesla Model S which utilize custom-made components. Customizing these components is expensive and has to be procured from specific supplier entities.
In the EV industry, single source suppliers may expose the various entities to potential component changes and delivery failures. These failures may affect production patterns and force companies to incur costs in their quest to seek replacement components and alternative suppliers (Musirin & Sulaiman, 2015). These additional costs may be passed over to the end consumer who in turn may be discouraged from buying the products. It may also lead to production delays which may affect an industry’s player’s product launch prospects.
In consideration of the above challenges, there is a need for entities to have a good relationship with their suppliers. Additionally, it would be prudent if the entities establish a sustainability strategy targeting suppliers (Zhang, Gover, & Vehicular Technology Society, 2010). Such a strategy ensures that the suppliers are empowered with the right infrastructure that may spur effective value chains.
There is a high level of the threat emanating from other products in the automobile market. The EV market can easily be substituted with diesel cars, hybrid cars, and solar-powered cars. Other means of transport such as buses, bicycles, and trains. Additionally, the various challenges associated with the EV can be deemed to be the chief reason many buyers may go for substitutes.
In comparison to fuel-powered vehicles, EVs are usually single charge cars which reduce their power-efficiency than fully tanked conventional automobiles. It is observable that ‘cast majority of the EVs on the market nowadays, are only able to travel from 40-120 miles on a single charge’ (Habib, Kamran, & Rashid, 2015). However, Tesla models can go up to 280 miles but are very pricey. To a regular car user, the power-efficiency of the EVs may be considered ‘sufficient as a daily range; however, it is still incomparable with the range of any combustion engine vehicle” (Mom, 2013). The conventional automobiles can achieve 250 miles on a single full tank without being limited by the charging stations that are not extensively distributed and being able to refill the cars from different gas stations. It is, therefore, evident that many consumers particularly those that are regular long-distance travellers may prefer conventional automobiles rather than contend with the limited range.
The infrastructural challenges brought about by the EV make them inconvenient hence enhancing the threat of substitution. This means that an individual willing to buy the EV must be sure of existing supporting charge points and service stations. In comparison to the conventional automobiles, it is evident that individuals would prefer vehicles that are easy to maintain and use in varied settings. The charging system associated with EVs is characterized by individuals that mostly charge from home and intend to use automobiles for short distances (Maggetto, 2001). The maintenance costs, therefore, must be ad.
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