Electric Car Industry

Executive Summary

Volkswagen (VW) is a car manufacturing company located in Germany. The company designs, manufactures, and distributes commercial and passenger vehicles and motorcycles. VW is considering further innovating that have less pollution, save more energy and will be self-driving. The company wants to manufacture an autonomous electric car that should help it remain at the top of the auto manufacture and sales industry. The strategic focus of the organization is to attract individuals that embrace the future by having energy efficiency and self-driving autonomous vehicles. The target population is the young generation and people that are environmentally conscious. The VW Electric Car will stand as a preferable alternative for transportation systems using gasoline. The financial projection for the company is that it will sell approximately 20,000 vehicles annually, and it will realize an annual sales growth of 20%.

Current Strategy

Vision Statement

The vision of VW is “to make this world a mobile, sustainable place with access to all the citizens.”

Mission Statement

The mission of VW states that “For all our products and mobility solutions we aspire to minimize environmental impacts along the entire lifecycle –from raw material extraction until end-of-life -in order to keep ecosystems intact and to create positive impacts on society” (“Volkswagen with New Corporate Mission Statement Environment "Gotozero", 2019).

Value Proposition Statement

Volkswagen strives to create individual and affordable mobility possibilities. The goal of the organization is to make sustainable mobility for future generations. The promise of the company is to ensure sustainability by creating a car that features an electric drive, digital network, and autonomous driving. The aim is to create a product that offers a new driving experience and to be part of the solution in the strategies to protect the environment and combat climate change.

Company Description & Business Model Description

Volkswagen is a German multinational vehicle manufacturing company with headquarters in Wolfsburg, Germany. The company designs, manufactures, and distributes commercial vehicles, engines, and motorcycles. Volkswagen has been dominant in the European market for two decades and was named as the world’s largest automaker by sales in 2016, 2017, 2018, and 2019. The company sold approximately 10.9 million vehicles (“Annual Report 2019”, 2020). The company’s business model is innovation-driven, where it strives to release new models of vehicles that would meet the market demands. The company strives to meet the local requirements by focusing on specific countries. The next innovation strategy of the company is to create autonomous electric vehicles due to the current market demands to protect the environment.

Industry Analysis and Trends

VW strives to create a new model of electric vehicles and is in the electric car industry. The industry analysis will involve the analysis of Porter’s Five Forces, PESTEL analysis, strategic mapping, benchmarking, and driving forces.

Porter’s Five Force

VW should strive to address the following external factors according to the forces that impact the business.

Competitive Rivalry – Strong

The electric car manufacturing industry is a highly competitive market. There are several firms that produce electric vehicles and have a large market share. Tesla Inc. is one of the key competitors. Electric manufacturers are highly aggressive in the innovation and promotion of their products (Kim et al., 2020).

Bargaining Power of Buyers – Moderate

Customers in electric car manufacturing have a moderate bargaining power due to the preference to purchase from trusted brands. The switching costs are low, and the availability of substitute products is moderate.

Bargaining Power of Suppliers – Moderate

Suppliers in electric vehicle manufacturing are firms that sell batteries, solar panels, and vehicle parts. The success of VW depends on the reliability of suppliers. There has been an increase in the number of suppliers of the critical vehicle parts making their bargaining power moderate.

Threat of substitutes - Moderate

The threat of substitute products is moderate due to the limited availability of products from different companies. Other substitute products include gasoline cars and public transportation. Most of the products are outdated, and many people are moving towards more innovative electric cars.

Threat of New Entrants – Low

The threat of new entrants is weak because of the high costs of vehicle manufacture. There are huge branding costs that make it difficult to appeal to the market.

PESTEL Analysis

There are different external factors that impact the electric car manufacturing industry. One political factor is that the government supports the manufacture and sale of electric vehicles by introducing tax cuts for such vehicles (Kapustin & Grushevenko, 2020).

The economic factors that can influence electric cars are the projected positive growth in the European, Asian, and United States economy. The growth in the economy will ensure that consumers have disposable money to spend on the purchase of electric cars.

The social factor that influences the purchase of electric cars is their eco-friendly nature and the social status of driving an electric car. Many people will prefer purchasing an electric car due to the social status associated with such a car.

The technological factor influencing the electric car industry is the development of AI technology and autonomous vehicles. The rapid growth in such technologies over the past few years means that there will be new technologies that support the development of the electric car industry.

Environmental factors influence the growth of the industry as electric cars are regarded as environmentally friendly. There are several environmental regulations on carbon-emitting vehicles.

Legal factors that impact the industry are the patents and focus on eco-friendliness. Car manufacturers should keep their international patents up-to-date. There are international environmental regulations that direct the manufacture of vehicles to ensure eco-friendliness.

Strategic Mapping 

The strategic map in figure 1 shows the different factors that influence the electric car manufacture industry. The main factors influence competition is the prices charged and the performance of vehicles. Volkswagen offers one of the highest performances for its vehicles and is highly-priced. The strategic position of the company is similar to that of Tesla Inc.

Figure 1 

Strategic map of the electric car industry 

Benchmarking 

Benchmarking identifies the best practices from similar industries or from competitors. The analysis of the electric industry shows that the best practices are technological innovation and company branding. Technological innovation involves releasing new and innovative products that appeal to the market. A company should also develop strong brand recognition and brand image. VW should strive to be innovative by developing autonomous electric cars and continually build its brand for high-quality vehicles.

Driving Forces 

The driving forces in the electric car industry are environmental concerns and technological development. Environmental concerns due to the pollution of gas-driven vehicles made the market shift towards electric vehicles. Technological development, such as the manufacture of lithium batteries powering electric vehicles, should also drive the development and growth of the industry (Narins, 2017).

Business Goals and Objectives

The following are the objectives for VW for the development of an electric car.

1. To create environmentally-friendly self-driving automobiles.

2. To achieve 20,000-unit sales of environment-friendly self-driving automobiles in one year.

3. To stabilize itself in the electric automobile industry by increasing market share by 15% in three years.

4. To develop a customer-base of electric car buyers that will support the 20% yearly sales growth of the company.

The balanced scorecard of VW electric cars is as follows.

Table 1 

Balanced Scorecard 

Perspective	Factors to Study	Objectives
Financial	Sales growth rate Short-term profit Long-term profit	20% annual sales growth Expected profit in the first year Expected profit in three years
Customer	Customer satisfaction Customer needs to be met Coherence	Customers love the car 100% electric car Unique electric car
Process	Low-cost resources Internal capabilities Improvement	Produce an affordable car Advance self-drive electric car segment Manufacture of more cars
Innovation	Profitability Success Imitability	New product will lead to more profit Improve autonomy of electric cars Unique non-imitable product

The Competition

Competition for the manufacture and sales of electric cars is expected to be high. The biggest competitor for the Volkswagen Electric Car is Tesla Inc. Tesla has managed to be highly successful by focusing on premium and high-status electric cars. There is more competition as more automobile manufacturing companies enter the higher-end electric cars and self-driving cars market. Other key competitors include Ford Motor Company, General Motors, Honda Motor Company, Toyota Motors Corp., BMW, Nissan, and Tata Motors. Traditional car companies are increasingly shifting to hybrid gasoline-electric and pure electric vehicles.

Marketing Plans and Strategies (Marketing Mix)

The elements of the marketing plans can be studied through the 4Ps of the marketing mix that includes product, place, promotion, and prices. The element of the product will be the production of an electric automobile vehicle. The company should advertise the product as a highly innovative self-driving car.

The place or distribution will involve the locations used to reach its customers. VW has distribution centers located in different parts of the world. Customers will get to look at the electric car at VW’s distribution centers.

The promotion of the product will be achieved through viral marketing by advertising the product on social media. Other promotional strategies will include personal selling, sales promotion, and public relations.

The pricing strategy of the electric will be premium-pricing and market-oriented. A premium-pricing strategy will involve pricing the product well based on the uniqueness and the high value associated with the vehicle (De Toni et al., 2017). Market-oriented pricing will involve analyzing the pricing of other competitors and feedback from customers.

Target Market

The target market for Volkswagen’s electric car will be the younger generation between the age of 20 and 50 interested in technologically innovative products and protecting the environment. The young generation is eager and ready to purchase innovative products and are likely to spend a lot of money to acquire such products. The generation is also likely to be environment-conscious and will pay premium prices for zero-emission vehicles as environmental protection impacts their future.

Strategic Position and Risk Assessment

SWOT Analysis

The strategic position was analyzed through the use of a SWOT analysis, as shown in table 2.

Table 2 

SWOT analysis 

Strengths	Weakness
1. Strong brand recognition and wide brand portfolio  2. Innovativeness of the VW  3. 2025 Strategy that fosters innovation  4. Partnerships with local Chinese vehicle manufacturers	1. Negative publicity due to the 2015 emissions scandal (Jung & Sharon, 2019). 2. High product recall rate. 3. Low market share in the United States. 4. Little expertise in manufacturing electric vehicles.
Opportunities	Threats
1. Rising fuel prices will create a shift to electric vehicles.  2. Huge market demand for self-drive electric vehicles.  3. Continuous growth in the technology to manufacture electric vehicles.	1. Intense competition in the electric vehicle manufacturing industry. 2. Increased government regulations on environmental regulations. 3. Ongoing lawsuits

Business Risk Assessment

The main risks in electric vehicle manufacture involve revenues, intellectual property, quality of vehicles, and vehicle recalls. Electric car manufacture requires intensive capital, and the company should have the financial capabilities. The threats can be mitigated by following safety standards by using the three Cs of culture, compliance, and capital (Casey et al., 2017). Production of quality products will ensure that the company’s products meet the market demands. High-quality products will have a very low chance of having recalls.

Keys to Success

The key to success is in the production of a well-designed quality electric vehicle. Having a good design will highly entice the market about the newly released vehicle. The vehicle should also have a high performance in its self-driving features. Promotion on social media will ensure that the company realizes its targeted sales.

Operations Plan

The operations plan of the electric manufacture will involve placing the manufacture of the vehicles under the electric vehicles department. The department will have a manager that will oversee all the operations from the manufacture to the distribution to customers. The department will also be divided into different sections that include innovation, design, manufacturing, distribution, and sales. The innovation of the product will ensure that the

Technology Plan

The technology required to realize the success of the electric car is batteries that power the main engine. The company plans to acquire the technology by outsourcing the products from Chinese auto manufacturing companies.

Management and Organization

The current CEO of VW will be involved in overseeing the innovation and implementation of the electric car. The company’s executive board will appoint an individual that manages the electric car manufacturing department. The department will have a team-based organizational structure where members of the different departments such as innovation, design, manufacturing, distribution, and sales will work as teams.

Community Involvement and Social Responsibility

The manufacture of electric vehicles should give the company a strong position as an environmentally-conscious company. The company will engage in various community initiatives that strive to protect the environment. The social responsibility that the company can undertake is the development of solar technology that should power the vehicles and their manufacturing firms. The reduction in the manufacture of gasoline cars and the shift to environmentally-friendly cars show the approach by the company to protect the environment.

Development, Milestones, and Contingency/Exit Plan

VW seeks to set realistic milestones for the first year. The company expects to sell 20,000 electric vehicles within the first year. The feedback from various consumers will reaffirm the progress of the company. The company will engage in the first marketing campaign about the new electric car. The company will then distribute the products to different markets in different parts of the world. The exit plan will come about after the company experiences multiple products recalls or the company fails to break even after the third year.

The Financials

Financial Objectives

The financial objectives for the organization are as follows

1. To realize a sales rate of 20% per month starting from the first cars sold.

2. To realize annual sales of $118,000,000 within the first year.

3. To realize annual sales of $170,000,000 by the third year.

Sales and Expense Forecast

The annual sales and expenses forecast for the three years are as shown.

Sales & Expenses Forecast
	Year 1	Year 2	Year 3
Electric Car Design 1	$118,741,500	$142,489,800	$170,987,760
Eletric Car Design 2	$55,412,700	$66,495,240	$79,794,300
Electric Car Design 3	$19,790,260	$23,748,300	$28,497,960
Engine Sales	$7,916,100	$9,499,320	$11,399,180
Total Sales	$201,860,560	$242,232,660	$290,679,200
Expenses
Direct Cost of Sales
Electric Car Design 1	$94,993,200	$99,742,860	$119,691,440
Eletric Car Design 2	$44,330,160	$46,546,680	$55,856,000
Electric Car Design 3	$15,832,200	$16,623,820	$19,948,580
Engine Sales	$6,332,880	$6,649,520	$7,979,420
Total Cost of Sales	$161,488,440	$161,488,440	$161,488,440

Figure 2 

Projected Sales Growth 

Break-even Analysis

Break-even Analysis
	Year 1	Year 2	Year 3
Monthly Sales Units	20000	21700	23400
Estimated annual Fixed Cost	148,844	1,488,440	1,488,440
Estimated annual Variable Cost/unit	8,000	8,000	8,000
Total Costs	160,148,844	175,088,440	188,688,440
Revenue	$201,860,560	$242,232,672	$290,679,206
Cumulative Costs	160,148,844	335,237,284	523,925,724
Cumulative Revenue	201,860,560	444,093,232	734,772,438

Financial Control

The implementation of financial controls will be possible through the analysis of the income statements and balance sheets. Control will be realized through a timely update of the organization’s financial statements and ensuring that it aligns with the projected plans. The operational scenarios that will be analyzed are that of monthly and annual projections. The different operational scenarios that will be analyzed are the expenditures, profitability, and revenues.

Financial Statements and Ratio Analysis

Income Statement: Annual

Income Statement: Three-Year Projection

Income Statement	Year 1	Year 2	Year 3
Sales	$201,860,560	$242,232,680	$290,679,200
Direct Cost of Sales	$161,488,440	$169,562,880	$203,475,440
Sales Commission	$10,093,020	$12,111,640	$14,533,960
Total Cost of Sales	$171,581,480	$181,674,500	$218,009,400
Gross Margin	$30,279,080	$60,558,160	$72,669,800
Gross Margin %	15.00%	25.00%	25.00%
Expenses
Payroll	$3,504,000	$3,892,800	$4,550,640
Sales and Marketing and Other Expenses	$3,600,000	$3,780,000	$3,969,000
Depreciation	$288,000	$288,000	$288,000
Rent	$1,200,000	$1,200,000	$1,200,000
Utilities	$360,000	$378,000	$396,900
Insurance	$48,000	$48,000	$48,000
Payroll Taxes	$525,600	$583,920	$682,600
Licensing	$240,000	$240,000	$240,000
Total Operating Expenses	$9,765,600	$10,410,720	$11,375,140
Profit Before Interest and Taxes	$20,513,480	$50,147,440	$61,294,660
EBITDA	$20,801,480	$50,435,440	$61,582,660
Interest Expense	$6,090,000	$4,480,000	$2,800,000
Taxes Incurred	$4,327,040	$13,700,240	$17,548,400
Net Profit	$10,096,440	$31,967,220	$40,946,260
Net Profit/Sales	5.00%	13.20%	14.09%

Cash-Flow Projection: Monthly

Cash Flow: One-Year Projection

Pro Forma Cash Flow
Cash Received
Cash from Operations
Cash Sales	$50,465,140	$60,558,160	$72,669,800
Cash from Receivables	$100,081,400	$171,411,700	$205,694,040
Subtotal Cash from Operations	$150,546,540	$231,969,880	$278,363,840
Additional Cash Received
Sales Tax, VAT, HST/GST Received	$0	$0	$0
New Current Borrowing	$0	$0	$0
New Other Liabilities (interest-free)	$0	$0	$0
New Long-term Liabilities	$0	$0	$0
Sales of Other Current Assets	$0	$0	$0
Sales of Long-term Assets	$0	$0	$0
New Investment Received	$0	$0	$0
Subtotal Cash Received	$150,546,540	$231,969,880	$278,363,840
Expenditures	Year 1	Year 2	Year 3
Expenditures from Operations
Cash Spending	$3,504,000	$3,892,800	$4,550,640
Bill Payments	$180,116,560	$229,378,240	$248,268,640
Subtotal Spent on Operations	$183,620,560	$233,271,040	$252,819,280
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out	$0	$0	$0
Principal Repayment of Current Borrowing	$7,200,000	$7,200,000	$7,200,000
Other Liabilities Principal Repayment	$0	$0	$0
Long-term Liabilities Principal Repayment	$9,600,000	$9,600,000	$9,600,000
Purchase Other Current Assets	$0	$0	$0
Purchase Long-term Assets	$0	$0	$0
Dividends	$0	$0	$0
Subtotal Cash Spent	$200,420,560	$250,071,040	$269,619,280
Net Cash Flow	($49,874,020)	($18,101,160)	$8,744,560
Cash Balance	$22,326,980	$4,225,820	$12,970,360

Balance Sheet: Annual

Balance Sheet: One-Year Projection

Balance Sheet
Assets
Current Assets
Cash	$22,326,980	$4,225,820	$12,970,360
Accounts Receivable	$51,314,020	$61,576,820	$73,892,180
Inventory	$33,346,220	$35,013,520	$42,016,240
Other Current Assets	$3,790,000	$3,790,000	$3,790,000
Total Current Assets	$110,777,200	$104,606,160	$132,668,780
Long-term Assets
Long-term Assets	$8,800,000	$8,800,000	$8,800,000
Accumulated Depreciation	$288,000	$576,000	$864,000
Total Long-term Assets	$8,512,000	$8,224,000	$7,936,000
Total Assets	$119,289,200	$112,830,160	$140,604,780
Liabilities and Capital	Year 1	Year 2	Year 3
Current Liabilities
Accounts Payable	$38,701,760	$17,075,500	$20,703,860
Current Borrowing	$32,800,000	$25,600,000	$18,400,000
Other Current Liabilities	$3,560,000	$3,560,000	$3,560,000
Subtotal Current Liabilities	$75,061,760	$46,235,500	$42,663,860
Long-term Liabilities	$20,400,000	$10,800,000	$1,200,000
Total Liabilities	$95,461,760	$57,035,500	$43,863,860
Paid-in Capital	$30,000,000	$30,000,000	$30,000,000
Retained Earnings	($16,269,000)	($6,172,560)	$25,794,660
Earnings	$10,096,440	$31,967,220	$40,946,260
Total Capital	$23,827,440	$55,794,660	$96,740,920
Total Liabilities and Capital	$119,289,200	$112,830,160	$140,604,780
Net Worth	$23,827,440	$55,794,660	$96,740,920

Financial Ratios

Main Ratios
Current	1.48	2.26	3.11
Quick	1.03	1.51	2.12
Total Debt to Total Assets	80.03%	50.55%	31.20%
Pre-tax Return on Net Worth	60.53%	81.85%	60.47%
Pre-tax Return on Assets	12.09%	40.47%	41.60%
Debt Ratios
Debt to Net Worth	4.01	1.02	0.45
Current Liab. to Liab.	0.79	0.81	0.97
Liquidity Ratios
Net Working Capital	$1,785,772	$2,918,533	$4,500,246
Interest Coverage	3.37	11.19	21.89

List and Sources of Funds

The main source of funding for the electric car manufacture will be through debt and equity. The executive board will play a big role in facilitating the finances. The board will facilitate any unforeseen expenses through credit. The growth is expected to be rapid, and they will be paid through the company’s profits.

Assumptions Sheet

There are multiple assumptions that will be made about the manufacture and success of the business. The given assumptions are based on the company’s interest rates and tax rates.

General Assumptions
Plan Month	Month 1	Month 2	Month 3
Current Interest Rate	10.00%	10.00%	10.00%
Long-term Interest Rate	10.00%	10.00%	10.00%
Tax Rate	30.00%	30.00%	30.00%

References

Annual Report 2019. Mobility for Generations to Come. Volkswagenag.com https://annualreport2019.volkswagenag.com/ 

Casey, T., Griffin, M. A., Flatau Harrison, H., & Neal, A. (2017). Safety climate and culture: Integrating psychological and systems perspectives.  Journal of occupational health psychology ,  22 (3), 341. https://psycnet.apa.org/doi/10.1037/ocp0000072 

De Toni, D., Milan, G. S., Saciloto, E. B., & Larentis, F. (2017). Pricing strategies and levels and their impact on corporate profitability.  Revista de Administração (São Paulo) ,  52 (2), 120-133. https://doi.org/10.1016/j.rausp.2016.12.004 

Jung, J. C., & Sharon, E. (2019). The Volkswagen emissions scandal and its aftermath.  Global Business and Organizational Excellence ,  38 (4), 6-15. https://onlinelibrary.wiley.com/doi/abs/10.1002/joe.21930 

Kapustin, N. O., & Grushevenko, D. A. (2020). Long-term electric vehicles outlook and their potential impact on the electric grid.  Energy Policy ,  137 , 111103. https://doi.org/10.1016/j.enpol.2019.111103 

Kim, B. C., Rhim, H., & Yang, H. (2020). Price competition or technology improvement? An investigation of green car technology.  International Journal of Production Research , 1-17. https://doi.org/10.1080/00207543.2020.1740347 

Narins, T. P. (2017). The battery business: Lithium availability and the growth of the global electric car industry.  The Extractive Industries and Society ,  4 (2), 321-328. https://doi.org/10.1016/j.exis.2017.01.013 

Volkswagen with New Corporate Mission Statement Environment "goTOzero". (2019). Volkswagenag.com https://www.volkswagenag.com/en/news/2019/07/goTOzero.html