Competitive Analysis – Reva Electric Car sample essay
The REVA electric car is an innovative concept that has been introduced in the Indian market because of the rising fuel price in the country. The idea behind its conception is to provide a car that is eco-friendly and a small car that would be suitable for growing problems in traffic. The company introduced its cars not only to target the Indian market but also cater to the growing demand for such cars in the international market. In order to understand the competitiveness of the company and its position, a series of analysis is carried out like Porter’s Five Forces and SWOT as well as the Value Chain under the McKinsey Business System.
Following this analysis, it can be seen that REVA is well placed to perform in a good way in the EV market. Even though there various challenges that the company could face, it can be overcome by adopting various strategies. The company’s key strength is that it provides a high technology car, in fact way ahead of others in terms of technology. And the added point is that this high tech car is made possible at a lower cost. The cost compared to other manufacturers in the same industry is three to four times lower.
The pull down factor for the company is that it doesn’t offer a wide range of cars like 4-door cars or bigger models. It should be noted that in the future the range of cars offered should be broadened so as that it satisfies various kinds of customers. Despite all this, REVA cars are making headway into many countries and in the future it would turn out to be one of the major players in the eco-friendly car industry. 1. 0 Introduction In this assignment, the company taken into study is REVA Electric Car Company which is established in India.
The company would be analyzed on its competitiveness by doing an industry analysis based on Porter’s Five Forces; a situation analysis is done using SWOT and is followed up with McKinsey Business System to analyze the value chain in REVA. Based on this analysis, it can be understood whether the company is competitively placed to face other companies in the industry. The company strategy undertaken and also the ones to be taken is described so as to understand its future prospects of performance.
The challenges to be faced ahead are listed down with recommendations to be considered in order to improve its standing. 2. 0 Company Profile REVA Electric Car Company (RECC) is based in Bangalore, India and part of the Maini Group. REVA is the first mass produced electric powered passenger car in India. It is the result of a joint venture between Maini Group and Amerigon Electric Vehicle Technologies (AEVT Inc. ) of USA. The Maini Group holds 70 per cent equity while the rest is with AEVT. REVA means ‘new beginning’ in Sanskrit.
The new eco-friendly car was introduced in the Indian market in 2001 to symbolize a new beginning after four years of research and design. With depletion of all kinds of reserves and a world characterized by smog, noise and all kinds of pollutants, governments are awakening to the several benefits of EV technology. The car is powered by a high performance 37 kW AC induction motor that drives the front wheels, and uses sodium nickel chloride batteries in lieu of conventional lead acid batteries for extended life.
Further technical details can be referred in the Appendix. Electric vehicles have vast potential in India and around the globe. Governments around the world are already advocating the use of eco-friendly cars as steps to control pollution in the environment. The first prototype was built in 1996 and the car was put to extensive testing at Automobiles Research Association of India (ARAI), Pune. Over time it won many awards for its concept of clean environment car. 3. 0 Analysis of REVA.
In order to examine the competitive market that REVA is engaged in, it is vital to do an industry analysis based on Porter’s Five Forces. Then a situation analysis should be done by assessing the internal capabilities and external possibilities using SWOT Analysis. This is followed up by doing a Value Chain Analysis which is a method used to identify potential sources of economic advantage by suggesting how the firm’s internal core competencies can be integrated with its external competitive environment to direct optimal resource allocation.
The McKinsey Business System is used to analyze the value chain in REVA. 3. 1. 1 Porter’s Five Forces Analysis Michael Porter provided this famous industry analysis that states that an industry is influenced by five forces. It is very important for RECC to use this model to develop a strategic edge over competitors by better understanding the industry context in which the company operates. The purpose of the Five Forces model is to analyze major economic and technological forces that will ultimately influence an industry’s profit potential.
Identifying the profit potential otherwise known as attractiveness of an industry provides the foundation for bridging the strategic gap between the firm’s external environment and its resources. (Fleisher & Bensoussan, 2003, p61) Porter’s Five Forces can be classified as follows: a) Threat of new entrants b) Bargaining power of suppliers c) Bargaining power of buyers d) Threat of substitutes e) Rivalry They are elaborated in detail in order to further understand and relate its importance to the competitive performance of REVA. a) Threat of new entrants
The entry barriers are related to the level of difficulty facing new entrants to compete in the industry. If entry is easier, it would result in lower industry profitability. The entry into the market of electric cars is quite difficult because of the level of investment required. REVA was able to develop the car in collaboration with American Electric Vehicle Technologies, US. The project took four years of designing and development that involved high investment. The funds were raised in India from ICICI Bank, Technology Development Bank and the Karnataka State Finance Corporation in the form of debt.
Further investment is sought from International Finance Corporation (IFC), the World Bank’s private sector lending arm, expected to pick up a stake in RECC at a substantial premium. This attraction of investors is because of the fact that RECC has been able to develop the required technology at a much cheaper cost than others. Certain international auto majors have bought electric car companies at a lower valuation but had to pump in more funds than the acquisition cost itself to make it a viable proposition.
But what RECC enjoys over new entrants into the market is proven technology at low cost, a ready market and a good response to its product. The company has at least 10 patents and has capabilities to expand with inclusion of several new models, a bigger version of REVA and a vehicle for public transport. Further investment of around $20 million has been put into the future projects. For new entrants, it involves high investment costs and to achieve the economies of scale is too difficult. It would be hard for the new competitors to compete price wise as RECC has already achieved the development of the electric car at a low cost.
To add to woes of new competitors, commercial Electric Vehicles (EV) initiatives in India have received little governmental support – and most such initiatives have failed to take off because of two reasons: one, they cannot compete price-wise with the well entrenched petrol and diesel technology and two, battery technology is as yet inadequate to provide the complete solution, endurance and speed-wise, for an all- electric passenger vehicle. As a result such EV initiatives have been limited to applications like golf carts or airport and factory floor service vehicles. (Murali, J., 2000, IT sparks a revolution in electric vehicles, 2001 & Giriprakash, K. , 2003).
The new entrants would face high costs, achieving economies of scale, pricing and patent rights because of RECC holding 10 patents. It is further to be noted that RECC already has a well knit network of dealers all over the country as well as abroad. This can hinder the new entrant’s distribution capability and penetration into the market. b) Bargaining power of suppliers This is a major force that refers to the ability of the suppliers to influence the cost, availability and quality of input materials to firms in the industry.
The company can face cost and price problems if the suppliers have an upper hand in the end result of the product. In the case of RECC, the running chassis, integrated power system, energy management system and climate control seats for REVA cars are imported. The Prestolite batteries, forming the power pack developed in the US, will now be manufactured through Tudor India, an Exide subsidiary. The charger has been developed in conjunction with Modular Power System of the US and the controller is manufactured by Curtis. (Murali, J. , 2000) The pricing of REVA can be influenced by the suppliers of these key elements of the car.
This can be risky for RECC and has to look into future plans to find other prospective suppliers in the industry. The availability of substitute inputs can help in offsetting this influence. The ability to switch supplier costs can also help in decreasing supplier influence. c) Bargaining power of buyers The influence of the firm’s customers plays an important role in defining industry structure by virtue of their ability to force prices down by comparison shopping or by raising quality expectations. In the case of REVA, the price competition comes from conventional technology cars running on petrol and diesel.
The REVA’s initial cost vis-a-vis the Maruti 800 is a major inhibiting factor. Maruti is a low priced car which has the largest customer base in India. To influence of the customer to purchase REVA over Maruti involves not just marketing the eco-friendly concept but also to target the price in par or below Maruti. Since price is a driving force in the purchasing power of the consumer in India, the bargaining power of the buyer has great importance. But when it comes to pricing with other EV car manufacturers like Ford, Chrysler, General Motors, Nissan and Toyota; the buyer would be influenced by the pricing of REVA.
(Jagannathan, V. , 2003) So it can be noted that in the domestic Indian market the buyer has tremendous influence in the purchase of REVA over Maruti. But at the same time there are no other EV competitors in the domestic market to influence the buyer. And in the global market, price would surely influence the consumer to buy REVA over other brands. This owes to the fact that REVA offers at par with the noted brands in terms of quality and technology. d) Threat of substitutes The threat of substitute products can actually influence REVA’s market.
If other substitute products can be offered at a lower price, it can cause problems for the company. The substitutes available to compete with EV cars are solar powered or hydrogen cars. If these new technology cars enter into the market offering lower price, it can hinder the sales of REVA. But the fact remains that solar powered cars are highly priced and so it doesn’t attract customers. The cost of a solar car is prohibitively high and recovery will be over a long period of time.
As far as hydrogen run cars are concerned, it’s still in the infant stage of designing and its full scale introduction into the market would take a longer period of time than expected. So it can be seen that there is no threat of substitute products coming into the car industry offering low price and hindering the sales performance of REVA. e) Rivalry In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a competitive advantage over their rivals. As far as rivalry is concerned to REVA in the domestic Indian market, there is none.
REVA dominates the Indian EV market. There have been other manufacturers of EVs in India. Some of them being, Mahindra & Mahindra who launched a battery operated three wheeler “Bijlee” in Delhi and the Chalakudi, Kerala-based Eddy Current Controls (India) Ltd, put on road its own pioneering chopper controller, DC motor- driven electric passenger car the “Lovebird”. The public sector Bharat Heavy Electricals Ltd (BHEL) and the Central Electronic Engineering Research Institute (CEERI) and the Indian Institute of Technology (IIT) Mumbai, have also developed all-electric vehicles .
But all of these projects didn’t make it big because the national policy on non conventional energy alternatives was not encouraging; initiatives in India have received little governmental support and financial support by banks or financial institutions have been negligent. (IT sparks a revolution in electric vehicles, 2001) In the global market, REVA will face tough competition from some of the well established branded car manufacturers like Ford, Chrysler, General Motors, Nissan and Toyota.
But REVA can compete with these titans over time by strengthening its sales promotion, marketing and highlighting the price advantage it enjoys. 3. 1. 2 SWOT Analysis Ken Andrews is considered to be the pioneer of SWOT analysis. A SWOT analysis is a subset of the broader situation analysis that is used to asses the strategic fit between the firm’s resources and capabilities with the external environment. Using this methodology, it is the right approach to determine a niche strategy – the best way for a firm to use its strengths to exploit opportunities and to defend both the firm’s weaknesses and strengths against threats.
(Fleisher & Bensoussan, 2003, p92) The SWOT Analysis shows the internal strengths and weaknesses of the company as well as the external opportunities and threats to the company. In the case of REVA they can be highlighted in the following manner: a) Strengths * Financially strong with backing from banks and financial institutions. * Competitive pricing. * High technology in par with other global brands. * Strong leadership and management by founder Chetan Maini. * Low cost of production. b) Weaknesses No brand name to compete globally.
No wide range of vehicles compared to other global competitors. c) Opportunities Worldwide awareness and government support for eco-friendly vehicles. To expand into other countries with partnerships. Demand for low priced eco-friendly cars. Small cars more preferred in traffic infested cities. d) Threats Lack of government support in India to avail tax cut or subsidy in order to compete with similar priced Maruti cars. Entry of other competitors into India to utilize the opportunity to manufacture at low cost. 3. 1. 3 McKinsey Business System.
Value Chain Analysis is a method by which the firm’s internal core competencies can be integrated with its external competitive environment to direct optimal resource allocation. Using the McKinsey Business System, the key idea here would be to identify which part of the value chain is vital to add more value to the company’s end product. The McKinsey Business System has the following categories in its value chain analysis. They are: Technology Product Design Manufacturing Marketing Distribution Service Though all of these are important in REVA’s case, it is to be noted that more priority should be given to technology and product design.
In an EV market, technology plays a key factor in order to compete with other EV manufacturers. Since technology keeps changing day by day, it’s imminent that the company improves its car models by adding more sophisticated gadgets. The design of the car is very crucial to attract the interest of potential buyers so as to increase its customer base. Technology has been given due importance and steps taken to improve on it. Like for instance, the car’s battery-charging unit is 15 per cent more efficient than others are. The car is controlled by two onboard computers and furthermore it has been Internet enabled.
Due to the technology driven concept, REVA is the world’s first car to have a remote-controlled pre-cooling air-conditioning system, and with climate-controlled seats. (Murali, J. , 2000, Jagannathan, V. , 2003 & Reva showcases new electric car, 2005) The car also features a high-resolution single touch-screen display system featuring all vehicle dashboard functions as well as personal communication tools such as a GPS navigation system, a GPRS modem for internet and email access and an MP3 music player. (Reva Introduces NXG Electric City Car, 2005) Product design is top priority in the eyes of REVA’s design team.
So they adopted “Pro/Engineer” a 3-D product development solution from Parametric Technology (India) Pvt Ltd, Indian end of the US-based company that is a market leader in high end Computer- aided design and manufacturing (CAD/CAM) tools. Complementing Pro/Engineer is Parametric’s solution for collaborative product commerce, “Windchill”, which enables dozens of engineers to use the Internet to bring together designers, parts suppliers, customers and manufacturers into a single environment. The REVA car design was achieved across 10 SGI work stations equipped with Pro/E.
A complete model of the car was created in 3D and the structural and motion analysis was done using Pro/Mechanica. (IT sparks a revolution in electric vehicles, 2001) The design team thus analyzed critical components like the chassis and the suspension and ironed out all foreseeable mechanical problems before the actual prototyping began. The joint venture with California-based AEVT group which specializes in aerospace technologies for the automotive industry has ensured that the REVA has its heart, an Intelligent Energy Management System (EMS) that interfaces with all on-board electronics and optimizes the battery charging process.
(IT sparks a revolution in electric vehicles, 2001) The company hopes to make progress in the technology of the car. By 2006 REVA will be powered with lithium ion battery, the next step will be fuel cell (2009-13) and finally a car powered by solar/fuel cell (2015-20). Next-generation motors, electronics and battery will bring down the price and increase the vehicle performance. (Jagannathan, V. , 2003) All this was done with cost control and is why RECC is way ahead of others in technology.
In the future as well, the same resilience should be shown in technology and product design as these two can tilt the odds in favor of REVA by adding more value to its products. 4. 0 Company Strategy As the design and production of the car was important, RECC formed partnerships with key component manufacturers like Curtis Instruments Inc (motor controller), Tudor India (batteries) and Modular Power Systems (charger unit) were also developed. In addition, group companies (Maini Precision Products, Maini Material Movement and Maini Info Solutions) also contributed their share in supplying components and software.
A conventional fuel car has around 5,000 parts, the REVA has little less than 1,000 parts and not many are moving components. Nearly 900 components have been localized by REVA Electric. (Jagannathan, V. , 2003) The advanced technological innovations helped RECC to keep the project cost low. For instance, the REVA plant does not have the high investment sheet metal press shop and paint booth as in the case of a conventional car project. The REVA’s body is made of strong and coloured polymer plastic.
The plant does not have a conveyor line as the shell is first fixed with wheels fitted with tubeless tyres and rolled from one workstation to another. (Jagannathan, V. , 2003) After RECC had finished its prototype of the REVA car, it had to face the challenge of penetrating the market. In order for the product to be popular good marketing and distribution plans has to be in place. In preparation for its launch in January 2001, the RECC, appointed 90 dealers country wide, 40 of whom are around Bangalore.
Then it was followed up with talks with Karnataka Power Transmission Corporation (KPTC) to get the necessary clearances. This is to enable recharging of the car at houses and apartment blocks. Further talks were carried out with Bangalore City Corporation (BCC) to install recharging points at airports and shopping complexes. The company’s goal was to cater to a niche market, aimed at those switching from two-wheelers to four-wheelers, housewives, retired persons, college-goers and corporate users. The company is expanding its distribution network by entering new markets.
The plan is to appoint two new dealers every month. In next six months the company plans to have dealers in 14 new cities. (Murali, J. , 2000 & Jagannathan, V. , 2003) Pricing of the car was part of the driving force in the company’s strategy. But as far as electric vehicles go, REVA is possibly the cheapest in the world! Cars like the Ford Think, which are just a bit larger and have similar range, cost three to four times the Reva’s price in Europe. (AutoCar, 2002) RECC understood the fact that it would face a lot of competition as it goes global with its electric car.
REVA cars have various niche market applications with tremendous potential for use in island countries like Mauritius, Maldives, Seychelles, New Zealand, Cayman Islands, Channel Island, Fiji, Trinidad & Tobago, St. Kitts to name just a few. REVA has been able to market its concept of protecting and preserving the beauty and the ecology of such spots. Attractive sales and service packages are available for bulk buyers from the tourism & hospitality industry, fleet operators, and large organizations besides local residents. (Reva Company Website, 2005).
REVA as part of its expansion plan wanted to penetrate the global market effectively. It saw the immense scope in the export market and as a result it formulated plans to attract customers in the international market. The company has already tied up with Nepal, Israel, Malta and Japan for marketing, sales and service of the REVA cars. It also finalized deals in UK and Sri Lanka with talks in the process for technology transfer to China and Malaysia for local production. RECC introduced the first electric car in Sri Lanka christened ‘Ceylinco REVA’.
It was launched in Colombo early part of 2005. Initially the car would be imported from India and subsequently would be assembled in Sri Lanka. The REVA car would be the ideal car to overcome the rising cost of fuel in Sri Lanka. The possibility of obtaining duty wavers and other concessions from the Sri Lankan government is being negotiated and would make the car more affordable for the public. When the ‘Ceylinco REVA’ is locally assembled by the end of the year, it would also bring down the cost of the vehicle. (Sirimane, S. , 2005).
REVA is already marketed in United Kingdom, Hong Kong, Japan and with the left hand drive version being introduced soon it would be sold in Europe as well. The focus has been to get acclaim from prospective customers around the globe. The car did very well in the world famous Osaka Auto Show, Japan creating a lot of excitement among car enthusiasts. The Japan Government in its bid to promote electric vehicles has provided a subsidy of $2,600 per car to REVA. The subsidy amount is given directly to the customer from the Japanese Government once he has purchased the car. (Japan provides subsidy for REVA car, 2005).
This was followed by introducing a new series of models in UK this year. GoinGreen, a retailer of electric cars in the UK, showcased the new REVA NXG electric concept car in London. GoinGreen has been marketing another REVA EV–the G-Wiz–since May 2004. The NXG has a range of 125 miles (200 km) per charge and a top speed of 75 mph (120 km/h). The car also features a high-resolution single touch-screen display system featuring all vehicle dashboard functions as well as personal communication tools such as a GPS navigation system, a GPRS modem for internet and email access and an MP3 music player.
(Reva Introduces NXG Electric City Car, 2005) The corporate plan now is to launch newer and bigger vehicles and scale up capacity to 50,000 units. Currently there are around 500 REVA cars on the road. The company rolls out 50 cars a month. The production is planned to go up to 200 cars per month and the target for this fiscal is to sell 1,200 cars. 5. 0 Challenges Ahead There are various challenges that the company would face in the domestic as well as international arena. The challenges can be listed as follows: Intense competition from local Indian car maker, Maruti.
International car makers like Toyota, Honda, Ford, etc. have a wider range of electric cars. Support from governments in Asian countries who lack the will to promote eco-friendly cars. Unavailability of electric charging facilities like the established network of petrol stations for conventional vehicles. 6. 0 Recommendation Though there are many challenges which RECC has to face; in order to be successful it can take up necessary steps with a vision to out beat competition. Some of these recommendations are listed below:
In many countries postal departments use RHD cars as they offer ease of dispatch of mailing letters. The REVA can be easily custom-made to suit the requirements of varied uses. At a phenomenally low cost, the REVA will be a good initiative by any Government in promoting the use of clean vehicles by its departments. Negotiate and avail tax cuts & subsidies from the Indian Government in order to cut down price and thereby compete with conventional car makers. Target the European market with its left hand version as soon as possible with price being the plus factor of REVA.
Form partnerships with countries and look for localized production in target countries if price can be further reduced. Like tap the hardware industry of China to make the product more cost effective. More models need to be introduced to counter other international competitors. 7. 0 Conclusion On the basis of the analysis done in this assignment on the REVA electric car, it can be concluded that the company has the capabilities to perform well in the market. This is possible through the strength it enjoys over other competitors – high technology with cost effectiveness.
The problem it can face is that it doesn’t have the brand name like Ford or Toyota to compete globally but over time as technology is upgraded in REVA and new models are introduced, it can surely take on the titans in the car industry. But as of now it is critical to slowly build up on the strong platform that it enjoys and build partnerships to penetrate into international markets. In the long run, REVA is most likely to make its mark in the EV market. 8. 0 References 1. AutoCar. (2002). Retrieved: May 23, 2005, from http://www. indiacar. com/index2. asp?
pagename=http://www. indiacar. com/roadtest/reva_a/ 2. Fleisher, C. S. & Bensoussan, B. E. (2003). Strategic and Competitive Analysis: Methods and Techniques for Analyzing Business Competition. New Jersey: Prentice Hall. 3. Giriprakash, K. (2003). Reva in talks with IFC to raise funds. Business Line, May 28 issue. Retrieved: May 21, 2005, from http://www. thehindubusinessline. com/bline/2003/05/28/stories/2003052801580200. htm 4. IT sparks a revolution in electric vehicles (2001) The Hindu, Sept 06 issue. Retrieved: May 19, 2005, from http://www. hindu.
com/thehindu/2001/09/06/stories/0806000a. htm 5. Jagannathan, V. (2003). Revving up a revolution. Retrieved: May 22, 2005, from http://www. domain-b. com/people/profiles/20030906_chetan_maini. html 6. Japan provides subsidy for REVA car. (2005). The Hindu, Jan 08 issue. Retrieved: May 22, 2005, from http://www. hindu. com/2005/01/08/stories/2005010803841700. htm 7. Murali, J. (2000). Maini Group upbeat on REVA car prospects. Business Line, Sept 17 issue. Retrieved: May 20, 2005, from http://www. revaindia. com/design/2000_9. htm 8. Reva Company Website.
(2005). Reva – Global Markets. Retrieved: May 22, 2005, from http://www. revaindia. com/worldmarkets. htm 9. Reva Introduces NXG Electric City Car. (2005). Retrieved: May 24, 2005, from http://www. greencarcongress. com/2005/04/reva_introduces. html 10. Reva showcases new electric car. (2005). Retrieved: May 21, 2005, from http://autofeed. msn. co. in/pandorav3/output/Technology/cc5c6ac0-10cc-47ad-80d6-e6f323798e24. aspx 11. Sirimane, S. (2005). Ceylinco REVA electric Car launched. Retrieved: May 22, 2005, from http://www. dailynews. lk/2005/04/26/bus01. htm.