THE EARLY MARKET OF HYBRID CARS

Business English – AdvancedLUISS MBA11/07/2011Ophélie Champeaux, Jihee Shin, Nataliya Gavryuk

INDEX

1. Market Analysis 2. Industry Concerns and Prospectives3. Pros and Cons4. Your Questions

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HYBRID MARKET ANALYSIS

1. Market size and growth rate2. Profitability3. Customers4. 5 Competitive Forces5. Competitors6. Key Success Factors

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MARKET SIZE AND GROWTH RATE

The largest hybrid car markets are U.S. and Japan

In U.S. since their inception in 1999 more than 2 million hybrid electric automobiles and SUVs have been sold until May 2011

The top selling hybrid car in the U.S. is the Toyota Prius, with 1,017,281 units sold until May 2011

The industry growth rate is in average14% per year

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MARKET SIZE AND GROWTH RATE

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Top national markets for hybrid electric vehiclesbetween 2007 and 2009

Rank Country

Number ofregistered

hybrids2009

Percent ofglobal hybrid

registrations

2009

Number of

registered

hybrids2008

Percent ofglobal hybrid

registrations

2008

Number of

registered

hybrids2007

Percent ofglobal hybrid

registrations

2007

1  Japan 334,000 45% 94,259 18% 69,015 14%

2  United States 290,271 39% 312,209 61% 350,289 70%

3  Canada 16,167(1) 2% 15,385 3% 14,828 3%

4  Netherlands 13,686(1) - 11,814 2% n.a.(2) -

5  United Kingdom

13,661(1) - 19,963 4% 15,968 3%

Top 5 - - 453,630 89% 457,615 91%

World 740,000 511,758 500,405

Notes: (1) Cumulative sales until November 2009 only. (2) For year 2007 Netherlands was not among the top 5 world markets. Germany, with 7,515 hybrids sold, was the fifth country in the rank.

MARKET SIZE AND GROWTH RATE0

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MARKET PROFITABILITYThe Average Price:

1. Affordable Vehicles are priced between $20,000 and

$30,000. The 2010 Toyota Prius has a starting price of

$22,000. 2. Upscale Because of its $40,000 price tag, Chevrolet Volt

is classified as an "Upscale Midsize Car."

3. Luxury The 2010 Lexus HS 250h shares the same

platform as the Toyota Prius but is 40% more powerful.

It offers luxury features associated with the Lexus brand and sells for about $34,000.

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WHO BUYS AND DRIVES HYBRID CARS?

The common misconception is that hybrid buyers are young and trendy. In reality, hybrid drivers are older than the average

car buyer.

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PROFILE OF HYBRID DRIVERS

Have higher income, much higher than the average car buyer.

Are a few years older than the average car buyer.

Twice as likely to claim to go skiing, hiking, or practice yoga than non-hybrid owners.

Consume more organic food, yogurt, and decaffeinated coffee than the general population.

Have above-average tech savvy skills.

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HYBRID AUTOMOTIVE INDUSTRY’S 5 COMPETITIVE FORCES

Threat of new entrants:

The hybrid industry requires high capital Switching costs to the buyer are high

because of:a) search costsb) financial risksc) research and educationd) negotiatione) efforts to sell pre-existing vehicles.

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HYBRID AUTOMOTIVE INDUSTRY’S 5 COMPETITIVE FORCES

Power of suppliers and buyers:

Have little power in the hybrid industry The volume of purchase is low - only 1.26%

of automobile sales. Hybrids are highly available and sold at

thousands of dealerships, online, or through independent sellers.

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HYBRID AUTOMOTIVE INDUSTRY’S 5 COMPETITIVE FORCES

Availability of substitutes:Hybrid vehicles are still new products and the

availability of substitutes is low.

Competitive rivalry:Is minimal because:a)product differentiation among hybrids is highb)switching costs for the customers are highc)there are only 5 competitors.

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COMPETITORS0

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Hybrid sales by manufacturer and model

KEY SUCCESS FACTORS

High industry growth rateLittle power of suppliers and buyersHigh availability of hybrids on the

marketLow competitive rivalryProducers could introduce hybrid

vehicle technology through already familiar products

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ON THE MANUFACTURERS' SIDETHE OUTPUTS

Different grades of hybridation...

Micro-hybrid (Citroen stop and start models)

Full-hybrid (Honda Insight, Toyota Prius)

Full electric Refillable (Chevrolet

Volt)

… For different positioning strategies

Different needs: city driving, major energy savings, « green » cars

Different levels of technological advance : BMW mild hybrid developed in Formula 1

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ON THE MANUFACTURERS' SIDEHOW TO BECOME A MARKET LEADER

Toyota Prius vs Honda Civic : Toyota's leadership in car industry The Prius supremacy 2 strategies :

a full lineup to settle in the emerging market of the hybrid cars

a focus on the small cars and the existing consumers

The technological advantage : Toyota vs Nissan Fiat helping Chrysler to compete on the US

market

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ON THE MANUFACTURERS' SIDETHE SPECIFIC COSTS OF THE HYBRID

MAKING

Technological costs often seen as a burden in an early market Competition State requirements

R&D, industrial shipments, marketing JPMorgan and Chase (2008) : cut in the cost of

gas-electric systems for carmakers : 2008 : $ 5.869 a piece 2018 : $ 1.919 a piece → -67%

An expected growth in the sales should definitely drive the hybrid cars business model towards economical success in the next 10 years

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ON THE MANUFACTURERS' SIDETHE SPECIFIC COSTS OF THE HYBRID

MAKING

Technological costs often seen as a burden Competition State requirements

R&D, industrial shipments, marketing JPMorgan and Chase (2008) : cut in the cost of

gas-electric systems for carmakers : 2008 : $ 5.869 a piece 2018 : $ 1.919 a piece → -67%

An expected growth in the sales should definitely drive the hybrid cars business model towards economical success in the next 10 years

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ON THE MANUFACTURERS' SIDEMAIN CHALLENGES ON THE ROAD TO

MATURITY Market growth

US : mass market and lower prices Europe : the diesel competitor and the import

taxes

The Green concern and the public incentives

The US C.A.F.E. Standards: a planning tool The EU's will to grow green

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WHAT MAKES HYBRID CAR STRONG

Better fuel efficiency than other similar size cars (up to 80% of fuel consumption reduction)

Comfortable and quiet ride, smooth acceleration and braking without gear changes

Spacious interior High scoring in safety tests Low pollution Good performance for normal use

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Front Impact

Toyota Camry Toyota Camry Hybrid

Toyota Camry Toyota Camry Hybrid

Passenger’s Side Driver ‘s Side

Safety Rating ***** ***** ***** *****Head Injury Criterion

522 HIC 522 HIC 505 HIC 505 HIC

Chest Deceleration 41 g 41 g 41 g 41 g

Left Femur Load 804 Ibs 804 Ibs 411 Ibs 411 Ibs

Right Femur Load 233 Ibs 233 Ibs 547 Ibs 547 Ibs

Side Impact

Rear Occupant Front Occupant

Thoracic Trauma Index

55 55 42 42

Pelvis Deceleration

51 51 57 57

Crash Test Result0

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HYBRID CAR DESIGN

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WHAT MAKES HYBRID CAR WEAK

Remain reliant on fossil fuel More expensive than other similar size car Fuel economy can be highly dependent on

season, climate, driving style Special attention requested for servicing,

repairs, etc Difficulties and inefficiencies to purchase

components Less exhilarating acceleration

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HYBRID SALES AND GAS PRICE: A DIRECT CONNECTION

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OPPORTUNITIES OF HYBRID CAR MARKET

Evolution into a "Plug-in Hybrid" with higher capacity batteries and designed to operate for extended periods in electric-only mode

Spread into other market sectors (as industrial power plant)

Increasing awareness of environmental issues likely to keep demand high.

Method to produce more fuel efficient, greater performance and less impact to the environment

Governments seeking to meet Kyoto targets etc. Additional incentives for cars such as that one with

lower emissions

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RISKS OF HYBRID CAR MARKET

Various rumors continually circulated attempting to undermine its credentials, particularly from "petrol-heads“ decrease credibility / consumer confidence

Risk to lose market share in case fuel prices fall significantly

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Would you buy a Hybrid Car?

If not sure, ask now!!!

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