FORMATIVE ASSESSMENT 1 [100 MARKS]

Read the case study below and answer the questions that follow

DYNAMICS IN THE GLOBAL ELECTRIC-VEHICLE MARKET China has increased its lead in electric-vehicle (EV) production, according to new McKinsey research. Chinese OEMs produced 43 percent of the 873,000 EVs built worldwide in 2016. And the country now has the largest fleet of EVs on the road, overtaking the US market for the first time. China

China extended its industry leadership by making gains across all dimensions of the supply side of EVs, including current and projected production of EVs and their components, such as lithium-ion battery cells and electric motors. One important factor is that the Chinese government provides subsidies to the sector to reduce fuel imports, improve air quality, and foster local champions. Whereas Chinese OEMs accounted for 40 percent of EV production in 2015, this increased to 43 percent in 2016. Leading Chinese EV manufacturers all ranked among the top ten global EV producers in 2016. Given the rapid increase in production capacity by domestic suppliers, Chinas lithium-ion battery-cell players increased their global supply share, reaching about 25 percent in 2016. This is mainly at the expense of Japanese companies, which lost significant market share year on yearthough they still accounted for the greatest share in 2016, with around 48 percent. South Korean suppliers expanded their position and now hold 27 percent of the light-vehicle battery-cell market. Overall, Germany and the United States also perform well in the industry, with no major changes in EV production share (23 percent and 17 percent, respectively). However, these countries saw slight losses with respect to electric-motor production due to Chinas expansion.

In addition to its leading role in EV supply, the market for EVs in China held steady in 2016. For the first time, China has overtaken the US market in the total number of EVs on the road. Cumulative EV sales reached 650,000 units in 2016, and the country increased new registrations for EVs by 70 percent year on year, to around 350,000 units. In comparison, Europe saw a sales increase of only 7 percent during the same period, after doubling them the prior year. The stagnation of the European market largely stems from a big drop in new registrations in the Netherlands, attributable to changes in the incentive scheme for plug-in hybrid vehicles. In the United States, EV sales were at 160,000 in 2016, a 37 percent increase. One of the European producers Volvo an active player in the industry has maintained a consistent production output of 4000 units for its V4 and its material costs have been $5000, and their operation has required a total number of 350 hours. In addition, the other inputs used included $15000 for capital and 4000 kWh for energy. There have been attempts to migrate to the new V5 model in which the organisation anticipates improvements in productivity, the labour costs are expected to increase by 40 hours while the only other variables to be changed include capital and energy which are forecasted to be $20000 and 2800 kWh respectively.

Despite the newly introduced EV-purchase incentives in Germany, EV sales increased only 3 percent since the official launch of the purchase premium in May 2016. The German government and the respective OEMs currently offer EV buyers as much as 4,000 for purely battery electric vehicles to increase sales. But so far the effect has been limited. South Korea also recently increased EV incentives by around 1,600 to stimulate the market, while several other nations announced plans to reduce or phase out subsidies. China, for example, will slowly switch from direct subsidies to nonmonetary incentives after 2020. Currently, it retains one of the most powerful EV-stimulus mechanisms. Certain cities have made EVs exempt from license-plate lotteries and significant registration fees that apply for cars with internal combustion engines. This is a huge lever to make EVs more attractive, especially among younger first-time car buyers. Other countries that have been reducing or phasing out subsidies include Denmark, France, Portugal, and Norway.

Extracted from: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/dynamics-in-the-global-electricvehicle-market

QUESTION 1 (20 Marks) In light of the case study provided, examine the primary reasons why China has increased its global lead in electric-vehicle (EV) production from 40 percent of EV production in 2015 to 43 percent in 2016 and thus overtaking other countres including the US. Your response should refer to relevant frameworks and content.

QUESTION 2 (20 Marks) From an operations management context, critically discuss the impacts of globalisation to the electric vehicle manufacturing sector. Make use of relevant illustrations for your responses.

QUESTION 3 (20 Marks) In response to China dominating the European and Asian markets at the expense of Japanese companies. The CEO of Asian Electric Vehicle Society Kato Fushumi has advised investors that they seek to move into the African market and thereby exploit the first mover advantages within that market. Advise the CEO on the variables Japanese companies need to take into consideration when designing EVs for the African market.

QUESTION 4 (20 Marks) For the first time, China has overtaken the US market in the total number of EVs on the road. Cumulative EV sales reached 650,000 units in 2016, and the country increased new registrations for EVs by 70 percent year on year, to around 350,000 units. The US Secretary of Trade and Commerce is not happy with this development and has requested you to compile a cause-and-effect diagram investigating why there has been a decline in production of EVs in the US market. Your response should have a minimum of four causes.

QUESTION 5 (20 Marks) The German manufacturer Volvo highlighted in the case is concerned that the new V5 requires extra labor hours for its production. The company wants therefore to conduct an assessment to determine if there can be any potential of a 25% increase in productivity from the inputs used for the proposed change from the V4 to the V5 model. Make use of relevant data and illustrations when responding to this question.

From a global perspective, China is on its way to becoming the overall market and industry leader in electric mobility. Market and industry Electric Vehicle Index (EVI), scores range from 0 to 5 Market EVI Industry EVI 1 1 Countries without data either do not have domestic OEMs or their OEMs are too small to be relevant in our Industry EVI scoring. McKinsey\&Company