Market Potential of Electric Cars in China (Week 7/8 Report)

In another MBA class I did a marketing research project concerning the “MARKET POTENTIAL FOR LAUNCHING ELECTRIC CARS IN CHINA” which will be interesting for our industry report.

The Chinese government in Beijing has done significant efforts to encourage people to buy electric cars, but still nearly nobody is buying them. A report from the South China Morning Post (from 10th February, 2014) explaining that in the entire city of Beijing, just 1,701 people applied to register an electric car. That is despite strong cost incentives through tax reduction and higher probability in Beijing's license car lottery of owning a car. Thus, the strong resistance of Chinese consumers adopting electric cars might have some driving factors which make the market potential for launching electric cars in China unattractive for firms. The accomplished marketing research aims to disclose the factors which influence the purchase of an electric car in a positive and negative way. This research will concentrate on consumer preference concerning the adoption of electric cars and will conclude whether a market launch of electric cars in China on a large scale with the existing technology will be promising.

As electric cars seem to be a promising future vehicle, it is necessary to determine the right moment to launch them in the market. The Chinese automotive market grew at an overall average rate of 24 percent a year between 2005 and 2011 as well 2010. In 2010 China overtook the United States as the largest new car market. The forecast concerning the growth of China’s auto market is predicted on an average of 8 percent a year between 2011 and 2020. Sales are estimated to reach 22 million in 2020, bigger than either the European or North American markets (Wang, et. al., 2012). Thus, China tends to be the biggest and one of the most profitable car markets in the world. With the emerging battery technology and environmental issues, electric cars seem to be one of the future transportation technologies which will replace traditional cars with combustion engine. However, the adoption of electric cars in China as a major car market is insufficient. For a company which produce electric cars the following question arises as management decision problem:

Should a firm launch electric cars in China on a large scale?

The marketing research problem queries which information is needed and how it can best be obtained. The following study will identify the main factors that influence customers purchase intention for electric cars. Thus the marketing research problem is:

What are the main factors which effect purchase intention of electrics cars in China?

Six different factors determine a future adoption of electric cars: price, design, performance/range, environmental friendliness, brand and infrastructure. The questionnaire consists of 13 question and the overall survey size is 62 responds with a diverse research population. The analysis and interpretation of the collected data is done via SPSS. To identify the most important factors that influence consumers purchase intention (see research), participants were asked directly about certain influential factors and the benefits as well as drawbacks of electric cars. In the following charts of figure 1 the influential factors (price, design, performance/range, environmental friendliness, brand and infrastructure) and their absolute number of selection by the participants are shown. From this chart it is obvious that the most influential factor is performance/range (43#), followed by price (40#) and design (37#) as well as infrastructure (37#). However, the factors brand and environmental friendliness seemed to be less important for the participants of this research population due to the low rating in their suggestibility. This result is not surprising because a main problem of electric car is the performance/range which is limited due to the immature battery technology. Thus, people are aware of the problem that electric cars cannot deliver the same performance like cars with combustion engine. Also, infrastructure for recharging or changing the battery is incompletely and nearly absent in China which makes a potential use of electric cars inconvenient for consumers. Furthermore, the battery technology itself and the use of materials like carbon fiber increase the price for the consumer. The participants of this research rank these issues as most influential. This means that for an extensive adoption of electric cars in China these problem fields have to be solved in order to foster the purchase intention through the influential factors performance/range, price and infrastructure.

Figure 1: Influential factors

The following charts in figure 2 and 3 evaluate the benefits and drawbacks of electric cars from the consumer perspective. The participants of the survey could decide for each listed factor whether they think it is a benefit/drawback or not. In the following bar charts the results are presented in absolute numbers and percent. In particular, 47 people out of the overall survey size of 62 people have selected “inexpensive to run/fuel economy” as a benefit whereas none from the participants thinks that electric cars have no benefits (see figure 2).

Figure 2: Benefits of electric cars

The survey reveals that the two main benefits of electric cars are the cost factor of running an electric car (75,81 %) and the absence of direct carbon emission (64,52 %). Other benefits like performance, look/prestige etc. are significant less important. For the Chinese market this result is not surprising due to the fact that costs for running a car are always important and consumer anticipate that electric cars are more efficient and therefore save costs. Also, electric vehicles could help to reduce carbon dioxide emissions and air pollution which is a well-known problem in China. On a well-to-wheels basis, electric cars can cut carbon dioxide emissions by about 40 percent compared with cars powered by combustion engines. The local mobile emissions in cities like Beijing could fall by roughly 99 percent (carbon monoxide) and 50 percent (nitrogen oxides). People know about this positive environmental potential and see electric cars as one of the solution to counteract the air pollution in large Chinese cities (Axel Krieger et. al., McKinsey, 2012). In contrast the weak power, charging and range characteristics of the immature technology (72,58 %) as well as the missing infrastructure (69,35 %) are the main drawbacks people link to electric cars (see figure 3). This also underline the main issues of electric cars which people are aware and anticipate as main reasons not to buy an electric car.

Figure 3: Drawbacks of electric cars

The founded results were also proofed by another marketing research by McKinsey (Krieger et. al., McKinsey, 2012). Figure 4 shows the McKinsey electric-vehicle index (EVI) which assesses and evaluates a nation’s electric-vehicle readiness in terms of supply and demand.

Figure 4: McKinsey Electric-Vehicle Index (Krieger et. al., McKinsey, 2012)

The EVI reveals that China has be fallen behind the other automotive markets in its readiness to support an electric-vehicle industry. China scores relatively low on the supply and demand side. Moreover, in overall electric-vehicle readiness, the country fell from third place, in July 2010, to fifth in January 2012 which is behind Japan, the United States, France, and Germany. Overall, it turns out that China as a potential market for electric cars is not ready for launching electric cars on a large scale due to its deficits concerning the supply and demand side dimensions. The Chinese consumers are aware of these deficits which makes electric cars unattractive to purchase.

In summary, hypothesis testing of this marketing research reveals that people are not willing to pay more for electric cars than for non-electric cars in Beijing. Also, there are no significant gender differences between the influential factors price, performance/range and infrastructure. Thus, a company can use an overall marketing approach when launching electric cars in China. Furthermore, a third of the interviewed population was uncertain about whether they will plan to buy an electric car in the future. However, men are more willing to buy an electric car in the future than women. Hence, a firm should leverage this situation that many people are willing to buy or uncertain about whether they will plan to buy an electric car or not. However, the majority of the research population think that it is too early to launch electric cars in China on a large scale. Therefore, a firm should establish a marketing communication plan, aiming to inform consumers about the advantages of electric cars and to convince them about the benefits of electric cars before entering the Chinese market. Regarding the immature battery technology and supporting infrastructure in China, people are now not willing to pay more for electric cars than for non-electric cars. Therefore, an electric car firm should wait to launch electric cars on a large scale in China until the technology matures and prices decrease so that a widespread adoption is ensured. Instead a firm can establish electric cars as a niche market. For a market launch of electric cars in China, people with a high income level or who like to differentiate themselves from the majority population can be a potential market segment in China on a small scale.

REFERENCES

Krieger, A., Radtke, P., and Wang, L.: Recharging China’s electric-vehicle aspirations, in McKinsey & Company, July 2012.

 

Wang A., Liao W., and Hein, A.-P.: Automotive & Assembly Practice; Bigger, better, broader: A perspective on China’s auto market in 2020; in McKinsey & Company, November 2012.

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Comment by Olli W on April 27, 2014 at 2:10pm

That is really interesting. Thanks for sharing.

Can you please give more information about the research population and the exact method you used, as well as the response rate?

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