PESTEL Analysis of the German Battery Electric Vehicle Market

Introduction

While the Porter’s five forces model is used to analyze the competitive forces that are shaping the industry, PESTEL analysis is a tool that is used to analyze the external forces that impact the performance of a company or an industry. Apart from the industry level factors, the performance of a company or any industry in influenced by a range of external factors that are beyond the control of the firm. As these forces are beyond the control of a firm, companies need to come out with strategies that will mitigate the impact of these factors on the firm and to use the external factors for the benefit of the firm. The external factors that many influence the performance of a firm are: Political factors, Economic factors, Social Factors, Technological factors, Environmental factors, and Legal Factors..

According to Farnham (1999), PESTEL and Porter’s five forces model are two useful ways of analyzing the external environment of a company or the industry. They provide information that can be used to make a strategic decision, and its subsequent implementation.

According to Lynch (2006) a critic of PESTEL, PESTEL analysis helps clarify what are the factors affecting the company externally but they add up and are viewed as uncontrollable (Lynch 2006). On the other hand, Sutton (1988) states that PESTEL analysis helps short and long term planning if done properly and help gain a completive advantage. McMillan and Tampoe (2000) are of the opinion that the PESTEL Model simply represents a guide. It gives a general idea of the environment. Only historical data of the past is considered which can be used to forecast the future based on the change. Choo and Auster (1993) are of the view that information of the external environment coupled with a firm business is of critical importance and needs to be analyzed, allowing an organization to change strategy/ies and adapt to the environment. This will help in the identification of a threat or a ripe opportunity.

PESTEL Analysis of German BEV Market

Below is the PESTEL analysis of the German Battery Electric Vehicle (BEV) market:

Political Factors

Political factor refers to the impact of the decisions taken by the various government authorities and the broad policies followed by the government of a country. While a positive policy can help a business grow, a negative business strategy might adversely affect the industry. BEV sector gets a lot of encouragement from the German government. Following the policies followed by many other European countries, the German government too has a positive policy for the BEV industry. German industry gives tax reductions and exemptions for the manufactures of BEVs in Germany (ACEA 2014). The German government gives incentives to the tune of US$ 3,143 for trading their old cars for cars (Frarne 2014). The main objective behind this offer is to encourage more number of German customers to exchange their old internal combustion cars with BEVs that have zero emissions. German government is also investing a lot of money for the advancement of the technology related to the manufacturing BEVs in Germany. All these political factors will have a positive impact on the German BEV market.

Economic Factors

Economic factors refer to factors like the income levels of people and the economic growth rates of a country. Economic factors can impact the performance of a company or industry as the sales of any product/service are directly impacted by the income levels of people in a country. Sales of discretionary products like automobiles can be impacted by any sudden changes in the economy as people tend to postpone the sales of such products during the times of economic crisis. The German economy is considered as one of the economic miracles since the world war ended in 1943. The high growth rates that are achieved by the economy since then made it possible for German companies to have good domestic demand. German economy relatively less effected by the global financial crisis of 2008 and started to grow quickly after that. The prospects for the German economy only look brighter. According to a forecast by the EU Commission, the German economy is expected to grow at the rate of 1.8 percent in 2014 and 2 percent in 2015 (Parkin 2014). These projected growth rates are substantially higher than the projected growth rates for the whole of EU which stand at 1.2 percent and 1.7 percent respectively. The higher projected growth rates of the German economy will keep the demand for automobile products in general and BEVs in particular higher. Higher demand for electric vehicles will translate into better sales and revenues for the sellers of BEVs.

Social Factors

Social factors refer to the social and cultural beliefs of people in a country or a market. Social factors like consumers preference for certain kinds of products and the impact that the reference groups can have on the purchasing habits of people can significantly affect the performance of a company or an industry. German consumers are known for their penchant for latest technological products and are known to be the early adopters of the latest technologies available in the market. All these augur well for the future growth of BEVs in the future.The low pollution levels of BEVs is significant factor that makes the German customers to prefer BEVs in place of the conventional cars.

Technological Factors

Technological factors refer to the latest advancements in the technology and the investments that are made in the industry that can impact the performance of an industry. A big factor that influences the sales of BEVs is their range of operation which is in turn depended upon the capacity of batteries they are fitted with. Recent advancements in the battery technology promise higher backups for the batteries that power BEVs. This can make consumers to buy BEVs than before (Bullis 2012).Similarly, the increased availability of battery exchange centers in the future might also have a positive impact on the sales of BEVs. A major threat to the sale of BEVs might come not from the lack of advancements in the electric vehicle sector, but from the advancements in the conventional cars. Advancements in diesel and hybrid car technologies that greatly increase the fuel efficiency of cars powered by fossil fuels is likely to impact the performance of BEVs. Recent advancements in the diesel technology is giving diesel engines higher mileage of 20 percent than before (Economist 2013). As diesel is a cheaper fuel, advancements in diesel technology can make more consumers to buy diesel powered cars instead of BEVs. When compared with the American and Asian markets, diesel is priced significantly lower than petrol. This can pose a big threat to the German BEV industry.

Environmental and Legal Factors

Environmental factors refer to the impact that the business operations have on the broad environment. Adverse impact of an industry/company’s business operations on the environment will make consumers averse to purchase the goods manufactured by a company and also increase the regulatory scrutiny on the products made by the company. Since BEVs have less emission levels, their impact on the environment is very limited. However, some activists allege that the fossil fuel powered electricity generation plants that make power which is ultimately used in BEVs will have an adverse effect on the environment. Fossil fuel powered electric power plants are known to be contributing to global warming (Fink 2014). This can significantly impact the performance of BEV industry in Germany. Legal factors refer to the impact of the legal environment such as the laws and statutes have on the performance of a business or industry. Since the makers of BEVs follow the laws of Germany diligently, the impact of legal factors on the performance of BEV industry is nominal.

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