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Collection of full-length papers and in-depth analysis of economic and management issues.

The Emergence of Eco-Friendly, Low-Cost Vehicles

The Emergence of Eco-Friendly, Low-Cost Vehicles

BOK Deuk-Kyu

Apr. 5, 2011

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Originally released on March 4, 2011

The market for low-cost, eco-friendly vehicles has been expanding since the global financial crisis. However, the rise of this transportation segment heralds more than a simple pickup in demand: it can serve as a driving force behind drastic changes in the structure, production methods and revenue models of the global auto industry. Thus, this paper sheds light on the ramifications of eco-friendly and low-priced vehicles and suggests desirable responses strategies. First of all, the ramifications of eco-friendly and low-priced vehicles are as follows:

(1) Market Segmentation

With the emergence of eco-friendly vehicles, the global auto market will be divided into an internal combustion engine segment and an eco-friendly segment, which will be further subdivided into Electric vehicles (EV), plug-in hybrids, fuel cell vehicles, etc. A new addition of inexpensive cars also further divides the auto market.

(2) Diversified Production Methods

Vehicles have thus far been produced in the Toyota Production System (TPS), which features lean inventories and an efficient supply chain. Eco-friendly and inexpensive cars are, however, being developed and produced in a different fashion. For instance, the simple composition of EV parts and open platforms for core parts like batteries and motors will enable open module production, which is similar to the production of desktop PCs.

(3) Revenue Models' Smile Curve

The highest profit margins in the eco-friendly, inexpensive vehicles market will be in core parts (engines, batteries, motors, etc) and additional services (development of platforms and battery changing and exchange services) rather than the final assembly, as seen in the traditional auto industry structure. Thus, the revenue model for eco-friendly vehicles and inexpensive cars is likely to be a smile-shaped curve, which is the most frequently seen in the desktop PC industry.

To respond to the emergence of eco-friendly vehicles and inexpensive cars, strategies such as retooling business models, making platform-specific strategies and maximizing new business opportunities are needed. And to secure technologies for inexpensive, eco-friendly vehicles and set de facto standards, borderless, open-end partnerships are needed. Lastly, eco-friendly vehicle promotion strategies that factor in connections with smart infrastructures like smart grids and smart cities should be drawn up.

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