Zap and the Electric Vehicle Industry Term Paper

Excerpt from Term Paper :

ZAP and the Electric Vehicle Industry

Executive Report

This report will be discussing several relevant aspects related to ZAP and to the electric vehicles industry. After a brief introduction, I will proceed to discuss in detail an analysis on the current situation at ZAP and in the industry.

I will be including here a SWOT analysis, a competition analysis based on Porter's five forces model and an extensive analysis of the external environment, quite important and with a certain impact in this case. After underlining several key issues, I will include several alternative options in terms of grand strategies and product strategies. Finally, in the end I will argument that the best solution for ZAP's business in the future is a penetration market strategy and an emphasis on the two most profitable products from its portfolio, the electric scooter and the electric bicycle.


The history of the company goes back to 1994, when James McGreen and Gary Starr founded ZAP Power Systems in Sebastopol, California. The name of the company was an acronym for Zero Air Pollution and was, as such, an indication about the company's profile.

The company began producing and commercializing electrically powered bikes, initially through auto dealerships and then through catalogues. In 1997, ZAP joined with the scooter producer Motivity to cross-distribute products through ZAP Europe. Other agreements soon followed with companies from Japan, China and Switzerland.

The company became closely linked to the new Internet technology as it sold its stock to the public via the Internet, in 1997 and began a strong marketing and sales campaign through the Internet, changing its name to The company's portfolio of products became more and more diversified, as the company introduced its Zappy scooter in 1998.

The company's diversification strategy involved the acquisition of several EV companies, including EV Systems (February 2000) and Aquatic Propulsion Technology Inc. (May 2000). The joint venture with Nongbo Topp Industrial Company Ltd. Of China meant that Zapp entered through, manufacturing and distribution, the profitable and sizeable Chinese market.

The internal product development campaign, combined with new acquisitions in the market, meant a significant diversification of the product portfolio, so that the company could already boast ten different product categories, as well as different accessories for them. The revenues doubled in 2000 as compared to those in 1999.

III. Situation Analysis

III.1. SWOT Analysis

In terms of the company's strengths, there are several things worth mentioning. First of all, we need to refer to the company's well diversified portfolio of products and patents. Indeed, a generous acquisition campaign and a series of marketing agreements meant that ZAP had offerings in over 10 different product categories. In some areas, it had become a leading brand and products such as Zappy were recognized on the specific market segment.

In addition to these products, ZAP had a 14 patent portfolio, which meant that the company was well protected against the increasing competition in the market. This was, however, both a strength and a weakness. As Starr has recognized himself and as events that followed showed, patents represented a way to protect your interest, but it also meant that you had additional legal costs, implied by legal actions taken against patent infringers. As such, on one hand you had a strength, because you had a diversified portfolio of patents and a protected intellectual property, and, on the other, you had additional legal costs.

From the strength/weakness category is also the Internet policy that the company had adopted. In its beginnings, its presence over the Internet meant that it could benefit from the dot com era, from technological advantages such as public offering over the Internet and commercializing products through the Internet. However, the company also came close to crashing as the dot com bubble burst.

Another strong point worth mentioning is the extensive system of joint ventures that the company put into practice. The one with the Chinese company is perhaps the most significant example. A joint venture agreement with Nongbo Topp Industrial Company meant that ZAP could penetrate the enormous Chinese market, with royalties paid on each Zappy scooter sold.

Further more, the strategic agreements and alliances reached with different companies in the industry meant that the company benefited from its products being distributed (in some cases) and from distributing itself other products. This means that the ZAP brand has a better chance of getting spread around, with all the benefits deriving from this. At the same time, the company will be making additional profits from its distribution activities.

In terms of weaknesses, I would rather address the company's challenges, as the case study is keen on mentioning at the end and on which we have to focus and find answers for. The main challenge for ZAP is related to projecting and estimating demand in the market. This is extremely difficult to handle, in general. The specifics of the EV vehicle industry in particular make it a case apart.

Indeed, I would tend to agree with the team members that stated that sales forecasts needed to be obtained after careful calculations and studies, both on demographics and population preference, as well as on environmental variables. It seems quite clear that ZAP does not yet have a proper mechanism in place for such evaluations and that it has, until now, simply produced and sold, without an actual strategy connected sales to demand and to demand growth. In the future, this weakness/challenge needs to be corrected.

Another weakness that may be addresses is the fact that ZAP seems to have a rather limited number of best- selling products. Indeed, as we have previously seen, it has a diversified portfolio of products and patents, but, as we later learn, not all of these are actual success stories. Only in terms of scooters and electric bicycles can we actually state that the company is a possible market leader.

In terms of opportunities, we have to mention the fact that the market will surely grow over the next couple of years, as estimates and studies have shown. This, combined with the company's positioning in the market, means that there is lots of hope that the company will be performing well in the next years and that its sales will be constantly increasing.

In this sense, it is useful to note that the company's sales have doubled from 1999 to 2000, mostly as a result of the market's ascending trend, which we are inclined to believe will continue in the future. I will be referring to some of the elements of the external environment that lead us to this opinion further below.

Another opportunity refers to the new markets that ZAP has not penetrated yet or has begun to only previously. The partnership with the Chinese company seemed an excellent example in this case. Indeed, the Chinese market is a highly profitable one, mostly still unexploited, with a continuous population growth. Additionally, the EV vehicles, light and maneuverable, are an excellent choice as substitutes for the traditional Chinese bicycles.

As for threats, we have to mention here the increasing number of competitors in the EV market. Companies from Taiwan tend to produce at lower prices, because of low- cost workforce. As we have seen from the tables in the case study, these are quite numerous and increasingly profitable.

Further more, I tend to see as a threat the fact that large companies, such as Ford, are most likely to enter the market soon. Of course, we may state that these companies will generally concentrate their business on EV automobiles, however, their enormous financial potential and production capacities are a cause for concern.

Finally, the segmentation of the market may prove to be a threat rather than a gain. For companies such as ZAP, which have invested in a diversified portfolio of products and patents, it may be the case that they will not find all of their businesses profitable.

III.2. Industry Analysis

The industry analysis will comprise both an overview of general industry characteristics, such as competitors and competitors' size and an analysis of the external environment that has an impact on the industry's future trend and the driving forces in the industry (both discussed here below).

The EV industry has greatly evolved during the 90s and the ascending trend is most likely to continue. As the case study mentions, the industry itself is "very broad in scope" and includes things like military tanks, electric vehicles (including automobiles) or even golf carts. Estimations had shown that from $6 billion in 2000, the sales would most likely reach and exceed $26 billion in 2010, which would mean that the industry is likely to grow at a $2 billion per year rate.

The industry's growth is relying on several pillars. First of all, it is clear that the EV industry is a nonpolluting one. With the generous environmentalist trends and ideas, a nonpolluting industry is likely to develop at a faster pace than a polluting one. Further more, the urban challenges such as…

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