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Natural Gas Vehicle Industry

Business Strategy & Policy 1

Melissa Wicks

on 27 November 2012

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Transcript of Natural Gas Vehicle Industry

Natural Gas Vehicle Industry N N INDUSTRY OVERVIEW EXTERNAL ANALYSIS INTERNAL ANALYSIS CONCLUSIONS Brief History NGV uses compressed natural gas (CNG) as a clean burning fuel alternative to other fossil fuels 1900 2000 Now 1930 1970 Use of natural gas to fuel vehicles became popular in the 1930's, as technology advancements allowed. Not until the oil industry crisis of the 1970's did natural gas become a viable alternative
However, with the easing of the crisis, natural gas became less popular Peak oil and global warming, has caused a renewed interest in NGVs
2011 - more than 14 million natural gas vehicles worldwide Market Segments • North American predominant market segments:
Heavy/medium duty vehicles
Light duty vehicles
Indoor industrial machines
Marine vessels
Locomotives •CNG as a fuel:
Domestic resource
High octane rating
Costs less than oil based products
Non-toxic, non-corrosive, non-carcinogenic
Presents no threat to soil, surface water, or groundwater

•Services in refueling, infrastructure, and engine manufacturing limited due to lack of federal standards and minimal regulation

•Varying provincial regulations present a barrier to engine and infrastructure manufacturing Services Regulatory
Environment • Harvesting, transportation distribution, and storage provincially regulated

• Currently, no federal regulation for NG infrastructure in Canada or US
1990’s significant lobbying effort in both the US and Canada to create a federal regulatory body for NG infrastructure
However, efforts at the federal level somewhat stagnated due to decreasing demand in last decade

• Difficult for manufacturers of NGVs to harmonize their technology with regulations of each province/state Key Industry Issues & Success Factors The Canadian market for NGV is lagging far behind other countries due to:

Price volatility –there is a need for stable and predicted prices

NGV technology advancements - need to be commercially and financially viable; without government subsidies

Lack of availability of infrastructure and vehicles - programs would be more successful if all government levels supported the industry P E D G T S Government support needed to overcome financial barriers

Establishment of specific tariffs for natural gas for transportation

CNG is exempt from the 10% Excise Tax

US govt interest in reduction of crude imports and utilization of domestic natural gas will impact industry growth POLITICAL / LEGAL ECONOMIC Crude price trends and interest rate fluctuations affect consumer demand and investments in industry

Investments in fueling infrastructure are financially attractive; however, growth depends on access to sufficient markets

Potential investors may require incentive to mitigate risk and overcome initial period of market development

Believed that North American reserves will be sufficient to meet demand for over 100 years SOCIOCULTURAL Environmental issues regarding gas extraction

Governments need to reduce GHG emissions as society demands

Market must embrace alternative fuel vehicles - this will only happen when it is economically beneficial for owners and operators

Vehicle purchase decision often reflect identity and values of consumer - social statement TECHNOLOGICAL Technologies, commercially and financially, are not viable on their own

Studies indicate that NGV technologies are proven and commercially available for all market segments

New drilling technologies to economically access unconventional gas sources are emerging continuously GLOBALIZATION Natural gas has an inverse relationship with the price of oil

US govt offering a variety of incentives to encourage use of NGVs

Pakistan, Argentina, Brazil, India and Europe have largest number of NGVs due to priority of natural gas connection, tax and duty exemptions DEMOGRAPHIC Key adopters of NGV industry: operators of Heavy/Medium Duty vehicle fleets

Municipalities of all sizes are implementing NGVs to the public transportation system which benefit all citizens

Commercial adoption will allow employees to use technology, creating awareness and promotion of natural gas PORTER'S
New Entrants LOW - MODERATE Current demand for natural gas fuel & industry infrastructure is not significant enough to achieve economies of scale

As industry advances, firms may differentiate through means of quality, efficiency, and capacity of output

There are a limited number refueling stations in Canada which restricts access to distribution of fuel

Very high expected capital requirements

High switching costs

Expected retaliation within the natural gas industry minimal, however, greater retaliation is expected from substitute industries such as mainstream automotive and energy suppliers Bargaining
Power of
Buyers Bargaining
Power of
Suppliers Threat
Substitutes Rivalry
Competitors Currently there are only a few major players building infrastructure, engines, and supplying natural gas

Numerous firms supplying raw materials

Satisfactory substitute products are available in multiple industries

Engine manufacturers and fuel suppliers heavily dependent on infrastructure development and are currently not significant customers to suppliers

Switching costs for both fuel and infrastructure low due to lack of industry standards and numerous suppliers LOW Upon commitment to acquiring and using NGVs, the subsequent high switching costs and specialized nature of refueling stations and engines minimizes the threat of substitution LOW Low demand and introductory stage of market

Fleet purchases of public transport, marine, rail, and commercial trucking represent large portion of industry’s total output

Major firms operating at a loss due to introductory stage of market; therefore, fleet purchases account for major portion of annual revenue

High switching costs for infrastructure and engines due to large capital investment and specialized technology

Infrastructure and engines are highly specialized and differentiated while fuel is standardized MODERATE LOW FIRM INFRASTRUCTURE TECHNOLOGICAL DEVELOPMENT HUMAN RESOURCE MANAGEMENT PROCUREMENT INBOUND
LOGISTICS OPERATIONS Support Activities Primary Activities Key Financial Measures COMPETITOR ANALYSIS Light-duty Market
Global competitors currently operating with economies of scale in other countries
Patiently monitoring and assessing North American industry’s progress
Should the industry begin to realize adequate infrastructure growth, they are poised to enter the market and attempt to dominate it

Heavy/Medium-duty Market
Many Existing firms have banded together to stimulate industry growth
Existing North American industry competitors (G.M., Ford, Cat) fall considerably short of bar set by the industry leader - Westport Innovations

Presently exploiting core competencies and implementing value added strategies
First mover - technological innovations, strategic alliances, and established supply chain relationships position favorably in market
Potentially viable global competitors will face a strong competitive disadvantage should they opt to enter North American market segments External Analysis Internal Analysis Overall Conclusion GENERAL ENVIRONMENT
Value chain analysis indicates an interdependency of industry firms
Further enforces the necessity of co-ordination and co-operation between firms
Recruitment of highly-skilled innovators can encourage growth in "fresh" North American market
Continuing advancements contribute to efficiencies, which will reduce costs and add value INDUSTRY ENVIRONMENT COMPETITORS Heavy/Medium Duty
300 line-hauls, return-to-base, & refuse trucking fleets
150 transit buses
45 school buses
Light Duty
9,450 passenger vehicles
Indoor industrial market
2,000 - forklifts / ice-resurfacers Canadian Market - 2010 Analysis reveals a high threat from firms supplying substitute products The industry environment shows an early stage of development, and the requirement of co-operation to succeed Since co-operation is essential, the level of competition within the industry is low.
First movers must work together
Industry is in infancy stage, and will require economic incentives, consumer confidence and government co-operation to succeed

This will shift natural gas from an alternative fuel to the mainstream

Only once this occurs, will the possibility of earning above average returns exist Infrastructure competition limited to few competitors: Clean Energy & GE are building strategic alliances with engine and fuel suppliers to boost infrastructure expansion

Although the industry is currently in introductory stage & experiencing slow growth, increased awareness and rising oil prices will stimulate growth as demand increases Due to high fixed costs associated with infrastructure, production capacity is maximized as funds become available

Engine manufacturers working at demand capacity while fuel suppliers operate below capacity, awaiting increased demand

High switching costs exist for infrastructure

Investments and expectations indicate high strategic stakes, however the strategic alliances negate competitive rivalry that would normally exist. Threat of New Entrants Threat of Substitutes Power of Suppliers Power of Buyers Rivalry Among Competitors
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