Problem Definition
Our client is a start-up company that wants to mass-produce an electric vehicle for the US market.
So far it has developed a prototype all-electric vehicle.
They hired us to solve the problem of swapping to mass-production.
Comments
This case is made to be interviewer-led. Therefore the interviewer should guide the interviewee through the interview.
The questions in the big boxes should be read out and shared with the candidate.
Short Solution (Expand)
Detailed Solution
Suggested case structure:
I. Background
Information that should be shared with the interviewee (ONLY if asked):
- The start-up is developing a light-duty all-electric truck. They have built 3 prototypes so far.
- The client has currently only a small R&D manufacturing facility.
- The start-up wants to sell the car in the US nationwide.
- 100,000 cars should be sold in Year 1.
- The price for the car ranges between $35,000 – $50,000.
1. How would you think about the potential market for an electric car in the US (i.e. market segments)?
A good answer would include:
Breakdown customer segments
- Luxury
- Hybrid
- Vehicle class
- SUV
- Sedan
- etc…
Price
Demand depends to a large extent on the price (price elasticity).
Range
The higher the range of the car, the more people will want to buy it (range anxiety).
Physical characteristics
- Space for cargo
- Space for passengers
Availability
The higher the availability throughout the country the more people will want to buy it. This is due to lower efforts in acquiring the car and in a higher presence of the car in different parts of the country.
II. Manufacturing
2. What are some of the possible options for the client to scale up manufacturing?
A good answer would include:
Own manufacture
Teslo could build its own manufacturing facility in the US or abroad.
- US
+ Market car as American quality (higher perceived quality)
+ Low transport costs
+ Close proximity to suppliers
+ Possibility to get financial aid by American government
- Higher labour costs
- Actual quality may be lower (lack of skilled workers in US)
- Regulation of US government may be stricter
- Abroad
+ Lower labour costs
+ Actual quality may be higher (lack of skilled workers in US)
+ Less strict regulation
- Higher transport costs
- Less proximity to suppliers (if from the US)
- Possible political issues, uncertainty about political stability
(depending on the country)
- Public reaction might be negative (production moved abroad)
- Perceived quality might be low (“Made in China”)
Outsourced manufacturing
Teslo could outsource the production to another company.
Besides the already mentioned Pros and Cons above there are additional things to keep in mind.
- US
+ Probably better/easier communication due to close proximity
+ Similar business culture
+ Easier on time delivery (just in time)
+ Possible already established business contacts
- More difficult to set up supply chain (spread over the country)
- Abroad
+ Better supply chain (big factory regions in China)
- More difficult to communicate (especially face-to-face)
- Possible different business culture
- More complicated to deliver on time (just in time)
3. What are some possible strategies to reduce costs if the client decided to build the manufacturing facility in the US?
A good answer would include:
- Automated manufacturing
+ High upfront costs (investment)
- Low variable costs (labour costs)
- Labour intense manufacturing
+ High labour costs
- Low upfront costs
- Choice of location
Different labour costs, taxes, subsidies or transportation costs depending on the chosen location/state for the facility.
- Engineering optimisation
Reduce costs by reducing the number of steps needed in manufacturing or by limiting the possible vehicle customisation (easier to produce in higher amounts and reach economies of scale).
- Just in time delivery
Reduce storage costs with just in time delivery (easier in the US).
- Production only on customer order
Reduce overproduction and storage costs by producing only for explicit customer order.
III. Labour
4. How many employees will be required to build the desired first year production of 100,000 vehicles?
- The vehicle requires about 600 unique assembly steps
- Each step takes about 30 seconds
Information that should be shared with the interviewee (ONLY if asked):
- The average employee will work 10 hours/day or 50 hours/week
- The average employee will work 50 weeks/year.
Expected number of employees:
Key insights:
The expected needed number of employees is 200 (in the manufacturing process).
IV. Conclusion
What is your recommendation to your client about mass-producing an electric vehicle next year?
Main conclusion:
- There are different ways to start the mass-production.
- If the client wants to produce the car itself they best produce in the US, as it is easier to get business contacts.
- Producing on its own would also be better as it is a completely new product and the quality needs to be very high in order to achieve a high customer satisfaction and a high initial market share on the electric cars market.
- By outsourcing the production it cannot be guaranteed that the final product will meet the wanted quality.
- In the US automated production with just in time delivery, production only on customer order in well-chosen locations should be preferred.
Other possibilities:
- Forming a joint venture with a major car manufacturer because the company has already experience in producing cars.
- License/sell the technology to a major industry manufacturer.
- Launching a pilot program to gather market reaction and work out the bugs of the new technology.
Difficult Questions
What problems could the company face in the new market sector of electric cars?
Possible solutions:
- Potential customers could be afraid of an insufficient range (range anxiety).
- To set up a mass-production of electric cars could be more problematic than expected. The technology is new and the industry/suppliers are not as experienced as they are with conventional cars. This could lead to time delays in production.
- If there are delays in starting the mass-production competitors like major car manufacturers could be the first releasing an electric truck due to their experience in the automotive industry. As a result they would have a first mover advantage in the electric car sector.
There is uncertainty about the demand. The production of 100,000 units could be either too high or too low depending on the demand. This could lead to unnecessary high storage costs for the remaining cars if the demand is lower than expected.
More questions to be added by you, interviewer!
At the end of the case, you will have the opportunity to suggest challenging questions about this case (to be asked for instance if the next interviewees solve the case very fast).
