OEMs (original equipment manufacturers) need to defend their competitive position against this new class of critical component suppliers. In the past, OEMs achieved competitive advantage from a product perspective through superior engine performance, efficiency, and durability. But in future, much will depend on battery technology, particularly the relative merits of battery capacity, size, charging time, and maximum charging cycles. Thus, OEMs will draw on battery specifications to differentiate themselves and achieve competitive edge. The key question is will they make their own batteries or buy them?
Currently, OEMs are using some different strategies. Tesla is partnering with Panasonic and is investing heavily in a dedicated battery plant. With this business model, Tesla is seeking competitive advantage through proprietary battery cell technology. Established OEMs are more hesitant to invest in dedicated battery factories. Instead they are focusing primarily on “lighter” partnerships with battery manufacturers to secure access to sufficient battery cell production capacity – for example, BMW recently signed a memorandum of understanding with Samsung. With this strategic approach, OEMs are hoping to achieve competitive advantage by benefiting from economies of scale from purchasing latest-generation batteries at reasonable prices from specialized manufacturers. For example, gigafactories, exceeding the capacity of Tesla’s current factory, are planned to be built in China. OEMs that follow this approach may also aim for achieving competitive advantage by developing proprietary technology in packaging multiple battery cells into battery packs and building proprietary battery controllers.
The near future will reveal whether both strategies can co-exist or whether one strategy has significantly greater potential to secure competitive advantage.