RESOURCE AND FINANCIAL REQUIREMENTS OF A BUSINESS CASE

The requirements are determined as followed:

• Choosing the location in which the manufacturing processes will be executed. Relevant factors for this decision include local wage levels, statutory regulations, national funding initiatives and taxes and existing supply base.
• The degree of in-house production. A lower in-house production decreases the initial cost burden on the new entrant; it does however increase the dependency on an external supply network.
• Once the outlines of the in-house manufacturing chain are defined, the next step is to compile the vehicle bill of materials (BOM). The BOM comprises the entirety of material-related expenses of the project. This means that not only all material, assembly, labor and buy-in costs, but also all one-time expenses including tools, supplier development, planning and start-up and investment are added to the BOM.
• Lastly, a business case includes all costs related to the establishment of a reliable after-sales network. Assuring that the end customer is provided with adequate support if any problems with the vehicle come up is as important as acquiring the customer themselves.

It is important to keep in mind that several of these metrics are open to unexpected developments. For example, the supply chain of lithium (a key resource for EV batteries) could be disrupted by political turmoil or a sudden breakdown of mining sites due to natural disasters, which would then negatively impact the lithium price while increasing costs for any required parts. These uncertainties should be accounted for using various contract scenarios.

EXPECTED PROFIT

The key metric of calculating the expected profit is the price of the vehicle. However, it is important to consider that the price is part of the overall marketing strategy and cannot be adjusted randomly just to meet profit targets. Thus, before any significant change of the market price is made, it should be assessed on how this alters the vehicle’s target customer base and subsequently whether changes to the marketing strategy are necessary and realizable.

After finishing the business case, the new entrant will have a clear idea on whether their project, under the conditions chosen, will produce sufficiently satisfying revenues.

CHALLENGES IN REGARDS TO A BUSINESS CASE

1. Production scope
   One of the most common challenges is defining the exact production scope the new entrant should target. Upon their first ventures into the automotive market, new entrants naturally lack any standards of comparison in regards to their market performance. As their brand is yet to be established, they cannot estimate with certainty how large their buyership will be.
   
   
2. Small production volumes
   Other factors in terms of production scope also come into play – a particularly small production volume (anything located in the 5-to-low-6-digit range) may also deter suppliers or manufacturing partners from a cooperation with the new entrant. This is due to the fact that they would have to establish a completely new production chain for a comparatively low volume and therefore rather small expected revenue.
   
   
3. Low revenues
   Additionally, the business case may simply produce unsatisfying revenues that will require the project to be adapted. Increasing the price of the vehicle is one option, however, as mentioned before, this likely impacts a notable portion of the vehicle’s marketing and branding strategy. The new entrant may also change their manufacturing location to a country with more beneficial funding programs or tax conditions or lower labor costs, provided that the change in location does not negatively impact product quality, local workforce knowhow, transporting or supplier costs.

Another option is to reduce their one-time cost requirements via outsourcing certain aspects of their production chain. Hiring a contract manufacturer is a particularly interesting option for reducing in-house production. Platform sharing is another viable way of reducing the initial financial burden.

WHAT COMES AFTER DEVELOPING AN EFFECTIVE BUSINESS CASE?

To summarize: The business case presents how all involved business parties will financially benefit from the realization of the project. A business case translates assumptions about the projects into initial figures. It is created via various scenarios due to the nature of some factors being uncertain.

It is important that new entrants insist on executing their business case exactly as envisioned. They should stay open for suggestions of experienced partners and be willing to alter their business case if the situation demands so. Investors will always challenge the validity of a business case’s figures. Therefore, investing the proper amount of time, work and responsibility into developing a business case will provide new entrants a realistic view of the project and bring them in a good starting position for getting investors and partners on board.