BYD Porter’s Five Forces Analysis

By John Dudovskiy
February 18, 2024

Porter’s Five Forces analytical framework developed by Michael Porter (1979)[1] represents five individual forces that shape an overall extent of competition in the industry. BYD Porter’s Five Forces are illustrated in figure below.

BYD Porter’s Five Forces Analysis

Porter’s Five Forces

 

Threat of new entrants in BYD Porter’s Five Forces Analysis

Threat of new entrants into EV sector is low to moderate. The following are the main factors that determine the intensity of this threat.

 

Massive capital investments

Requirement for huge capital investments is a significant entry barrier for potential entrants into the EV market. In order to succeed new players would have to introduce improvements in battery range and life, charging speeds, efficiency or vehicle performance. Any of these achievements would necessitate investments in research and development and it would be hard for new market players to compete with deep-pocketed existing market players in this front. For example, Volkswagen plans to invest €35 billion in EV R&D by 2025[2], while Ford has allocated USD50 billion by 2026 for the same purposes[3].

 

Possible retaliation from current market players

New entrants in the EV EV market can expect varying degrees of retaliation from existing businesses, depending on several factors. For example, established automakers such as Tesla and BYD can reduce prices on their own EVs to undercut new players, increase marketing and advertising efforts to maintain brand awareness or lobby against government policies favouring new entrants. Moreover, oil and gas companies feeling threatened by the shift away from fossil fuel may spread misinformation about the environmental benefits of EVs or pressure lawmakers to delay or limit EV incentives

 

Customer switching costs

These are the expenses, efforts, and time involved for customers to switch from their current EV brand to a new one. They can be tangible (financial) or intangible (psychological and time-related). For tangible expenses, customers may face depreciation when selling their existing EV to switch to a new brand. Also, if a new brand lacks a robust charging network compared to the customer’s current one, it can be inconvenient and costly to find compatible charging stations.

For intangible expenses, customers may be comfortable with their current brand and hesitant to switch due to perceived risks or lack of trust in new players. Adapting to a new EV’s features and technology can require time and effort, deterring some customers from switching. Furthermore, switching to a brand with potentially lower range or less reliable charging infrastructure can cause anxiety for some customers.

 

Bargaining power of buyers in BYD Porter’s Five Forces Analysis

The bargaining power of buyers in EV industry is moderate. The following factors play a role in this regard:

The degree of product differentiation

The degree of product differentiation in the EV sector significantly impacts buyer bargaining power, meaning the ability of customers to influence the price, terms, and conditions of their purchase.  When EVs offer distinct features, technologies, and driving experiences, customers have fewer alternatives with comparable attributes. This weakens their ability to negotiate price or pressure manufacturers for concessions. Tesla’s Autopilot and long range, BYD’s Blade Battery technology, high-performance EVs from Lucid Motors can be mentioned as product differentiation that decrease buyer bargaining power.

 

Brand loyalty

Brand loyalty plays a complex role in influencing buyer bargaining power, with both strengthening and weakening effects depending on the context. Strong brand loyalty programs offering generous rewards, exclusive benefits, and discounts can actually empower customers. They gain increased leverage to negotiate further deals or demand better service from the brand they’re dedicated to. For brands emphasizing sustainable practices or a specific driving experience, loyal customers form a passionate community. This collective voice can hold the brand accountable, pushing for improvements and influencing product decisions, effectively bargaining for features and experiences that align with their values.

BYD Company Limited Report contains a full analysis of BYD Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on BYD. Moreover, the report contains analyses of BYD leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of BYD marketing strategy, ecosystem and addresses issues of corporate social responsibility.

 

[1] Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review

[2] Revving Up: A Review of Volkswagen’s Financial Performance and How It Prepares Them for Electric Car Market Competition (2024) Energy5, Available at: https://energy5.com/revving-up-a-review-of-volkswagens-financial-performance-and-how-it-prepares-them-for-electric-car-market-competition

[3] Ford Electric Vehicle Strategy (2024) Ford Newsroom, Available at: https://media.ford.com/content/fordmedia/fna/us/en/media-kits/2021/electric-vehicles.html.html



[]