Case DesCription

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Bull Automotive Inc. CASE COMPANY DESCRIPTION

ou have been selected as part of a team tasked with reorganizing operations at Bull Automotive Inc. A rewarding challenge awaits you. We have a history of great success, but are now facing uncertainties in the

political landscape and changes in demand become increasingly difficult to predict.

You need to develop a proper marketing strategy, taking into account our own capabilities and market position, the potential statutory regulations, tariffs, market signals and the strategies of our competitors. The previous track record of you and your colleagues is quite spectacular, which is why the board of directors is giving you ample leeway to proceed as you wish.

We currently operate solely in the traditional combustion engine vehicle market, but the general consensus is that hybrids, electric vehicles (EVs) and hydrogen vehicles are all steadily gaining momentum. Our relative lack of prior experience in those sectors means that some extra R&D will be required. We have already begun some rudimentary R&D focusing on hybrid technology, and we are confident that a relatively small further push is all that is needed to start implementing it in our own products.

We currently operate in three major market areas: the USA, China and Europe. We have a relatively strong presence in the USA and Europe, whereas in China we have had difficulties owing to regulations and high import tariffs.

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Bull Automotive Inc. CASE COMPANY DESCRIPTION

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THE AUTOMOTIVE INDUSTRY AND ITS CURRENT TRENDS

The automotive industry is one of the most networked industries in the world. It is fairly common to outsource one or several of the core processes, such as designing, development, manufacturing, marketing, selling or after-sales. In addition to these core processes, there are fuel distributors, repair shops, insurance providers and other external business fields. This also makes the auto industry a major source of employment. Specialization is common and competition is strong, which drives efficiency up and margins down.

Concerns over emissions have risen in the minds of consumers, and alternatives to traditional combustion engine vehicles are gaining traction. Three new powertrains are now available to the general public: hybrid, electric and hydrogen. Hybrids have already gained a market standing, whereas EVs and hydrogen vehicles are still establishing their position in the market place.

Governments are trying to speed things up by offering financial incentives for customers who adopt these new alternatives. The current incentives per unit are not sustainable with higher volumes in the future, and alternative powertrains will need to fair mainly on the merits of their own. Decreasing unit costs and growing refueling networks are expected to be the main drivers for the demand growth of the new technologies in the long run.

Bull Automotive Inc. CASE COMPANY DESCRIPTION

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OPERATIONS

PRODUCTION We have multiple factories in the USA and have recently started expanding production to China. Following an initial expansion, our own production can still barely cater to demand. To alleviate the situation, we have decided to outsource some production capacity, but we have been too cautious in trying to maintain minimum inventories, and consequently have seen some unsatisfied demand.

Production costs are generally lower in China than in the USA. However, as we only recently expanded production to China, the administration costs there are relatively higher for the time being. Features carry their own costs and can become a sizable portion of the final unit cost. Also, the factory investment costs are a significant part of the total costs.

SALES, MARKETING AND MARKET AREAS Overall market demand is still growing, with Europe holding the largest market size – for the time being. The USA is holding second place, but our market research team tells us that Europe’s lackluster growth prospects will allow the USA to surpass Europe in five years or so. The most interesting wild card is China, which currently offers the lowest market demand but already has the highest growth rate. Market signals are indicating that China’s car industry is finally starting to open up to foreign companies, making long-term market prospects look increasingly promising.

The markets differ in their technological preferences and expected market developments. Given the relatively cheaper price of gasoline in the USA, we can expect traditional combustion engine vehicles and hybrids to hold their ground better there than in China or Europe. However, there are vast natural gas reserves in the USA, leaving a high probability of hydrogen vehicles gaining ground in the future. Meanwhile, the EU’s increased scrutiny towards emissions means there are indications of there being higher growth prospects for electric and hydrogen-powered vehicles in Europe. Then there is China, which has a huge capacity for coal-fired electricity, providing a solid ground for meeting electric vehicle demand.

Our market research team has come up with general guidelines as to how the three market areas respond to pricing, features and promotion. Refer to the following tables for more information.

USA China Europe

Price Median Highest Lowest

USA China Europe

Features Median Highest Lowest

USA China Europe

Promotion Highest Median Lowest

The refueling and maintenance infrastructure for each powertrain technology is an essential component of demand forecasting. An inadequate charging infrastructure for electric vehicles leaves very little incentive to purchase an EV.

Bull Automotive Inc. CASE COMPANY DESCRIPTION

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R&D We are already well-versed in combustion engine technology. We have also made some inroads into hybrid technology, but it is safe to say that we have already missed the first train to that market segment. Electric vehicle technology is showing promising growth, whereas hydrogen remains more uncertain. Currently the R&D cost requirements for both electric vehicles and hydrogen vehicles are relatively high, and the payback times for such investments are not overly encouraging. Nevertheless, we expect the general increase in know-how to change this situation over time.

LOGISTICS, TRANSPORTATION Our logistics network allows us to transport our products to all three market regions. Transportation costs and tariffs between one region and another can differ greatly. This holds especially true for tariffs between the USA and China.

FINANCES The whole industry is experiencing major changes and therefore larger-than-normal investments are considered perfectly normal at present.

Our own finances are on a solid ground, which has allowed us to expand our horizons. We’ve recently increased our R&D personnel capacity, and focused our efforts on developing hybrid technology. We have also begun construction on new manufacturing plants in both the USA and China, to cater to the increasing demand. Besides using our current cash reserves for the research, we should also consider additional financing from external sources.

The first-to-market strategy in a powertrain has the benefit of capturing larger market shares, but the higher expenses can just as easily eat into profits. We should make our R&D investment calculations and strategy decisions accordingly. Given our strong financial standing, we could alternatively pay more dividends. There is also the option to expand our manufacturing capacity in China.

BULL AUTOMOTIVE INC.

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