Value chain positioning, core competence building, and networking relationship: EV integration and electrification strategies of OEM in China

Abstract:

In the transformation of automotive industry towards electric vehicles (EV), electrification strategy emphasizes that OEMs shall quickly position or reposition themselves in the new value chains of EV, especially the industrial segment of batteries. This implies to OEMs entry to both the overall EV sector and the battery industry, as well as the integration of the latter to the former.
According to this strategic positioning approach, in contexts of disruptive transitions, leading actors seek to control essential aspects of the value chain of their sector in order to strengthen their capacity over how value is generated and captured. Thus, in the transformation to production and competition of EVs, OEMs, especially those previously or still attached to internal combustion engine (ICE) vehicles, all try to control to more or less degree the design and production of electric batteries. Battery-making has become a strategic asset for OEMs if they want to maintain the leadership position within the new EV value chain.
Meanwhile, possessing the new strategic assets of battery requires OEMs to learn and integrate the technologies, knowledge, capabilities, and even resources related to the design and production of electric batteries. Therefore, in the resource- and capability-based view, the nature of electrification strategy for OEMs is to build core competencies incorporating such new technology knowledge and capability regarding battery making.
Today, except some special case like BYD adopting a high-degree vertical integration strategy, few OEMs controlling the whole battery value chain. Nevertheless, OEMs still have a dominant position within the whole EV value chain. With battery making emerging as a specialized and distinctive industry, particularly in China, most OEMs have developed various network relations with the battery makers. Battery-maker networking and partnering have become a major strategy as practice of electrification for OEMs.
Combining the approaches of strategic positioning, capability-based view, and relationship and network view, this paper tries to identify the types of electrification strategy adopted by OEMs. We will focus on OEMs’ mode of relationship with battery makers (structure) and the way integrating battery value chain (process). We examine how these battery networking-integrating activities of OEMs influence their value chain positioning and core competence building, as well as firms’ supply chain organization, production model, and even business model. The paper presents a preliminary typology of OEM electrification strategies primarily based on different modes of relation and integration of battery making (technology or production level interaction, joint ventures or partnership between OEM and battery makers, R&D cooperation, etc.).
We opt for a multiple case study methodology that allow us to identify specific configurations of battery integration characterizing the electrification strategies of OEMs. The case materials are from our fieldwork on OEMs such as Volkswagen, Geely, GAC, BYD, XPeng, etc., as well as from battery makers such as CATL, EVE, Sunwanda, etc. Documentary cases are also used in the analysis. The qualitative analysis is also triangulated with data obtained from various sources. This multiple case study approach allows us to empirically corroborate similarities and differences and thus provide some analytical generalizations. And based on the general competitive performance of case firms, we also may give some rough assessment of the effectiveness of different electrification types.
The paper can bring some strategy implications to OEM electrification and overall development of EV sector. As both the battery industry and the electrification of Chinese OEMs step into some “mature” stage, it is time to summarize what the main electrification strategy models are and what competitive advantage they can create. This is particularly useful for European OEMs who are trying to catch up their Chinese competitors in terms of electrification.
In a value chain framework, the electrification strategies of mainstream OEMs are between fully vertical integration (BYD) and total outsourced subcontracting (Huawei). But the devils are in detail and the paper tries to discover the detailed configuration of electrification strategy. For us, the networking and relationship with battery makers are such critical details. In this sense, the paper can also contribute to the theoretical discussion on network, alliance and partnership strategies.