CASE STUDY: POTENTIAL MARKET FOR MAINTENANCE FREE CAR BATTERIES

In spring each year, a festival is held at the tomb of Shah Hussain in the city of Lahore. Devotees light earthen lamps at the start of the of festival. Lighting of lamps is a metaphor for killing the inner darkness in ourselves.
In spring each year, a festival is held at the tomb of Shah Hussain in the city of Lahore. Devotees light earthen lamps at the start of the of festival. Lighting of lamps is a metaphor for killing the inner darkness in ourselves.

On his first visit to Lahore (Pakistan), Zhang Huan was impressed by the number of vehicles plying in the city. His main interest was to see Lahore in colour on the eve of “The festival of lamps”. He was happy to join thousands of devotees, each eager to light a lamp at an old shrine.

After the festival, Zhang turned to his first observation about traffic flow and thought of introducing maintenance free batteries. He already had such a plant at Zhongshan, China and wondered how big the Pakistan Market would be in years to come. Would it justify setting up of an economic sized plant and at what place?

In any Project Feasibility, the first step is to ascertain potential market. It is not something very difficult and sometime only a literature review can give a fair idea about it. If past data is available, trends can be spotted. Even if no data about the product at hand, “leading indicator approach” can be adopted for a preliminary stage.

Time Series Analysis

 

In this case, a method called "Time Series Analysis" would be used. The main object would be to work out "Compound Annual Growth Rate". This is an appropriate method for any situation where the growth has been gradual with no marked fluctuations.

 

Traditional Batteries

  • At present only traditional Batteries are used in Pakistan. These are known as “Wet or Flooded Batteries”. The manufacturers have long been in business and have recouped their investments many times over. Further, they have refined production methods using cheap raw materials (re-cycled lead). This in turn has lowered their production costs. They can, therefore, put up a tough resistance such as “price war” which does not auger well for the new technology.
  • The battery-manufacturers, both in the organized and un-organized sectors, had a total annual capacity of 1.2 million units. Two units are expanding and would be operative in about a year and a half. Taking their expansion plan into consideration, the installed capacity would go up by 25,000 units or to a total of 1.225 million units.
  • The demand for batteries comes from two sources. Demand from local car assemblers and from existing car users. The former is termed as “Original Equipment Manufacture Demand” or simply OEM and the latter as “Replacement Demand”. It can be said as Derived Demand as it stems from (i) number of cars manufactured each years and (ii) 50% of the old car registered as each car requires battery replacement once in two years. In addition, there are some un-registered vehicles in the far off rural areas. Roughly, they represent as 5% of demand generated by OEM & Replacement.

 

problem with tradtional batteries.

potential demand

Finding demand growth has now become easy. First, we would deduct number of newly assembled cars from total registered cars to find out the number of cars requiring replacement which would be 50% of old cars since a battery lasts for two years. We would add back this figure to Completely Built-up Units (CBUs) or the new cars which come out of the production line with the requisite battery. This would give us total of OEM and Replacement Demand. We would add a 5% to account for un-registered cars to have a grand total of demand. If we calculate CAGR, it would be 11.84%.

Past data is available up to year 2008. We are interested to find out demand in the year in which our project would start operations. Considering volume of work, logistics and giving some margin for delay, the project can be completed in two years. It means that operations can be started in 2010. With a growth rate of 11.84% and a demand of nearly 890,000 units, we can work out a projected demand of 1,246,000 in 2010.

We now concentrate on the supply side. As already stated, the present production capacity of all units in Pakistan, including small expansion, would be 1.225 million. Comparing it to the projected demand leaves a very slim margin or “demand and supply gap” (around 21,000) which hardly justifies any new unit. (The minimum economic size unit in Pakistan is of 100,000 units).


maintenance free batteries, Low self-discharge, long service life, High reliability and stable quality
maintenance free batteries, Low self-discharge, long service life, High reliability and stable quality | Source

Types of batteries

Should Mr. Zhang dump all plans? No, he would be bringing a new technology. If he can out-smart the exiting conventional battery manufacturers, he would have a field day. The new plant would require a minimum investment of five million US $. Apart from the present market conditions, an investor would look into the technological development on the way, such as:

  • Lithium-ion batteries would be required for running plug-in-hybrid-electric vehicle. Such battery are four times powerful than lead-acid batteries.
  • Nickel-cadmium and nickel-metal hydride batteries will also flood the market having twice as much power as conventional batteries.
  • MIT is exploring Efficient Nanowire Storage to Replace Car Batteries altogether.
  • Other types are (i) zinc air batteries, (ii) solar batteries and (iii) lead-impregnated foam batteries.

A FINAL NOTE:

This is simple description of market analysis from an academic point of view. The data regarding battery production and car registration has been downloaded from official websites and maybe old. For the sake of convenience, the present slump in the auto market has not been considered.

The author is a Development Bank Specialist with a very narrow knowledge of technology and econometrics.

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Comments 32 comments

mashood_khan profile image

mashood_khan 7 years ago

Dear Mr. Hafeez:

I accept all potential for maintenance free battries, but what you would say regarding its technical viability. as far as my knowledege is concerened maintenance free battries are not technically sound and I think it requires more value addition in order to make it technical sound?


hafeezrm profile image

hafeezrm 7 years ago from Pakistan Author

In Pakistan market, the use of maintenance free (MF) batteries is low at present. But these batteries have some definite advantages over conventional batteries. Warranty for MF is 18 months as against only six months for conventional battery. It is sealed and, therefore, no maintenance. Only Price of MF is higher. Once price is brought down, it would sweep the market.

Please remember, technology used in conventional batteries is over 100 year old and long overdue for modernization.


michael schmidt 7 years ago

I am no expert on batteries - I don't know whether maintenance free batteries will replace wet batteries or not. But this is a great framework from which to determine the viability of a new operation. Surely this approach would work just as well in determining whether a new bread factory would be economically viable.


hafeezrm profile image

hafeezrm 7 years ago from Pakistan Author

Thanks Ovais for your comments.

For starting up small businesses, please visit offices of SME Banks, Micro Finance Banks and Karachi Chamber of Commerce and Industries. You are surely to find some secondary data.

Once you decide, which line would suit you, a small survey maybe conducted of the existing such units to find out how they are doing. A good and solid research would put you on strong footings.

Hafeez

Some of the addresses are given below:

SME Bank Ltd, KARACHI1.

Karachi Main Branch B/9-B/3, Near Post Office Chorangi, S.I.T.E.PH# (021) 2587130-33 Fax# (021) 2587126UAN# (021) 111-11-00-11

First Finance MicroBank Ltd, information@mfb.com.pk

Pak Oman Micro Finance Micro Finance Ltd, 2nd Floor, Tower – C, FTC, Shaharah-e-Faisal, Karachi Voice: 09 21 5630941-5 Fax: 09 21 5630999 Email: info@pomicro.com


Ayesha Awan 7 years ago

An interesting study! One of the best I've come across so far!


Mehwish Saleem 7 years ago

The study is very useful regarding knowledge point of view with the subject, initially the statistics were very confusing but at later part, the sudy gives the complete manipulation of demand and supply of batteries.


TEERATH MEHESHWARI 7 years ago

very nice and knowledgeable.


Rufi Shahzada profile image

Rufi Shahzada 7 years ago from Karachi

Dear Sir,

Superb Case Study, well Pakistan is a potential market for MF Batteries for Car, In fact MF Batteries could also be used in UPS and Power Invaders, as you stated that Slum in Car sales was not considered. Lithium-ion batteries, Nickel-cadmium and other solar batteries are no doubt much powerful then the conventional Batteries and Pakistani market is immature market - proper awareness, marketing and flooding of these new tech batteries in conventional stores especially in Metropolitan Cities would be a huge success.

Thank you so much for adding such knowledge to me.

Rufi Shahzada


Rufi Shahzada profile image

Rufi Shahzada 7 years ago from Karachi


Shaista Nazir 7 years ago

This is a good case study with complete details about the new project.First it seems very lengthy and confusing but after having complete reading it can easily be understood.


SHAHZAD,AHMED profile image

SHAHZAD,AHMED 7 years ago

Respected Sir,

This is the article which does not only provide the demand scenario of the batteries but also it is very useful for the person who does not have any sort of knowledge regarding car batteries. It is infact a very informative article. Sir,I am thankful to you.


Syed Mairaj Ahmad profile image

Syed Mairaj Ahmad 6 years ago

Few months back i was searching for a new battery for my car, I got info about Maintenance Free Battery and gathered information about availability of this battery in Karachi market. There are several brands which do provide maintenance free batteries like Hankook, Volta etc but we are a mechanic loyal breed, like whatever the mechanic or the shop keeper, from where we previously bought batteries either for Car or UPS, says, mostly we'll do it. So what I came through is 1 of the misconception people have in Karachi that these batteries work fine in colder areas but are not so effective in hot weather like Karachi’s, this misconception is created by the Traditional Battery sellers. Secondly the battery retailers don't get a big commission on these batteries so they never recommend them for car or ups. Thirdly from customer point of view it is seen as 3 times more expensive than normal battery. Even though its life is more than that of the traditional battery, which covers up the cost. But price do matters on buying behavior.

So for making this battery the 1st choice of consumers, better marketing strategy in terms of excessive promotion is needed and people should be made aware of the benefits.


hafeezrm profile image

hafeezrm 6 years ago from Pakistan Author

Thanks Syed Mairaj Ahmed for latest information.


feasibility 6 years ago

Was searching for "Case Study Potential Market for Maintenance Free Car Batteries", saw your project feasibility study hubpage. Great info on project feasibility study!


Naseem Serwer 5 years ago

I just replaced my Car battary with MF battary as per features and specifications told by the battary dealer as it is being manufactured in Pakistan near Islamabad brand name OSAKA Comparitivily the price is competetive with existing conventional lead-acid battary of same capacity few obvious advantages as discharging in float condition is minumum when car is not in use

negligible evaporation of electrolyte with varing temperature etc

whereas MF battaries are quite good for Startup of engine


hafeezrm profile image

hafeezrm 5 years ago from Pakistan Author

Thanks @feasibility and Neseem Serwer for your comments. Certainly, MF batteries woud take off the conventional batteries.


Tota 5 years ago

very great study. Thanks a lot for your great analysis.

I would like to ask you about the financial analysis as well as a part from this study.

could you explain?

Once again, thank you so much

Miss


hafeezrm profile image

hafeezrm 5 years ago from Pakistan Author

Financial analysis of what? I have no access to cost data of traditional batteries or MF batteries. If you have annual accounts of the two types, I can look into their financial aspects.


Tota 5 years ago

Dear Sir,

I mean if the demand is not high, what are you going to do?


hafeezrm profile image

hafeezrm 5 years ago from Pakistan Author

If the demand is not high, the foreign manufacturers would have limited market. R&D is always on the look-out to reduce costs and one days maybe MF batteries become cheaper to buy but much better to use.


Tota 5 years ago

Thanks Doctor. Another case if the demand was 1.7 million the increase to 1.9 million. What shall do in 1) marketing

2) organizational analysis?

3) technical analysis?

4) financial analysis?

Thanks so much for your Effort.


hafeezrm profile image

hafeezrm 5 years ago from Pakistan Author

If demand increases while there is an idle capacity in a company, no analysis is necessary. Simply increase the output to meet the demand. But if the demand increases but there is no excess capacity, the company will have to expand its production facilties. In such a case, all analysis, as written by you, will have to be carried out.

Thank you for your interest.


Afzaal Ahmad Hashmi 5 years ago

how i can start this business


hafeezrm profile image

hafeezrm 5 years ago from Pakistan Author

Dear Afzaal,

Please explore the internet and correspond with battery manufacturers, both local and foreign. You may get dealership and subsquent license to produce.


SyedMahmoodMasood profile image

SyedMahmoodMasood 5 years ago from Karachi

The Topic is very informative regarding the Potential Market especially with reference of Time Series & Gap Analysis. It would definitely help in studying Project Management emphasizing on the planning & estimation aspects.

Secondly, I would like to add that Mr. Zhang Huan should launch his Project in Pakistan as there is also a huge market of Generator & UPS Batteries as well. This Project is feasible & also requires Government Support.


asadayub profile image

asadayub 5 years ago

Der Sir, this topic on Feasibility is a good one in which the example is given of Mr. Zhang huan. The analysis is really very good and a lot knowledge is given about Batteries in this article. Thanks A lot Sir.


shakeel hameed 5 years ago

Mr. Hafeez,

I would like to speak to you about this report as I am in the process of putting an assembly unit of DCB in Pakistan. You may reach me at shakeel@electusgroup.com for further details and communication.


Abdul hafeez 3 years ago

Presently the market of the maintenance free Batteries is picking . Some manufacturers have started manufacturing these batteries . AS the UPS market is huge in Pakistan therefore the maintenance Free Batteries have market as these are less hazardous as compared to traditional batteries . It is the only price differential which is main difference otherwise and if the price is made nearest to the traditional battery and more preference is given to the sales volume then the market of the maintenance free batteries is huge


hafeezrm profile image

hafeezrm 3 years ago from Pakistan Author

Thanks Mr. Abdul Hafeez for your update.


Waheed Ahmad 3 years ago

How much will it cost we one starts manufacturing plant for the production of maintenance free batteries in Pakistan?


hafeezrm profile image

hafeezrm 3 years ago from Pakistan Author

Thanks Mr. Waheed Ahmed for visiting my hub. I have no idea about the capital cost of such project. If you are interested, you may locate a machinery supplier in China and get a fair idea about the cost.


Alexandr 3 years ago

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