In every business valuation, the expert should follow Revenue Ruling 59 60. Revenue Ruling59-60 states
“The economic outlook in general and the condition and outlook of the specific industry in particular. (emphasis added)
Dr. Michael Porter has written the gold standard for performing industry analysis. He has cited five forces of the industry that should be analyzed by business valuation experts. One of the five forces is the Threat of New Entrants.
The threat of new entrants is a significant factor to consider when analyzing the competitive landscape of an industry. New entrants can disrupt the market, potentially decreasing market share and profitability for existing players. The business valuation expert should analyze the Threats of New Entrants as the expert should consider the potential increase or decrease to the market share, its impact on revenues and profitability.
For this article, I will examine the threats of new entrants in the Electric Vehicle (EV) industry.
How can this information help your case?
The resources that business valuation experts subscribe to provides industry analysis for the industry, not the specific company. Not analyzing the specific company, the expert is unable to determine the impact on the specific company as new entrants dispute the market and thereby impacting future operations of the company being valued. This one issue is not all inclusive of the analysis for analyzing the threat of new entrants.
Analysis of Electric Vehicles
The Electric Vehicle industry has experienced significant growth over the past decade due to increased environmental concerns and government incentives for the adoption of cleaner energy sources. As a result, the industry has attracted many new entrants, including traditional automakers, startups, and technology companies. However, there are several factors that may limit the success of new entrants:
High Capital Requirements:
The Electric Vehicle industry requires significant investments in research and development, production facilities, and marketing. Established players have already made significant investments, giving them an advantage over new entrants. .
Economies of scale:
The production of Electric Vehicles requires economies of scale, making it difficult for new entrants to compete with established players who have already achieved scale and have the capacity to produce at a lower cost per unit.
Established automakers have strong brand recognition and loyal customers, making it difficult for new entrants to gain market share.
Access to distribution channels
Established automakers have established distribution networks and partnerships with dealerships, making it difficult for new entrants to reach customers.
The Electric Vehicle industry is subject to government regulations, such as emission standards and safety requirements, which can be difficult and costly for new entrants to comply with.
The electric vehicle industry is a rapidly growing industry that has attracted many new entrants. However, the threat of new entrants is limited by high capital requirements, economies of scale, brand loyalty, access to distribution channels, and government regulations. Established automakers have already made significant investments and have the advantage of scale and brand recognition. Therefore, new entrants may struggle to gain market share and compete with established players.
The business valuation expert will not be provided with this information in the subscriptions they subscribe to. This is additional research that is required of the business valuation expert that is indicated in Dr. Michael Porters Five Forces of the Industry.
 Revenue Ruling 59-60, Sec 4.01.(b)
 Crabb, P., & Blackburn, R. (2018). Electric vehicles: The role and importance of standards in an emerging market. Journal of Cleaner Production, 198, 976-983.
 KPMG. (2020). Global Automotive Executive Survey 2020: An industry in transition. Retrieved from https://assets.kpmg/content/dam/kpmg/xx/pdf/2020/01/global-automotive-executive-survey-2020.pdf
 Brem, A., & Viardot, E. (2021). The emergence of electric mobility: A stakeholder analysis. Journal of Cleaner Production, 294, 126252.
 Nelson, P. (2017). Electric Vehicles: The Benefits and Barriers. Retrieved from https://www.iea.org/reports/electric-vehicles-the-benefits-and-barriers
 United States Environmental Protection Agency. (2021). Light-Duty Automotive Technology, Carbon Dioxide Emissions, and Fuel Economy Trends: 1975-2021. Retrieved from https://www.epa.gov/automotive-trends/light-duty-automotive-technology-carbon-dioxide-emissions-and-fuel-economy-trends-0