Strategic flexibility in shifting to electrification: a real options reasoning perspective on Toyota and Nissan

This paper addresses commitment versus flexibility in the face of uncertainties about the electrification of vehicle powertrain technologies. A real options reasoning perspective is employed to analyse the potential option structures and underlying logic behind the strategies of Toyota and Nissan. The case analyses indicate that the Japanese carmakers have (compound) options to expand their electrified powertrain portfolios and switch battery sources. The findings also suggest that the stability of powertrain design rules serves as a foundation of real options and that carmakers' approaches to balancing the commitment to, and flexibility for, particular strategic actions are influenced by the nature of the uncertainties. Further, firms' perceptional and behavioural biases over uncertainties will affect the execution or abandonment of the options.