Research On Investment Decision Of J Company’s CMS Project Based On Real Options

Driven by the "four modernizations" of electrification,networking,intelligence,and sharing,the automotive industry is undergoing a major transformation,which has brought huge opportunities and challenges to the entire automotive industry chain.Especially with the rapid growth of the automotive electronics and software markets,a large number of new market opportunities have emerged.Automotive component companies will face new products,technologies,and markets,and the uncertainty of the investment environment is becoming increasingly high,Investment decision-making research is increasingly important for the success of projects.CMS are one of the investment hotspots under the development trend of the "four modernizations" in the automotive industry,and also one of the key strategic directions of Company J.CMS have become an industry consensus to replace traditional rearview mirrors,and have huge market space in the future.With the release of regulations in 2023,CMS have entered their first year of development.However,due to the impact of regulations,technology,costs,demand,and other aspects,as a new market and product,There is significant uncertainty in the CMS market.The limitations of traditional investment decision-making methods are gradually becoming apparent in the face of uncertain investment environments.Traditional evaluation methods,represented by NPV,neglect decision-making flexibility and often underestimate the value of projects with high uncertainty,leading to companies missing out on future development opportunities.This article focuses on the investment decision of J Company’s CMS project in the new market environment.Firstly,the background of the CMS project was introduced,and the operational difficulties and investment decision-making issues of Company J were analyzed;Secondly,the investment decision-making methods for CMSs were optimized from three aspects: market size prediction,market positioning,and economic evaluation.The focus was on studying the application methods and feasibility of real options in project economic evaluation,identifying real options that exist in the project development process,selecting appropriate pricing models and methods and steps for real option analysis,and solving the problem of NPV method underestimating project value;Finally,the economic evaluation is conducted using two methods,NPV and real options,and the analysis conclusions of the two methods are compared to make a scientific and reasonable analysis of the investment in the CMS project.By comparing and analyzing two investment decision-making methods,the traditional investment decision-making method(NPV method)underestimates the project value,with NPV<0,which does not comply with the investment decision-making criteria;When using the real option method for analysis,the value brought by decision-making flexibility during the project implementation process is considered,and the project has significant investment value.It can be seen that the methods and ideas based on real options are more scientific for decision analysis analysis of project investment with strong uncertainty.