Auto Industry 2040?

Auto Industry Circa 2040. where will it be?

WOW! MMG! DISCO! These could be names of some of the leading auto component industries in the year 2040! Why have I selected the year 2040? Simply because everyone is talking of this year for introduction of electric cars in a big way; from this year onwards, the real downward trend in manufacture and use of IC engines in the cars, as we know them today, will begin. I am simply assuming that the cars will be available, similar to the cars of today. Masses of cars will be driven by humans, they will have a steering wheel and a power plant/train to give them. They will have some form of braking, electrical system handling various functions, wheels and body with fuel storage area, air conditioning and so on! Things inside could be fancier with more and more entertainment, superior navigation abilities, drivers may become more stress free as cars systems will be able to understand many things and may take over some functions from humans. Internet of things (IOT) will allow things that are not even thought of today.

This is part of evolution of human race but this could be culmination of major change that is taking place currently. The “new” car industry is putting its toddler’s steps today. Evolution is nature as everything in this world is always evolving! Basic driver for these changes is computers and computer chips. The car industry will be using different chips and will capture lots of data data generated by various systems. This data will be in endless loop and will allow cars to function more and more efficiently.

What will be the difference in the cars of today and those in 2040? Today’s power plant, the Engine & Drive train will be replaced by Batteries and Motors. Today’s drive train, gear boxes etc will be just be not there. The exhaust system as is known today will be simply not be needed because there will be no IC engine, both Petrol and Diesel. Gear box and the whole system is really not needed because their function can easily be handled by Electric Motors. Even today, in electric cars, there is a single gear which reduces the RPM to what is needed to drive the car at allowed speeds!

There are many companies that are manufacturing the components that are discussed above. These components may become redundant over a period of time due to introduction of electric cars. Bosch, Denso, Continental, Valeo, Aisin Seiki are some of the major players that manufacture the cluster of these components. These companies together manufacture products worth US $200/ billions every year.  These products may comprise of 40% to 70% of their current turnover. The giants must be already studying the questions that have come to my mind. How are they handling these questions? I am sure it’s a tough call to all of them though they have the where withal and deep pockets to handle difficult situations. Some have started making navigation products, some are making parking assist, camera -related systems. But suddenly new names are being heard in these discussions as vendors. CISCO, NVIDIA are some of them. Some are direct vendors to car makers and some are vendors to components manufacturers.  Where is the real scope for new development and business? Battery packs, battery charging technology to increase per charge distance that the cars can travel today! All other developments that are computer related can also happen in IC engine cars too! TESLA is already building a giga factory for their Battery Packs! So will the “new” component business be taken over by Car Manufacturers? Suzuki, Toyota and Toshiba are coming together in India for big battery plant! What happens to smaller manufacturers of these components? Will they survive the major change? Will “WOW! MMG! DISCO!” replace them? Only time can tell.

In car making, after a long time, new name TESLA, started coming into prominence. TESLA came mainly for the new product offering. It appears that technology like fashion goes round! Till first two decades of last century, IC engine based transportation was not very popular. Trains used steam, cars used electric power plants; but battery technology could not catch with the then needs. Hence IC engine cars and trains became popular. From the existing car manufacturers, some are already manufacturing electric cars more than what TESLA is producing. On top of that they have a running profitable business producing IC engine cars. But one thing is for sure they have the humility and know where they lack. Look at what Volkswagen Brand CEO Deiss has to say about TESLA! 

VOLKSWAGEN brand CEO Diess has said that VW which manufactured 5,987,800 cars last year has to catch up with Tesla which produced 83922 cars last year. “Tesla belongs among the competitors which has abilities that we currently do not have,” Diess said in the interview with “Inside”, a publication for VW employees. Around half of Tesla’s engineers are software experts, while at VW’s core brand it is a much lower proportion, Diess said. Tesla has good electric motors, a fast charging network, autonomous driving technology, internet connectivity, and a new approach toward vehicle distribution. “This shows that we need to significantly improve. We can do this. We measure ourselves against Tesla quite deliberately. Our goal: Using our abilities not just to catch up, but even to overtake,” Diess drives an electric VW Golf.

 Current giants have ready infrastructure and eco system to make and sell millions of cars. They of course lack Electric car eco system as mentioned by Diess above. Their main struggle will be recharging stations for electric cars; but TESLA is also going face the same problem! The question arises if TESLA, a loss making company, a start-up, survive? Let’s look at the startups from the Silicon Valley and the west coast, who really made it big in computer industry sunrise era. Google, Facebook, Microsoft, Apple they all became very big with the products/services that never existed before. TESLA is pitted against the giants for making existing products where the main “driver” is only a different technology! That’s a huge disadvantage. Fighting against giants, who have woken up a bit late, like Mercedes, Honda BMW, Toyota, GM, Ford, Fiat, Hyundai is going to be very very tough for TESLA! Some of these giants are also going to suffer or may merge! My take,Continental TESLA may cease to exist  by 2040 or even earlier as it is known today! Takeover? Maybe! 

 

Low Aim is a Crime!

This is take on being satisfied with Money earned rather than going up the value chain!

India got its independence in 1947. India missed the industrialization bus by a century because British allowed only a few benefits of industrialization to percolate to India.  Before independence educated Indians were interested in working for British, whatever work they could get, mostly they got clerical jobs; those were the only real jobs available anyway! British chose the people for senior admin positions and made them brown sahebs. These proxy Britishers were more British than the Britishers themselves.

This scenario put India under the gloom of disease of getting satisfied on achieving small things and doing mundane things. This led to metastatic mentality of under achievers; those who were trying to do something different were looked down upon and discouraged from doing anything different. Some of us from our generation were able to improve on this thought process and later generation became even more active and started taking risks.

IT sector was the first sector where India did pretty well, financially. Y2K issue was the one that gave impetus to Indian IT sector; middle class started growing faster than ever and large Indian populace started having money, living in foreign countries for work and started buying their own homes in a big way. This of course combined with official opening of Indian economy in 90’s. Effect of higher salaries in IT sector was seen in other sectors like engineering, pharma, finance and so on. But this success hid one thing from general populace and even from IT sector that the “great” work that we were doing was actually mundane work done for others as a service. This model kept on working well till about a couple of years back. Then the signals started coming that the mundane work that was outsourced to India can be automated so….

Circa 2017! Large Indian IT companies are sitting on big pile of US Dollars. This indicates their past success, financially. But it appears that these large “successful” companies were run more by accountants than by entrepreneurs! So they have made big money, hundreds of thousands of millions, many of them in dollar terms. But since the scenario started changing a couple of years back, it is obvious that if you don’t move up the value chain, you are going to come down as fast as you have gone up! The fact that these companies are sitting on a big pile of dollars shows that our mentality of mundane “services” type of work has not changed. This pile of money should not have been there; it should have been invested in going up the value chain! But even today this money is being used to buy back shares! The big bosses have not thought in terms of creating own IPR’s or products in any field, IT or Engineering or Pharma! When “services” are generating money why bother.

To give an example of how things are changing, when you “talk” to say Amazon on chat about some issues, the “Ravindra” or “Asha” who is taking to you may be a “BOT”. What is a BOT? An Internet Bot, also known as web robot, WWW robot or simply bot, is a software application that runs automated tasks (scripts) over the Internet. Typically, bots perform tasks that are both simple and structurally repetitive, at a much higher rate than would be possible for a human alone. The largest use of bots is in web spidering (web crawler), in which an automated script fetches, analyzes and files information from web servers at many times the speed of a human. More than half of all web traffic is made up of bots. (This is Wikipedia definition of BOT)

How this is typically done is very similar to self-check-out counters in big departmental stores. At these check-out stations, for a group of ten such stations there is one supervisor helping, if you need any help. So what this system does is, instead ten people manning ten checkout stations, one person is sufficient. These BOTS also do the same thing. Now do you understand how the nature of business is changing? If your business is dependent on someone else’s way of working, you are in trouble if automation comes into picture.

What is the way out? Going up the value chain; but if you are a company with 100 to 150 thousand employees with “service” level skills you have tough task on hand. Basically it’s a tough call for the senior management to change its own ways from accountant based running module to technologist based running module. Who runs highly successful companies? Apple, Facebook, Microsoft, Google, Nvidia, you just list such companies and will see that these are technology driven companies. Yes, finances are very important but if the company is run by accountants they will never take risks! But when you don’t take risks and try and don’t keep abreast with new technologies or create new technologies, you will never know what hit you! How many of us know that Google and Apple are spending big money on Car technology, and they are creating newer technology in cars which was never even thought of. Nvidia is already a big auto system vendor to VW’s, Audis and Mercs of this world. They have invented technologies which are forcing these Auto giants to use new technologies to remain competitive in business. Elon Musk of Tesla had the audacity to start making Electric Cars and even start making space vehicles using venture capital.

Of course there is silver lining to each dark cloud! The surprise is that the silver lining is coming not from private sector but Government sector. ISRO, Metro projects implementation, Solar Energy project implementations, highways all over India are sign of we Indians have started getting hang of the situation. On IT side one of the success stories of product selling is Tally ERP. Yes it has sold hundreds of thousands of copies and is unquestionably India’s “Numero Uno” product on IT side! If Tally is doable why can’t others do it? India is the largest democracy and is the only country in the world where all elections use EVM’s- electronic voting machines! Paper ballots are Passe’ in India! The EVM’s were developed by C-DAC! Aadhar card is one such initiative that has become pride of the nation! All these projects indicate that we are slowly coming out of the Chalta Hai mentality! Chalta Hai is a phrase indicating Small achievement is good enough! We should have Sachin Tendulkar’s in each field then only we as a nation can start achieving things!

So friends we started with discussion about Indian mentality of being happy with whatever little is achieved! Will our giants survive the onslaught of market changes? They have the money but do they have the wherewithal other than money? Do they have the mind set? Do they have the technological willpower to go up the value chain? Going up value chain is real hard and smart work. I hope these giants do it, but we are still discussing US H1B visa rules, which is the backbone of current business model of sending people on site to provide services! I hope our current young generation and future generation are as audacious as Elon Musk!

 

I am getting a Toyota Prius!

One of the most important aspect of human civilization is that nobody can stop the technological advancements. Technology, the right one, is simply unstoppable. Humans do not change and they most of the time feel that so and so technology cannot become popular. There are very few visionaries who can guess, predict what can happen after a couple of decades. Initially when any technology comes the cost of its implementation as well as usage is always very high. This cost does come down with increased volume.

Let us consider the scenario in solar energy globally. Germany recently on a particular day produced, 85% of its total electricity produced, by Solar. The energy market in Germany runs like a trade market and the rate at which power is bought by distribution companies is based on demand and supply. On that particular day the rate went below zero! California on one day recently produced 67% of its electricity by Solar. US being a very large country will take a long time to reach Germany’s level as a country but it will happen in pockets. India & China are galloping fast towards solar energy in a big way.

If we think about steam engines and trains, initially people were just curious and felt that trains cannot compete with carts pulled by animals. Once the fear in people’s mind reduced, time of travel decreased and more and more people started travelling in trains and rest as they say is history. My first travel to USA was in 1981 and I had paid US $ 1076/ for return journey. Even today we pay hardly more than that in Dollar terms, for return ticket to USA. Why this happened? Because of safer, faster, larger airplanes increased the volume.

Cell phone is another classic example of technology that made it a disruptive device! When I first got my cell in late 90’s the cell phone was quite heavy, almost ugly, and it cost Rs.16/ minute to receive and make calls! In twenty years Cell phones have become sleek, they are much more powerful than computers specs ten years ago! Ten years ago GB was a word very rarely used even in computers. On top of that making calls is now free! Technologically in 20 years cell phones have gone places! Who would have thought of these changes? In the initial phase cell phone was the so called rich person’s toy. The beauty is that land line telephones have been there for more than 100 years doing same basic work that cell phones do, talking to each other. But other than becoming sleeker, land line phones did not change much in technology. Hence the landline phone population is on the wane world over.

Next classic battle that I visualize is between IC engine cars and Electric/Hybrid cars. The usual naysayers are saying that the current car companies are so powerful that they will just not allow this to happen. What are the parameters that will come into picture? Current volume of Electric/Hybrid cars is miniscule and their yearly volumes are nothing to write home about. So what is it that is needed for the picture to reverse, if it does! Fuel costs is one important parameter. Petrol/Diesel costs have come down from highs of US$ 150/ per barrel and have stabilized around US $50/. The original cartel led by Arab countries is finding it difficult to keep high rates due to new people coming in, huge American & Canadian reserves which were not known even ten years back, have suddenly become available. Their cost of production of extracting oil is also coming down. The fear of Petroleum products simply getting exhausted from the world has gone. So fuel cost may not be THE thing that will trouble current cars. But on the other hand, the cost of producing electricity is definitely going down fast. As more and more countries including India go strongly after solar energy, this cost will come down further. The countries which have lot sunlight round the year can become major players in producing next “Petroleum” for cars. Along with this wind energy is also playing a major role. One thing is for sure compared to petroleum products “Sunlight & Wind” are definitely never going to get exhausted. What all this will also do is pollution levels caused by burning Petroleum products will also come down. On top of this when more and more Electric/Hybrid cars get into use pollution levels will further go down.

Largest component of Electric/Hybrid cars is battery pack. Tesla is already building a Giga battery factory in Nevada where they will be able produce battery packs for five hundred thousand cars a year, at naturally very low cost. Already, Tesla is talking of producing cars that will be only slightly more expensive than sedans. Another limitation currently is the distance the car can travel with one charge. In cell phones  already fast charging systems have come, so I am sure it will happen in Electric cars too! So maybe when you have coffee break or wash room break, you can recharge your batteries. Once these cars are reasonably priced people may use such cars the way we use scooters in India, to travel smaller distances. For last hundred years there has been not much improvement in battery storage technology, compared to other fields and same is the case with IC engine cars. I am sure in batteries the break through is just round the corner! If automotive technology had improved as much as electronics, a car would have travelled round the globe in one liter of fuel!

If we summarize this battle, cost of production of fuel (electricity) to charge the electric cars is going down, cost of battery packs is going down ( it is like engine price going down), battery pack capacity will slowly start going up like some Tesla cars go beyond 350 km per charge, pollution improvement is a bonus. On the other side Volvo has already declared that they will not produce diesel cars from 2023 because cost of using technology for pollution compliance will go up exponentially. Volkswagen has already claimed that they will not produce IC engine cars beyond 2030. In India Suzuki & Toyota have joined hands to manufacture hybrid cars for Indian market. Suzuki and Toshiba have joined hands in India to build Lithium Ion battery mega plant. In USA GM and Ford also have big plans for electric cars. BMW i3 model electric car was quite visible when I last travelled to USA. Along with that a lot work is being done by Google and Apple in driverless car. I feel that controlling an electric car with computers will be much easier than IC engine cars! Will humanity be able to stop Electric/Hybrid car technology? Only time will tell. But in the end right technology will win!

So my next car is definitely going to be a Toyota Hybrid Prius! There is small issue of money in the bank but I will generously accept it, if someone wants to gift me a Prius! I will put big donor name sticker on the car! Happy (electric) motoring!