Pragmatism at its best


The whole world was in sleep mode while China was conquering different frontiers with contract manufacturing, and direct production. Before the world realised, China had become the number 2 economy behind the US. They became number one in the car manufacture, new infrastructure, contract manufacturing and many other areas which included computer games.

But something has been definitely changing in China, and China has started flexing its muscles and is showing an expansionist tendency of late. China tried the same act with India in Ladakh, probably hoping that India will blink first. They made a significant error of judgment, and India pushed back hard. All these years, India was not mixing border disputes with the trade. But Galwan changed everything.

After Galwan skirmish, India is systematically trying to push China, where it hurts. It started with slowly not allowing the Chinese companies to take part in tenders for infrastructure. The masterstroke was banning gaming and other apps. If you read carefully, the gaming companies hardly make money by the usage, but they are after their valuation done by the market. The valuation of such companies is dependent on the number of downloads and the number of active users. As these numbers increases, their valuation increases proportionately.

TikTok has about two billion downloads. Their current valuation is the US $50/ billion. These are market figures, and in the event of sale of the TikTok, by the parent company, ByDance is expected to make the US $ 50/ billion. India ban and future US ban will reduce the active users from the current 800 million by 35%. This reduction can severely affect ByDance’s TikTok valuation.

India has shown a great pragmatism by acting against the apps, which include a search engine and a chat application. By doing so in India, we will be hardly affected, but the Chinese companies owning these apps will be definitely affected. People had doubts that by banning Chinese products, production of Indian manufacturing companies could get affected. But the Indian Government has been more pragmatic. They have not taken any such steps. The steps taken are well thought as they are being implemented.

Following the Indian action, the US government also declared that it is going to ban TikTok in the US. In a surprise move, Microsoft has announced that it is in the process of buying out TikTok operations in the US, Australia and New Zealand. (Today’s news is that they want to buy global services)Though the total active users may not be as large as in India, they would be substantial. Why do they want to buy TokTok? The reason is that there would be considerable consumer revenue from advertisements, an area where Microsoft is lagging way behind FB and Google. Customers will get a trusted and secure provider that all the governments trust. None of the other social media biggies, like Facebook, Google can buy due to the anti-trust investigation going on in the US senate. Whether Microsoft will buy it or not depends on many factors. The first of these would be who blinks first? Microsoft or TikTok? Is Microsoft more desperate to buy or is TikTok more desperate to sell? Microsoft is loaded with money. A few years back they bought out LinkedIn. Before that, they had acquired Nokia’s cell phone business- the acquisition which miserably failed. But looking at recent Microsoft functioning, they appear to be pretty much in control of what they are doing. With Azure/Cloud computing business taking off for Microsoft, they again seem to have got their act together.

I have written about the business side of it. But even the US government led by President Trump has taken a pragmatic decision for a change. Without saying so, they have declared that they will ban TikTok US operations from 15th September. It means they have given leeway and time to Microsoft till that date. It is a very pragmatic and practical decision. It could have quickly banned TikTok overnight, but it saw that Microsoft was trying to make a deal where they will pay some money to the US government in the form of taxes- the amount would be directly proportional to the size of the contract.

As against that, there was a news item which said that Tata Motors is trying to hive off their car business in India. It wants to sale 49% equity to some reputed car manufacturer but intends to retain controlling shares with them. Is it pragmatic? Hiving off is pragmatic but trying to maintain control is not! Why is Tata Motors diluting their stakes? The first reason that I see is that they feel that they can not become a serious player in the Indian market with the current quality of cars being produced. The Sierras, Estates, Indica, Nano have created a long list of products which became difficult to sale, even in India. It became apparent once the Suzukis and Hyundais of the world took a firm foothold in the Indian market. With the new range of cars like Tiago and others, Tata made a bit of comeback. But this is not going to be enough. It is always going to be a catch-up game.

With Suzuki and Toyota coming together in India for both the IC engine and Electric cars, it is going to be tough for the competition to challenge them. Suzuki is a well-proven numero uno in India. Money power and technology of Toyota will boost the operations further. The combination is going to be tough for the competitors. They have also decided to come together in Electric Vehicles. Their battery plant is well on its way in Gujarat, in collaboration with Toshiba. For EV’s, it is going to Toyota design, Suzuki manufacturing cars for both for themselves and Toyota too, in India. The engine- battery power pack, would be Toshiba technology, which will be a win-win situation for all.

As against this, Tata Motors is going to find it difficult if they do not become pragmatic and handover control to the new partner. Especially with JLR facing tough times in China and other international markets, pragmatism is what is going to help. Sometimes it is essential to bite that bullet. There is a history of two significant partners not being able to work together. Bajaj Auto and Kawasaki tried this for some time, but it did not work out. Once Hero became very big, they broke the collaboration with Honda. Aramco and Reliance have been trying to come together in India, but somehow it is not working out, yet. But looking at history, it seems complicated.

When a large company is looking for a world-class organisation for collaboration, seeking to control the new company is not a pragmatic approach. The other company is also going to be significant. So, friends let us wait and watch the fascinating battle in the market place.


Let us become an expensive nation

My friend Saibal and I exchange views on different things, and his brother Probal also takes part in discussions. He is a young man, as defined in Indian politics- he is on the wrong side of fifty. He has earned his spurs in the fierce market place and has got a good experience and knowledge of of the prevailing market conditions. Once in a while he also gets upset like any other proud person. I am sharing with you verbatim, his feelings about the Indian and international market place.

The Japanese management companies in India, have developed this new policy of saying that if they switch over from an imported component to an Indian part, then the spare part should be at least 30% lower in price.

I was wondering why? Are we so cheap as a country or as a community? Are we cheap people? Are we as a country, responsible for this situation? Over the years, we have perhaps unnecessarily announced that our labour and designers are cheap. Indian IT professionals charge much lower rates, minimum wages have been horribly low in India, something like 126th in the world today ( used to be 144th only a few years ago ), the manufacturing cost is low in India etc.

We should all ponder, and our next generation should ensure that they command more respect and charge rates commensurate with their talent. Hope we become an expensive country someday, and the costly tag does not only belong to the Mercs and BMW’s.

I have no intention to insult anyone, but the end result has been unfortunate. I will share with you some examples from the automotive industry. The doyen of the Indian business announced years ago that his company would come up with the cheapest car in the world. This was the beginning of gaffes galore. What does the word cheap indicate? Though the intention was good, in practice, it was a marketing disaster! Why was the term cheapest used, instead of affordable? It was a matter of perception. Are we poor at English or we think that we are destined to manufacture cheap cars? Sometime after the introduction of this vehicle, a vehicle caught fire on the road, while someone was driving. The next day, there were photos splashed in all the newspapers. On the same day in Pune, a brand new Japanese sedan also caught fire while it was parked and entirely burned down. But this news was not allowed to splash the way the cheap car caught fire. One more marketing failure? One more marketing failure was the highest version of this car sold the most! In India, cars are bought and used as a status symbol! Who would want to purchase something tagged as “Cheap”?

If such is the thinking in a large company, then many of their decisions also follow the same path. The results also follow a similar trajectory. The whole ecosystem becomes “Cheap”. Now the question is why Japanese and German products are expensive? A simple explanation would be that their products are top of the line products. I will not write about the details of their industry at the end of the second world war. When I was in school, there was a derogatory term used for Japanese toys- in Marathi the word used was कचकड्याची. If you wanted to buy cheap / कचकड्याची buy Japanese toys; this was the reputation of Japan in the early ’50s. In a couple of generations, people started recognising Japanese products as top-end products. How did this happen? Pride, hard work and urge to become the top country for manufactured goods. Cars, Electronics and other products were the areas where the Japanese concentrated. Toyota, Honda, Sony, Toshiba became household names globally. They decided the group of products, and competed hard with global players and beat most of them. Germans were the ones who fought hard with the Japanese. In their range, the products were superior in quality and with competitive costs. Like the Germans have Mercs, and BMW’s, the expensive cars, the Japanese have their Shinkansen trains. These are superior quality trains and are very expensive.

I will share a couple of anecdotes. Someone was going to travel to Japan for work, and he was going to move from place A to place B in Shinkansen. He wrote to the Japanese, “I am going to catch a flight from B. How much buffer time should I keep so that I do not miss the train?” He got a reply, ” From the train station at B, the airport is 30 minutes away. You do not need buffer time because Shinkansen is late only when there is a major earthquake.” I am sure this was written with pride.

A Rolls Royce car engine failed in Paris, and the car was towed to a dealership. After inspecting the vehicle, the customer’s driver was told that he could collect the car at 9 am the next morning. He did get the car at the appointed time, all running and it was neatly washed and cleaned. How did they manage it? Pride, coordination and excellent customer service plus marketing. They had found out that repairing the engine within such a small period was impossible. They spoke to their headquarters in the UK. A brand new engine was shipped to Paris in a chartered plane, and a happy customer took his car back the next day morning.

Saibal, we need to become expensive in our thinking and our deeds. We should have pride in what we are doing. If your sense of achievement gets hurt, you should be able to walk away from the situation. Your business plan should consider such costs. Airlifting of the engine from London to Paris was such an event where financial damages were immaterial. I have walked out of such situations in our software business a couple of times.

Indians are still mentally two hundred years behind. In Northern India, people boast about how they haggle about the price of vegetables. If the vendor says fifty Rupees, people demand it for ten Rupees and ultimately buy for thirty Rupees. It is our thought process of buying everything cheap; it does not make us competitive it makes us “Cheap”. It gets converted into a mindset of selling and buying low-quality stuff. When I buy apples, I buy top quality apples. I choose the apples and then ask the price. A bit of haggling is ok, but if you want a product for less than half the price, the quality of the same will be proportionately bad. When we buy a car, the first question asked is कितनी देती है? – what is the mileage it gives? We do not bother about other specifications and performance. In short, we are the least bothered about quality. All we want is “Cheap” everything!

Till we, as a society, do not change our mentality, how will we get the quality products? Here I have discussed only a couple of products, but there are products like fans, mixers, refrigerators and so on. There is the service industry. IT industry is a big player in services. After twenty years of a good run, they want to remain the service providers; we do not want to make world-class products. These companies are flush with funds, but since they do not have any roadmap to come out of the service industry and make their own products, they spend this money on repurchasing their own shares. These acts are big negatives for the share market. Hence their valuation also does not change- a sorry state of affairs.

When you do not want to go up the value chain, how shall we become an expensive country? It is our mindset that needs to change first. In many foreign countries, I have seen plumbers, electricians who are proud of their trade. It is slowly happening in our country too! My electrician is a superb artisan, but I had to teach him to clean up the work area after finishing the work. Our big shots in the IT industry, who do not want to go up the value chain, need to clean up their cobwebs. They should want to become proud and say, “We are expensive, but once you come to us, you will not go anywhere else!” I have heard the Japanese saying this often!


Slowdown! Recession and the cycle! 

Economic cycleThe science of economy is something which I don’t understand, seriously! Noble laureates give their theories, experts write essays, but an engineer like me understands only physics. Whatever goes up must come down! It is the theory of gravity. Sometimes it goes up slowly and comes down fast with a thud. Sometimes both speeds are similar. Economic growth goes up swiftly and comes down slowly sometimes. India has been lucky that it came out of the 2008 recession reasonably unscathed and bounced back for the last eight years to a decent growth rate of 6 to 8%.

Many factors lead to growth. Similarly, different factors slow down the economy. These factors are market sentiment, buying power, and so on; the Indian economy since independence did not show correct growth due to a parallel economy. The parallel economy, in the local language, is called Black Money. What is black money, and how does it get generated? Many businesses like construction, land dealings, trade pay each other by cash. Cash payment is made to avoid Income Tax. A part of business activity is never shown on paper. When there is “no business” there is no profit hence no Income Tax. The parallel economy also grew because of unprecedented corruption activity. Nobody takes bribe by cheque, so spending is also done in cash.

In some cases, corruption is in kind by gifting condos, high-end cars, or items which can be bought in cash. Such gifting is done in the name of non-earning spouse or a relative. In Many cases, such assets are “Benami” assets in the name of one’s sweepers, peons and drivers. In a recent interview, Mahindra & Mahindra Chairman Anand Mahindra said that the economy has been going through a process of ‘detoxification’. Since the negative impact of disruptions is now over, the economy is expected to see an upside in FY21, Bloomberg TV reported Chairman Mahindra as saying at an event in Davos, Switzerland. “The prime minister has been quite obsessed with the kind of growth he wants, and that is transparent, free of corruption” Mahindra also said. He also felt that the upcoming budget is expected to be watched closely by different quarters of the economy amid the slowdown.

The Indian economy is seeing a slowdown for some time now on account of a fall in consumption and demand. The government announced a slew of measures in the past few months to revive growth ranging from bank recapitalisation and boost in liquidity.

The perception right now is that government actions caused the slowdown. But on the other hand, if you are going to detox yourself, you always have a process of cleansing before you start recovering and running again. Demonetisation and GST were the part of disruptions that have now ended, and the economy is already seeing signs of life. From the next fiscal, India will surprise the world on the upside is the general market sentiment.

The International Monetary Fund (IMF) recently slashed the growth estimates for both the Indian and the global economy. The global growth is expected to reach 3.3 per cent in 2020, compared to 2.9 per cent in 2019, the slowest pace since the financial crisis a decade ago. The Washington-based international crisis lender revised downward India’s GDP growth projection to 4.8 per cent for FY20 and 5.8 per cent for FY21. “India’s domestic demand has slowed more sharply than expected amid stress in the non-bank financial sector and a decline in credit growth,” the IMF report said.

Detoxification had to be done. It has not eliminated black money. But the reports say that it is reduced to some degree. The government is relentlessly after the businesses and businessmen who have cheated their customers and banks. People like Modi and Mallya are in jail in Britain. Other business people like Sahara Subrata Roy, D S Kulkarni, Wadhawan are in prison. Unitech projects have been taken over by the government to give homes to 21000 people like you and me. The authorities did not have the guts to detoxify the banking system in olden days. The detoxification process has started bringing out huge NPA’s (non-performing assets) of many banks. These NPA’s were created with the help of bank employees sometimes. But many times, the businessmen cheated the banks. Under the garb of hidden NPA’s our economy was “doing well”. When the cleansing act began a few years back, the loan sanctioning processes became a little tougher. The result of more scrutiny was that credit availability came down. When the available credit comes down, business activity slows down. It is a spiral that any economy dreads. But system correction was a must.

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Growth any any country cannot be perpetually high. As the base increases rate of growth is bound to come down.

On one side, the automotive industry has slowed down, but there are reasons like availability of Ola’s and Uber’s of this world. But there is a surprise that the SUV introduced by KIA is selling like hotcakes. There is going to be one more hurdle here; the government is pushing for Electric Cars or initially more efficient IC Engine Hybrid cars. These cars will be more expensive than current IC Engine cars; the young generation is now changing their thought process. They don’t buy cars, but prefer Uber and Ola; they rent homes instead of buying homes. India has now become number two in the world behind China for the Smart Phone market. Spending ways are changing.

I am happy about this downturn for another reason. Gita Gopinath from IMF explained that the Indian recession has caused a 0.1 % reduction in the growth rate in the world economy. It indicates that India is not a small cog in the world economic wheel. At the same time, she has also said that the worst for the Indian economy is over, and it will start the upward movement in growth rate from this year 2020! The statement will disturb some people because they hoped that bad times would continue. Each group has his/her agenda! Some for political reasons and others for TRP reasons! The lousy news is THE news!

Indian economic experts had made similar predictions and statements! But we believe in someone who sits in cool climes; even if the person is desi, it is okay! Old habits die hard!

I have observed an interesting thing in international diplomacy. Turkey and Malaysia had no business to poke their nose in the internal affairs of India. They made some statements which were not necessary. When India protested, they continued in the same vein expecting the docile Indian response of yester years. But they must have got a shock of their life. India kicked them where it really hurts. India had ordered one ship worth US $2.2/ billions, on Turkey; it was put on hold. For Malaysia, India was the most significant customer of refined palm oil. A few hints here and there, the purchase pattern changed within a few months. Indian traders switched over to Indonesian palm oil. Malaysia was shocked, and they have no option but to accept it. Their prime minister accepted that Malaysia is too small to retaliate. They are trying to offer some sweet deals to India. But India is ignoring them.

Friends, in the economy of any country and for that matter world, there are always cycles of growth and downturn. A downturn can be because of market sentiments, inflation and sometimes the combination of two, stagflation. The experts of every country find ways that suit their economy. Japan for years is not doing great because of their efficient methods of working. The Japanese markets are too small for some of their giants like Toyota, Honda, Docomo. They have no option but to export and open plants in different countries. The German case is also like Japan because its economy is entirely dependent on the exports of superb engineering products. The economies of different countries are now changing from a global open market to the one which is suitable for own requirements. The US has become a leader of such self centered thoughts.

It is going to be a game of diplomacy where each country will look for ways which will be to their benefit only. Brexit is a latest classic example of this thought process. In each country, the opposition plays the political games of troubling the incumbent governments. Whichever is the government in any country, they can make mistakes, but they all put the interest of the country ahead of everything else.

For commoners like you and me, it is necessary to be remember that economic activity is a cyclic process. It goes down and then it bounces back; we need not worry about these issues.

 

 

 

 

Trust the potent weapon!

Roti, Kapda Aur Makan! Food, Clothing and Shelter are three basic things we need in our life. But there is one more important thing that needs to be added to list, Trust! You will now add WhatsApp, FB and Internet to the list but then these are not basic things. Trust means a firm belief in the reliability, truth, ability, or strength of someone or something. 

It is equally applicable to personal relations and in business. We put our firm foot forward without any doubt if there is trust in the relationship. Trust is a central part of all human relationships, including romantic partnerships, family life, business operations, politics, and medical practices. For example, if you don’t trust your doctor or psychotherapist, it is much harder to benefit from professional advice. In politics, a government falls when no-trust motion is passed against it.  

Trust is a set of behaviours, such as acting in ways that depend on another or is a belief in the probability that a person will behave in specific ways. Trust is a general mental attitude towards a proposition that someone is dependable and is a feeling of confidence and security that our partner cares.  

Behaviours and verbal expressions are certainly evidence for trust, for example when someone treats you well and says beautiful things to you, but these behaviours are merely evidence for the internal mental state of trust that causes them, not the trust itself. Trusting people may involve trying to guess how they will behave, but people usually trust others without any understanding of probability or any precise predictions about their behaviours. Trust is an abstract feeling like love. But, it is challenging to define trust, but humans do it by gut feeling.  

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Our first and topmost gut feeling gives us the confidence to accept our mother’s trust. A child blindly believes in whatever the mother does and commands. From babyhood, we trust the mother. It probably has to do with being in her womb for nine months. During that phase, the mother and the child have an interdependent physical system, but still, they are oneThe child does ALL its activity in the safety of the safe atmosphere of the womb! In that period, humans get the training of learning to trust.  

The same trust is what drives our life; we expect and hope to have similar level of trust from others in both personal and business matters. Some people and companies achieve it, but many don’t. The reason could be that maybe we expect too much from organisations. But I will share some stories which suggest how I handled them.  

Years back, I had bought a couple of dongles. I found that they did not perform to my expectations. Hence, I closed my account with them by paying cash to avoid any discrepancy about final payment. I kept on receiving their bills for the next three months. Then a bouncer came to my office for the unpaid bills; I showed him the details and told him that next time he comes, I would call the police. Eight months later, I got an invitation for tea at their regular customer meet where a wellknown lawyer was to explain intricacies about bills. They threatened discretely in the end that they will sue me if I did not turn up. Two years later, I got a phone from a cell phone by a lady who claimed that she was talking from Delhi. After using choicest bad words, she threatened that the company would sue me in Delhi and a lot of my time and money will be wasted etc. When I counter threatened her with police complaint, there were no calls again. The amount involved was Rs 785/I am told that when such follow up is done 80% of the people pay the money out of fear. It is an extortion racket run by these companies. Will I ever trust such companies or their group companies?  

I have been using Honda cars for sometimes. Very rarely, I have had any problem with these cars. Whenever I had any technical or commercial issues, responses from their dealers and the company would be swift and resolved the problem. That has ended in my trusting Honda totally.  

Companies make mistakes in their responses, in their products and customer relationship. But many come out of them quite well, though some of them are still controversial. Take the case of Uber. It has many many issues with customer relationships, but somehow, they overcome them. But the product they have provided is such that it has given us comfort that a taxi will be available when we want it. 

I had hired an Uber taxi sometime back, and the driver turned out to be nasty. The trip never began, and the driver ended up telling me to cancel the trip. I did it, and during cancellation, I wrote about the incident. By the time I came home using the lift, (elevator) I had got a phone call from Uber. Their customer care called me to say sorry and to find out the detailsPhone calls continued for three days, and I got calls from different levels. They informed me of what action they had taken against the driver — Uber way of getting the trust back.  

Trust is rarely absolute but somewhat is restricted to particular casesa wife may trust her husband to pick up the groceries but not to buy a party dress for their daughterSuch decisions are based on previous experiences, knowledge about husbands capabilities and interests in doing something girly!  

Wife’s trust in the husband is not just an estimate of the probability that he will pick up the groceries but also a positive feeling toward husband in this respect. Her gut feeling tells her that he will be able to buy the groceries correctly, but she may not be sure about his buying the right dress. She may feel that he is not reliable enough to do such a chore! Trust is the highest when the previous history, the gut feeling, and persons’ interests match.  

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Talking of trust in business, Facebook has made a significant blunder by sharing user data with Cambridge Analytica. At the same time, they have shared data with Microsoft, Netflix, Yahoo and Amazon. Google is already capturing many of the activities we do without informing us. Boeing has made a blunder by not sharing the details about the problems in the model 737 Max. They had this information with them for more than two years before two major accidents took placeIt has created a distrust about them. On the commercial side, they have already spent the US $ 5 billion due to this episode. It will be tough for them to gain customer trust again.  

Building trust isn’t glamorous or easy. And at times it involves making complex decisions and difficult trade-offs. Trust is less fragile than we think. Companies can be trusted in some ways but not others and still succeed. Trust can also be rebuilt. 

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Trust is never objective, but it is subjective. People do not suddenly stop believing in others or companies. When the specific reason for the loss of trust is removed or corrected, trust can be restored. But there is only one relationship between the mother and the child where distrust never gets created, at least from the mother’s side! Conserve your most expensive asset, the Trust!

Trust me to share good blogs with you! emrgency1

 

 

 

 

 

 

EV Conundrum!

 

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I am back to my favourite topic, Electric Vehicles or EV! A couple of days back there was a meeting called by NITI Ayog to discuss and decide EV policy for two-wheelers, in India. I am going to write only about the Indian scenario. My observation is that the electric four-vehicle of similar specification as the IC engine costs almost double the price. Plus per charge range of these vehicles is about 110 km. The specs are not good enough for the car to be used for out of station travel. With these limitations, it is going to be challenging to sell such vehicles. But in two-wheelers, I have observed that the price of EV’s is comparable with IC engine version. Distance travelled using two-wheelers is much less compared to four-wheelers. In India, parking two-wheelers at home is manageable compared to four-wheelers.

There are many angles to this issues. First and foremost is the fuel. With limited petroleum product reserves, there is bound to be a tough situation for the whole world if no action is taken, we will have difficulties. Add to this a new dimension; the US has threatened India to stop buying oil from Iran or else! If the US is so much worried about the whole world vis a vis Iran, then they should sell Oil to India at the same price as sold by Iran and that too in Rupees! But the US can get away with anything in diplomacy.

Petroleum product based fuels are adding to pollution is a known fact. The whole world is trying to reduce pollution by tightening the pollution norms, but apparently, there are limitations of investments to achieve the goals. Again the US has opted out of the body which is trying to track pollution world over. Again, it is the act of a bully.

All the nations are trying to reduce pollution in their cities and India is also trying its best. NITI Ayog meeting was held for the same purpose. Four-wheelers are still miles away from reaching the balance between the price targets and the cost. As four-wheelers will be expensive, their sales will not match current sales volumes at a price expected today. The second most crucial aspect in India is the challenge of charging the car batteries. Majority of the cars in India are parked in public places. Many of them are parked on roads and streets. How to provide a facility to charge batteries for such vehicles? Do we provide charging points on roads like we have parking meters? I don’t think that is a practical way of doing it. Another issue is that fast charging techniques are coming up but are still not good enough. With such limitations, NITI Ayog is trying to put pressure on the two-wheeler segment.

As already discussed, EV’s in this segment will have a comparable price, and because of lesser parking issues, charging the batteries using home electrical outlets may be possible. Charging is manageable; costs are manageable, and the number of these vehicles produced is very high. The number of two and three-wheelers manufactured in the latest financial year is 30 million plus. Total of fuel used by these vehicles is massive.  If totally converted to EVs, there can be a significant impact on pollution.

There are two groups in this segment. First and the main is the group of established manufacturers like Honda, Hero and Bajaj. They are already developing EVs. The second segment is the startups who are in the process of developing EVs. They have no hangups and are trying to support the government. But the established ones have the issue of scaling up. NITI Ayog is insisting that by 2025, majority two-wheelers manufactured should be EV’s. The Giants have a vast experience in manufacturing and can visualise or foresee the issues. Startups really don’t have manufacturing expertise and experience. They probably do not understand the meaning of manufacturing 2.5 million vehicles a month.

Now here is a complicated situation. Established manufacturers have to keep on producing IC Engine vehicles and ramp up EV production. Tremendous efforts and money will be needed. Startups may know the EV technology but do not have the wherewithal to manufacture one hundred thousand vehicles a month. Selling these numbers without the right experience is going to be very tough. What about funding? They are solely dependent on financing by VCs. Today I read an article about VCs trying to go away from electric vehicle manufacturers, in China, as there are too many variables. These startups will never get bank funding. Don’t forget that even Tesla is still a VC funded company! They are already facing production bottlenecks, and their sales are going down!

Will Lithium producers make a cartel like the petroleum cartel? It is a million dollar question. India does not have Lithium reserves, but China has done brilliantly. They have taken controlling shares in many mines across the globe. Till foreseeable future, it looks like the Lithium, and to some extent, Cobalt is going to be the key elements. Their control will be the key to success.

https://www.mordorintelligence.com/industry-reports/india-lithium-ion-battery-market

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The cost of the battery pack was the US $1000/ kW-hr in 2010. In the year 2016, it came down $273. At this rate, the EV’s will become affordable over a period. By 2020 it is expected to be sub $200/. By 2026 the price is projected to be $100/. But till that time it is going to be a tricky question about change over. Those who can afford will buy the EV’s, but the mass production models will take some time to become affordable. In the countries, where parking of cars is an issue, it is difficult to predict what the solution will be.

Lithium3

One pertinent point discussed by NITI Ayog was that if the pollution goes out of hand, then the courts will intervene. Once that happens then, the discussion will be between manufacturers and the courts. NITI Ayog suggested that some policy decisions need to be taken while interested parties are involved in the debate; it will enable both sides to come to an excellent resolution.

It is more of a chicken and egg situation. It is known that EVs are good for pollution management. On one side, nobody even knows which startups will even survive five years hence. Hence there is no point in putting your money on them. But the existing giants have their issues. They need to run their current business, which has its unique problems. They have to simultaneously scale down and scale up for old and new business. Hence they have shown their apprehension with the year 2025. How will they come out of this conundrum is anybody’s guess.

Are Electric buses the real solution for pollution control and to take people away from personal vehicles?

Electric Vehicle-another revisit!

During a surprise visit by my grandnephew last night, we went for a quick bite of Idli-Dosa. He works for Tesla. We, of course, discussed the merits and demerits of the Idli-Dosa one gets in the bay area. As usual, it was concluded that you can’t beat the “original” stuff you get in India (it need not be from Chennai, even Pune Dosa is better!) The main subject of discussion naturally, was about EV’s. The original EV maker is Tesla! In such a debate, there never is any conclusion. What one does is exchange information and knowledge. So here we go!  

The development and now the production of EV’s is gaining momentum for higher and higher volumes. China is leading the pack, and almost 50% of global EV production is done in China. Technology wise Tesla is way ahead of the competitors. Tesla vehicles smoothly go 300 miles and above per charge. In fast charging technology, Tesla is ahead of others; they can do it in 30 minutes. Looking at our Pune Bombay travel on Expressway, if the 30 min/300 miles combination is achieved by our car manufacturers, then it is easily possible to make a round trip, the way we are doing with IC engine cars today. The same is possible with Nashik, Kolhapur, Aurangabad. But our car manufacturers are still lagging behind Tesla in the above combination.  

How fast can the EV’s come in daily use and what could be the limitations for them? What will affect the quick proliferation of EV’s? Other than Tesla all giants like Toyota, Honda, GM, Ford, Volkswagen, Fiat have the knowhow to make cars in large numbers, In fact, they have decades of experience in this field. But they are behind in Electric drive technologies and batteries needed for EV’s.  Tesla will struggle to reach large numbers like other giants. Elon Musk twitted Tesla achievement of producing 6000 in a week for the first time in the history of Tesla; Ford Europe CEO congratulated him on the twitter, “Elon congratulations on the great achievement! For your information, we achieve these numbers in four hours”!  This shows that replacing IC engine cars by EV’s in a significant way is not going to be so easy, yet. 

Except for Tesla, most companies making EV’s are having joint ventures, different joint ventures in different countries. Toyota has joined hands with Suzuki in India. They have jointly come together in India with Toshiba to make battery packs! It is interesting to note that Suzuki will make EV’s in India for Toyota too! For EV’s, Toyota is providing technology to Suzuki. Toyota has joined hands with Mazda for making EV’s in the US. What Google and Apple will come out with, is anybody’s guess. But there is a big drive going on for driverless cars. It is expected that in the US driverless cars or their variants may come faster than EV’s.  

Other than the points mentioned above, what factors will decide the proliferation of EV’s. If we see country wise, smaller countries might be able to handle this better because of geography. Creating charging infrastructure, changing laws, changing insurance policies will be much easier to incorporate. With the same logic, the EV numbers will go up in large countries, states or regions. Like in the USA, proliferation will be quite swift on the west and east coast but will take time in mid-Americas because of low population density and vast distances; add to that mountainous regions. 

One exciting event took place. A couple of weeks back, Tesla has opened up all its patents to the general public for use. Musk declared, “We are aware that Tesla alone can not achieve the car volumes required to improve the environment. We are opening up all our patents to everybody with a hope that this will improve EV production volumes fast.”

Similarly, in India, this will occur around metros like Delhi-NCR, Mumbai-Pune. Chennai-Bangalore, Surat-Vadodara-Ahmedabad. There are more such areas in India. But India has similar problems with long distances in rural areas with less car usage. But it will take some time of coast to coast driving in the US, and Kashmir to Kanyakumari drives in India to happen regularly.

  EV1

The graph above shows the reserves of Lithium in Metric tons in the year 2017. Lithium could be the next oil, and the top four could form the next Cartel, the Lithium Cartel. The battery pack is going to be the most crucial part that is going to limit the production of EV’s. As per current technology available, Lithium is the raw material for batteries. The four nations above are going to be next Arabs for the auto industry. The auto industry is one of the significant consumers of petroleum-based products. As EV production goes up, Arabs and other cartel members will come together and reduce petroleum prices; using IC engine cars will remain more attractive. This will make it attractive to make IC engine cars. So, what will be the product mix in 2030? That will be decided by many factors. 

The product mix in the year 2030 is predicted to be 35:35:30 of EV’s, Hybrids and IC Engine cars. The combination could vary a bit, but the general proportion will be as above. EV’s will be controlled by how car manufacturers other than Tesla adopt and ramp up with the limiting conditions of per charge mileage, least possible charging time and availability of battery packs.   

Hybrids are a combination of Electric drive and IC Engine drive. Hybrids are forced by the requirements of environmental norms; hybrids have a better carbon footprint compared to IC Engine vehicles. The volume of EV ramp-up will not be sufficient to achieve global improvement of environmental standards; hybrid will provide some relief.  

IC engine cars will contain a predictably higher percentage of Petrol cars. Diesel Engine cars are expected to get a major jolt by the year 2022/23 when Euro 7 norms come into existence. These norms will be extremely challenging for diesel engine manufacturers. The cost of development and manufacture of Euro 7 compliant diesel engines can be prohibitive. Volvo has already decided not to manufacture Euro 7 compliant diesel engines for cars.  

It appears that if Electric buses are made available, they will be quite useful and practical. In Pune, about ten Electric buses have started plying on the roads, about ten days back. On the first day, approximately forty thousand people travelled on these buses. Bus application is going to help the improvement of the environment in a big way. Today most of the buses everywhere are run on diesel. They are very polluting, extremely noisy and many times people travel in them because of the lack of other viable options.  

One interesting aspect I must mention. When EV’s are produced in large numbers, industries like casting, forging, heat treatment, furnaces will move towards extinction. Same will be with the car service industry. But as almost 70 % of cars are expected to have IC engines even in 2030, these industries will have more time to handle the life-threatening change.  

My personal experience with EV’s is minimal. I have visited Tesla showrooms a couple of times during my visits to Seattle. In our condo in Pune, a couple of people own Electric Scooters. I drove one of them for a few minutes. The feel was excellent. I have enjoyed a few rides in the Toyota Prius, the Hybrid, and it was a very pleasing experience. 

I am looking forward to owning an Electric Vehicle.  When? It is anybody’s guess!

 

Is it three cheers for EV’s or one cheer?

The other day I was at a party held by foundry technology experts group to commemorate an individual landmark. Fish, chicken and various tikkas were available in abundance. Liquor was flowing, and I was as usual high with my drink H2O on the rocks! Different subjects were being discussed, old memories were shared. It was a fun atmosphere. I asked someone who is in foundry related service industry, “What do you think will be the effect EV’s on your business? And when do you think it will start affecting your current business?” He was very candid and said, “Yes, this is going to affect my business in a big way, that may be felt from the year 2030. But then by that time, it will be for my next generation to handle it, and not me!”

There were 2/3 others in this discussion. One of them was a foundry expert plus, an energy consultant. Another person was a foundry expert for an International giant for Asia Pacific region. I am none of these, but as a hobby, I read a lot about Electric Vehicles and consequently about Energy situation. It was mentioned that one of the industrial giants, Kalyani group is already jumping the EV components bandwagon. Tata, Mahindra, Suzuki-Toyota combine, Hyundai (they claim that they will launch their first EV in India ahead of Suzuki-Toyota combine in 2019 itself.) will be four major players in India; for these four mentioned companies, it is imperative to be in the EV market. Suzuki manufactures and sells more than 50% of its global production in India. Hyundai’s India % is sizable. Tata/Mahindra are local companies, so they have to do it and have started off well in EV’s. My other friends were arguing that 2030 is too early, but the inflexion point for production will come around 2040, which is 22 years hence.

(Point of Inflexion means a moment of dramatic change, especially in the development of a company, industry, or market.) 

Another argument was about power availability in India. I felt that people’s information on the power situation in India was a little dated. India has jumped the power bandwagon in a big way. Solar and wind power may not need long distance transmission of energy as is usually done, thereby reducing transmission losses. It could be done locally, and there are a vast number of diesel engine run water pumps in India, in rural areas. I will not go into details of whether this achievable but I can say that power generation costs have come down in India by using non- conventional methods; one tender was sanctioned in Gujarat in Dec 2017, at Rs.3/ per unit as against Rs.6/ plus of coal and fossil fuel methods.

http://powermin.nic.in/en/content/power-sector-glance-all-india

https://en.wikipedia.org/wiki/Renewable_energy_in_India

These links give details about power generation situation in India as on Dec 2017 and renewable energy projections up to 2022, respectively. The argument in the party was that current power production is way below even today’s needs, so how can India feed EV requirements. When fossil fuels rates are controlled by Arabs, how will we get cheap power? The two links clearly show that the current power generation situation is not as bad; it is thought by many. In some areas in India, there is a power surplus. Our current problem is that the grids are not able to distribute the power from surplus regions. As more and more power in India is going to be generated by non-conventional sources like solar and wind, the price reduction of power will quickly happen, and capacities will be added faster! This is already happening in Germany and in California!

According to my understanding, the Point of Inflexion for the introduction of EV as a product reached long back. In September 2017 total EV production in the world was 1,23,000, which was 56% above 2016 Sept sell. Extrapolated to yearly sale, it will be 1.45 million against world production of around 90 million. This is about 1.6%. This indicates that the point of inflexion of product proving is crossed. There are a reasonable number of EV’s on the road. Major manufacturers like VW, Toyota, Ford, Nissan already have big plans for EV’s which will start rolling out in more significant numbers.

In the discussion I was having, someone had a view that EV is just a passing fad and will die soon. IC engines can never die! This I felt was very naive thinking. This gentleman also suggested that many products showed a lot of initial potentials and then died. There are two strong reasons why this will not happen for EV. First is pollution. Delhi, London, Beijing and many others are classic examples of what havoc pollution can do. The world is not left with many choices but to get pollution free methods of motoring around. Secondly, countries which have a large amount of fossil fuels currently, control the economy and inflation-related issues. The world already has said enough is enough. Big searches for different methods are underway for alternative fuel. Already some major cities and some small nations have started creating laws which will be useful in not allowing diesel cars within their limits; later on, they will not let even registration of fossil fuel cars.

Smaller companies have already made their foray into electric tempo, riksha. These are one of the most polluting vehicles. This is a good sign as the last mile is always tricky. These are not very costly and fancy vehicles, so big shots will not be interested. Another good sign is people are also talking of making ships run on EV! It is doable, weight and space is not an issue for them. Buses appear to be next after cars, but I am reading about leading companies like Hero, Bajaj and Honda foraying into Electric two-wheelers.

So, whether we like it or not, whether we know about it or not, whether we want it or not EV’s are here to come. So, during my next party with H2O on the rocks discussion will be more about when and not about “if” of EV’s. Cheers!

Auto Industry 2040?

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 the introduction of electric cars in a big way; from this year onwards, the real downward trend in the manufacture and use of IC engines in the vehicles, as we know them today, will begin. I am merely 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, the 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 the evolution of the human race, but this could be the 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! The primary driver for these changes is computers and computer chips. The car industry will be using different chips and will capture lots of data generated by various systems. This data will be in an 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, gearboxes etc. will 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. Gearbox 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!

Many companies are manufacturing the components that are discussed above. These components may become redundant over some time due to the 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 wherewithal and deep pockets to handle difficult situations. Some have started making navigation products, some are building 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 the first two decades of the 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 the 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 the 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, ESLA may cease to exist  by 2040 or even earlier as it is known today! Takeover? Maybe!