Category Archives: Transport

Changing attitudes to mobility: the hidden factor in the PSA-Opel deal

RNPS IMAGES OF THE YEAR - GERMANYThe likely takeover of GM’s European unit Opel by PSA isn’t all to do with economics. It’s also about changing attitudes to mobility and transportation.

Although fully autonomous passenger cars are still some way off, the technology is well advanced. And connectivity is already becoming a must-have, so the way we access mobility can change very quickly once legislation and a wider offering from the OEMs and new entrants are in place. Together these things promise to turn the automotive industry upside down. That OEMs must adapt to changing market needs is clear.

Yet the OEMs aren’t impatiently waiting for legislation and market demand; they like the status quo. Their existing, set-in-stone business model is based on customers paying a premium for a brand and owning the asset or leasing it long-term. The OEMs build a car, send it from the factory gates to a dealer and see it again in three years’ time. That’s how they like it. They react to change; they don’t drive it.

What they do like is the fact that barriers to entry for new carmakers are significant. Designing and building cars is extremely complex and difficult, and it’s even harder to make money out of them. Tesla is an exception to an extent, but it is not fundamentally different or disruptive, and it still doesn’t make money. It makes conventional looking cars with battery packs and motors and sells them to mainstream customers. It hasn’t reinvented the form of the product or the business model, and automation is a feature on its cars, not a purpose.

56b8575825067Effectively Tesla wants to join the establishment but doing it with a bit of chutzpah; it’s not establishing a new paradigm. But that’s what new entrants should be doing and existing players need to move towards. The likes of Google and Apple have wisely stepped out of the shadows to think very carefully about what their place in the mobility landscape should be. In a decade or less the power may well be at the other end of the value chain from the traditional business model, with Uber-type autonomous taxi brands and ultra-short-term leasing.

The barriers to entry here are far lower, and this is what the established OEMs have to be ready to be a part of.

So in the next few years they ought to be redefining themselves – moving away from the selling and ownership model, not trying to please everyone everywhere and instead focusing on the specific areas where they can offer real value and relevance. This was implicit in GM president Dan Ammann recently saying, “…we need to decide what we’re not going to do.”

It’s through this lens that we should view GM’s offloading of Opel. Leaving Europe is a big move for a company which has previously tried to be a leader in all markets, and no carmaker has ever walked away from a big share in Europe. But these are times which require clear sight and strong action. Yes, there are the financial imperatives – it hasn’t made money in Europe this century and, the last time it did, Clinton was in power: the world is has changed massively since then.

Being prepared to abandon declining markets and profits means that it can focus more on new technologies and new revenue streams. That’s the consequence of what Amman was saying.

2016102001a_link_co_geelySome of the other major OEMs are showing evidence that they’re beginning to think about how they can fit into a world of disruptive change – Volvo for example has established a new shared mobility unit and its parent Geely has recently launched the Lynk and Co brand, founded on the trend towards ad hoc usership.

But among the biggest players any new mindset is a consequence of necessity. VW is reinventing itself as an EV and mobility provider – forced into faster, more fundamental change by the diesel scandal – yet as part of that process is having to ask fundamental questions of itself: what is it, what is its purpose, what must it and can it become for the future? These are questions which, when answered, define a brand.

And ultimately this is a question brand – of purpose, relevance, engagement, vand culture. All the OEMs must start focusing on the shift from being a manufacturer of products – autonomous pods will inevitably commoditise a brand – to being a deliverer of a service and an experience creator. The existing OEM brands and new entrants all have to forge a positioning and offering which will allow them to prosper in the 2020s and 2030s, when the marketplace will look very different from today.

GM, for all the unsentimental expedience of its farewell to Europe, may have taken the first steps towards that.

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Tesla, lithium and the battle for power

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Seeing Tesla yesterday at Cenex LCV, the UK’s leading low-carbon vehicle event, was a reminder of the company’s challenges.

It’s hard to argue with the vision and ambition of Tesla founder Elon Musk – someone who promises not just to make the world a better place but even to help mankind find an escape route to another planet, via his SpaceX business, if plan A doesn’t work. His big pronouncements will always have plenty of emotional appeal.

37cdb07500000578-3769059-image-m-30_1472756569002But they can also fail spectacularly. In April, when he described the forthcoming Tesla Model 3 compact car as “the most compelling product launch on earth” he wasn’t aware that this month’s launch of one of his SpaceX rockets would be dramatically more compelling. The Falcon 9 failed explosively and extremely publicly, made worse by the fact that in its payload was a Facebook satellite for bringing broadband to parts of Africa. It was a PR-loaded fireball and could have been a metaphor for his aim of taking on the established carmakers.

Shortly after the Model 3 announcement it emerged that an owner of a Tesla Model S had been killed in a crash apparently as a result of the company’s Autopilot autonomous driving system failing to ‘see’ a truck. Last week the driver of another Autopilot-equipped Model S was killed in a crash, forcing Tesla to say that he wasn’t using the system at the time of the crash. This week another fatal crash came to light. And yesterday a public spat between Tesla and its former camera supplier Mobileye blew up, with the latter accusing Tesla of “pushing the envelope in terms of safety”.

Even July’s acquisition by Tesla of Solar City – the energy business of which Musk is chairman – undermined the big vision, being seen by most observers as merely a bailout, not a crystallisation of integrated sustainable energy.

tesla_model_3_2It’s been a bad year. Yet Tesla faces new, fundamental challenges and risks, and rather than provide welcome relief the Model 3 breakthrough car is the heart of it. Yes, the Model will alter the dynamics of the electric vehicle market if, as claimed, it comes to market in 2017 at a base price of $35,000, able to carry five people well over 200 miles and on to the high ground.

tesla-gigafactory-solar-roof-01But the real battleground is not the vehicles themselves – it’s how they’re powered. So if anything is going to be the Tesla gamechanger it’s the company’s giant Gigafactory battery plant, not the Model 3. It needs to be: around 375,000 people have placed orders for the 3, equivalent to a likely $16bn in sales. Musk says the 3 will propel Tesla from an annual volume of 50,000 vehicles in 2015 to 500,000 by 2018 to meet demand.

The Gigafactory will double global lithium battery capacity, but there lies the challenge. Where will all the lithium come from? That 500,000 annual production figure will require 25,000 tonnes a year of the precious metal, equivalent to 15% of global production. Lithium isn’t rare but it’s hard to reach, and as other carmakers ramp up their electric vehicle programmes the demand curve will steepen sharply. There could be a lithium gold rush, and a spike in prices: the cost of lithium carbonate imported into China has already tripled since the end of 2015. Tesla’s relatively low volumes will make it hard to bear sharp increases in costs, and unlike all the big carmakers it doesn’t make any cars which don’t run on battery power to provide reliable revenues.

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Tesla may need to buy a mining company to satisfy its appetite – the parallel with Henry Ford buying up rubber plantations to ensure that he had enough tyres to allow the Model T to transform personal mobility would no doubt please Musk. But there are other mouths to feed – not only the major carmakers but others with a longer record than Tesla in lithium battery production, such as BYD, the Chinese EV producer in which Warren Buffett has a stake. BYD has been making its own batteries for 20 years, and in 2015 produced more electric vehicles (EVs) than Tesla or anyone. A further stake in BYD has recently been bought by Samsung, which is pushing hard into automotive, supplies BMW’s i3 and i8, and is a massive producer of lithium batteries for mobile devices like the 6800 laptop batteries wired together to power the Model S.

And what if new battery materials or technologies emerge? Here’s the risk: the Gigafactory puts all Tesla’s eggs into one vast lithium basket. The battery pack for the crucial Model 3 will require new levels of energy density to achieve the claimed performance from a more compact volume, but we know it’ll be lithium and Musk has said he has no contingency plans.

Hedging its bets is part of the reason why the car industry is happy for Tesla to blaze the trail. There’s talk among the carmakers about building battery factories, but largely of JVs, where costs are shared and risks reduced. For the time being, however, it’s not that critical for them, because unlike Tesla their businesses currently depend very little on EVs. They can sit tight, wait to see how markets and technologies develop, then act – with power and accuracy.

There is undoubted allure to the Tesla brand – a disruptor with a bold vision. Tesla has a devoted fanbase, and you want it to succeed in a way you couldn’t want a Ford or GM to succeed. But a brand can’t continue to be a disruptor if its competitors can easily follow (only this week General Motors announced that its Bolt EV will beat the Model’s 3’s range by 10% and it will almost certainly hit the market before the Tesla) – or simply find a better way.

The money-burning carmaker business model alone doesn’t work and, objectively, making cars which happen to be EVs doesn’t even truly fit Tesla’s mission of helping transition the world to sustainable energy. Cars, even zero-emissons ones sold from shopping malls, are still largely privately acquired, carry one person from A to B and back again, and are ultimately disposed of. They fit the old model.

clnnbnwwaaanec5So you hope that, for Musk, cars are a way to create the momentum, goodwill and change of mindset for a wider energy brand and a new kind of grid – translating Tesla’s vertical integration into a world where EVs power not just themselves but our homes, are part of the internet of things and a smarter world. Otherwise his efforts may go the way of that Falcon 9.

Davos? Next time take the car

Apparently trust and leadership were the buzzwords at Davos this year. A pity they were only talked about.

croppedimage780520-Davos-Schweiz-Winterlandschaft-Sunstar-Hotels-Davos2The much-quote figure of 1700 private flights bringing the world’s plutocrats into Davos for the World Economic Forum, where climate change was a headline topic, may be too good to be true. About half that number appears to be more likely. But it does highlight the fact that the annual Davos bonding session is, let’s say, something of a contradiction.

The clue’s in the name: it’s an economic forum. Growth may well be the key to reducing inequality, as many were saying last week, but it’s also handy for those more focused on improving their own quality of life. The place is summed up this year by the reported sighting of a monk checking his smart phone. And who knows if anyone saw the contradiction in Google’s choice of party entertainment, the singer Aloe Blacc (most famous song: I Need a Dollar)?

720x405-AP907210667509You couldn’t make it up. And you didn’t really need to. Given the fact that, after years of being pushed down the Davos agenda, climate change was back – and and launching the event with Al Gore/Pharrell Williams double act – what was the WEF (mission: Committed to Improving the State of the World) doing 5000ft up a mountain and 150km from the nearest airport and sizeable transport hub.

private-jet-over-snow-mountains-Pilots-Perspective-Travel-3Sixty-AirAsiaEven if the number of private jet movements was half that speculated, that’s rather inefficient in pilot-to-passenger ratios. And private jets burn more fuel in an hour than a car does in a year. That’s an inconvenient truth.

We know that these people need to move around quickly. We understand that having so many important people gathered together in a single place means we can interrogate their influence. We appreciate that the event focuses them and the outside world on the big issues. But.

Davos could look to an event like Editorial Intelligence’s Names Not Numbers, where some of today’s smartest and most influential people first got together (and still do) in the very real environment of a genteel British Victorian seaside town. It’s not parochial – it attracts an international audience, thinkers rather than figureheads, and the event has now spread to New York and Mumbai.

WEF’s Swiss venue and date early in the year make for an interesting comparison with the Geneva motor show (this year 2-15 Mar). It’s Europe’s major annual auto industry event, so leaders from all over the world fly in. But unlike Davos it’s held at sea level (or at least lake level), and is a 10-minute walk from a major airport and a five-minute train ride to the city centre.

20181_300Road transport contributes around 15% of the world’s CO2 emissions. But it’s one of mankind’s most important tools. Motor vehicles changed our lives. They mobilised us. They enable business. They transform the lives of people in rural communities. They offer humanitarian assistance. They help fight wars. We need them and they’re being reinvented for the modern world.

And Geneva highlights a car industry which achieves more than the lofty talking shop of Davos ever will. The carmakers have achieved minor miracles. In Europe the average CO2 emissions for all new cars will fall to 130g/km this year. The target for 2021 is 95g/km, which will be down 40% from as recently as 2007 – the year before the financial meltdown caused by the world’s political and business leaders, the same people who were at Davos 2015.

In the UK the emissions are down around 45% since 2000, because a buoyant market means that people are buying newer cars with cleaner tech. And all this is before mass adoption of ultra-low-emissions vehicles has even begun.

This year will see Al Gore’s Live Earth concerts, ahead of the UN-hosted intergovernmental climate conference in Paris – tried-and-tested formats for achieving little. Meantime 2015 will also see the first production hydrogen fuel-cell cars and the roll-out of zero-emissions autonomous vehicles. The auto industry is full of brilliant people who achieve results – fast.

What’s the betting that the next 12 months will also see another Davos World Economic Forum in which the same people will hear the same things said before listening to a pop star they haven’t heard of and climbing back into their Citations and Falcons with a diary note of the 2017 event?