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Turbocharging Trumps Supercharging in the Battle for Engine Downsizing

Naturally aspirated engines have dominated the automotive landscape for decades. However, growing emphasis on the need to improve air quality in recent years has placed significant pressure on global vehicle manufacturers to improve fuel efficiency and ultimately reduce CO2 emissions. Not only have OEMs been subject to growing pressure from consumer groups and environmental activists, but there has also been a stronger push by…

The article was published as part of Automotive World’s Special report: Turbocharging and supercharging.

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China EV Policies: Is It A Bumpy Road Ahead for EV Players?

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Over the past several years, the Chinese government has been taking steps towards promoting green energy projects and building eco-friendly New Energy Vehicles (NEVs). Since 2008-2009, investments in green sector projects in China have witnessed tremendous growth, which is pushing development of the Chinese NEV industry. As China is slowly shifting focus from fossil fuel vehicles to electric vehicles, its involvement in developing technologies such as green energy and NEVs has equipped the country to compete at global level with western giants such as the USA, Germany, France, etc. While currently China is the largest producer of NEVs globally, it is still debatable whether in the future it will be able to sustain this growth to stay competitive and lead the global EV industry.

China has always aimed to become one of the global leaders in automobile industry similarly to its neighbors, Japan and South Korea, but for the longest time it was not able to produce vehicles that would be globally competitive in terms of quality and safety. In 2009, the Beijing government introduced Automotive Industry Readjustment and Revitalization Plan to strengthen China’s position in the global automotive market. The key objectives of the plan were to support domestic auto manufacturers, commercially as well as technologically, and allocate more resources to environmental friendly vehicles’ research and promotion. The government started promoting electric cars to tackle the environmental threats that China was facing. Electric and hybrid cars were relatively new concepts in 2009-2010, but this did not dissuade China and it started building strategies to increase production of such vehicles to compete and lead in the NEV market.

Since 2010, the Chinese government has been providing incentives, in various forms, for the NEV sector. For instance, the government introduced direct subsidies for NEV manufacturers, deductions for local authorities opting for green cars, and tax waivers and free registration incentives for consumers purchasing electric cars. These incentives accelerated the growth of NEV industry, which sold around 507,000 units in 2016 as compared with 480 units in 2009. Currently, the top ten global EV manufacturers are all Chinese producers. China aims to sell around two million electric cars annually and introduce a fleet of five million electric cars on the country’s roads by 2020. China’s goal, in terms of NEV sales, is quite ambitious but also necessary, as the country aims to limit its carbon emission rate by 2030 and curtail air pollution.

With the Chinese government shifting its focus on promoting green energy and green vehicles, changes have been made in various policies laid down for the auto sector. For instance, the 13th Five Year Plan, introduced in 2016, promotes adoption of NEVs. Government is also considering to ban gasoline and diesel vehicles, indicating that in near future, automakers may have to redesign their production and shift to green vehicle manufacturing.

In June 2017, the Chinese government made it compulsory for automakers selling more than or equal to 30,000 cars annually to increase share of EVs in their total auto sales. China’s Ministry of Industry and Information Technology (MIIT) introduced the carbon credit trading program, which mandates manufacturers to earn carbon credit score on their automobile production and sales. The policy is aimed to encourage production of various types of zero and low-emission vehicles. Effective 2019, manufacturers will be required to earn EV credits equivalent to 10% of sales, which would eventually rise to 12% in 2020. The credit score will be calculated on the basis of electrification level of the cars produced, indicating that fully electric cars will earn more credits than plug-in hybrid cars. Manufacturers not complying with these quotas will either have to buy credits or pay penalties. A credit score equivalent to 12% of sales will be equal to about 4-5% of EV sales, which could lead to the production of more than a million green energy vehicles in China in 2020. Certainly, this policy will be beneficial to the domestic EV manufacturers, who have massive EV production, as their income from credit sales will increase.

In January 2017, the Chinese government introduced another change in EV policy to subsequently phase out the tax benefits on purchase of EVs by 2021. The announcement has resulted in slight decline in consumer demand for EVs in China.

Further, the government has mandated the foreign players to form a 50-50 joint venture (JV) with domestic firms to operate in China. Consequently, the foreign players are forced to share their intellectual property and technology with local Chinese automakers. Some of the countries perceive this move as intellectual property theft by China. In the future, the Chinese government is likely to relax the JV terms and increase the foreign player’s percentage share in a JV.

China's Emergence in EV Market

 

EOS Perspective

Currently, China holds a bright spot in the global electric vehicle industry. Fuel-run vehicles are expected to lose their dominant position in a couple of decades if the EV industry continues to grow at the anticipated rates. Being the largest market for NEVs globally, China is likely to play a major role in this progress. But to continue leading the EV market, foremost requisite is to solve issues such as the price to performance ratio of batteries, and lack of sufficient charging stations and EV infrastructure in China.

In near-term, undoubtedly, China will remain a huge market for NEVs with foreign players aiming to be a part of it. It is yet to be seen what changes the Chinese government makes in JV terms for foreign players, but they will surely face a stiff competition from the well-settled domestic EV manufacturers. Selling in the competitive environment of China will surely affect their profits, but the main concern for them will be sharing their intellectual property with Chinese OEMs. Another challenge for all players would be to understand whether consumer demand for EVs will continue to thrive after the price increase related to the gradual withdrawal of subsidies and tax benefits. China has strategically kept NEV prices low to increase popularity and awareness of EVs amongst consumers. However, the government does not plan to sustain the low-priced regime, with the recent policy changes and subsidy phase outs likely to gradually increase EV prices in China, which might impact demand for EVs (it is likely to still remain high as compared with demand in other countries). The government plans to focus more on research and innovation to supply EVs at lower prices without any subsidies as well as to build robust infrastructure to support growth of the industry.

China also plans to export EVs to other major markets such as the USA, Norway, the UK, Germany, and Korea. With the current low quality and performance of domestically manufactured EVs, local Chinese players are not getting many buyers in these countries. But forging JVs with foreign players to produce EVs at lower rates and better quality may improve the export figures in future.

China has definitely raised the bar for other countries with its aggressive EV policies launched in 2017, which are future-centric and focused on ushering in a revolution in the auto industry by promoting EV vehicles over the traditional diesel/gasoline-based vehicles. In the future, NEV manufacturers in China are likely to focus on building economical and efficient vehicles, and with foreign players bringing in their latest EV manufacturing technologies, the future drive looks smooth for Chinese NEVs.

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Electric Trucks in Japan – a Tale of Tests and Trials

“I am convinced that electric trucks are the future of inner-city distribution”, said Marc Llistosella, President and Chief Executive of Mitsubishi Fuso Truck and Bus Corporation (MFTBC) when inaugurating Japan’s first public power charging station for trucks in May 2017.

There are two ways to view Llistosella’s statement. On the one hand, with the launch of the Fuso eCanter, a fully electric light truck, in 2017 and now with the setting up of the charging infrastructure, Mitsubishi is establishing a strong hold in Japan’s electric/electrified trucking space, marking its territory as one of the few players in the country to go beyond the trial phase.

 

The article was published as part of Automotive World’s Special report: ACE trucks – autonomous, connected, electrified.

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Breaking Bad, Building New: Customer Engagement Model for Automakers

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Digital transformation buzz has revolutionized the way companies operate and interact with their customers across virtually all industries. Automotive industry is no exception. Customer expectations today are more demanding than ever, primarily due to the service level benchmarks set up by the likes of Amazon, Uber, and Apple, as well as due to plethora of information customers can get through the internet and social media. The rise of digital channels is fundamentally transforming the entire auto retailing business. In order to stay ahead of the game, automakers will have to break their legacy systems and build new customer-centric marketing models.

The automotive industry has always been characterized by an extremely time consuming as well as complex sales processes that often result in an unpleasant customer experience. The industry notion “People love shopping for cars; they hate buying cars” precisely depicts the challenge auto retailers have to deal with and the need for industry players to rethink their sales and marketing models to enhance the overall customer experience. The Apple and Amazon retail ethos of seamless customer interaction, simple and streamlined sales processes, effortless and speedy customer services has become the benchmark for all retailers. Even in the automotive industry, changing customer preferences, digital transformation, increased connectivity are reshaping the entire retail supply chain, with major impact on the final parts of the chain involving direct customer interaction. The rise of cutting edge technologies, tech and information savvy consumers, and new market entrants are forcing traditional players to rethink and reinvent their entire business models.

The advent of technology has significantly lowered entry barriers for new entrants in the automotive retail segment, who have brought innovative business models and fresh ideas to help customers find, evaluate, and buy new vehicles. With slogans such as “Skip the dealership” and “Find deals. Not dealers!” new players such as Roadster or Rockar are transforming automotive retailing by offering a bargain-free and smooth car buying experience that can allow the customer to purchase a car and have it delivered to their doorstep within few hours. Traditional retailers have started to realize that, equipped with massive information at their fingertips, car buyers today are better informed than ever when it comes to car purchasing. One bad experience and customers will be very reluctant to ever come back to the same retailer. Despite this realization, many companies are still ‘moving metal’ the old-fashioned way using traditional media and other marketing approaches to attract consumers to their stores.

Statistics from many industry studies make it clear that with the mass proliferation of technologies, car buying journey is becoming increasingly digital, with most customers spending a significant part of their buying time online. Studies indicate that more than 65% of the information-gathering and decision-making process is already made prior to visiting a dealership. Therefore, it becomes vital for OEMs and dealers to rethink their entire marketing and customer engagement approach. They need to interact more effectively and engage consumers early and throughout their purchase journey.

OEMs and dealers need to understand that the whole process of buying cars is quite different from the process in some other retail segments. For example, to buy consumer electronics, many consumers visit the store to see/touch/feel the product and then buy it online because of the price benefits and other offers. In case of buying cars, most customers do their research and comparison online. They visit the local dealership to see/touch/feel the car and buy it there to benefit from special discounts and offers. Hence, it is very crucial to have an integrated and seamless transition across various channels in a frictionless manner.

The introduction of new business models (direct-to-customer) and customer experience strategies (highly interactive and pressure-free brand stores) created by the likes of Tesla, or Rockar, have caught the eyes of many traditional players, who have gauged the significance of realigning their marketing and customer engagement strategies as per demands of the rapidly evolving industry. Many OEMs and dealers have started to take a hard look at their entire customer lifecycle processes to assess the current gaps and address them. Companies are reconfiguring their touch points across channels by eliminating redundant processes and services. Recently, automakers such as BMW, Audi, and Mercedes have rolled out brand stores similar to Apple’s, where customers can visualize their cars, configure them to their own specifications, get experts to answer their questions, and even buy cars in a non-pressurized sales environment. Having already seen some positive results, these OEMs are likely to ramp up their efforts to roll out such brand stores on a larger scale across cities, states, as well as countries in the near future. While not all automakers have plans to launch such stores at present, it is expected that it will not be long before OEMs with no such current plans observe and eventually follow the footsteps of OEM players that have already reaped these rewards and showed what advantages such stores can offer.

EOS Perspective

As digital transformation continues to revolutionize the auto retailing landscape, there is no doubt that advancing technologies will make the car buying process increasingly digital for the years to come. We can expect a rapid surge of various online platforms that provide customers with the ability to easily research, evaluate, and buy cars. Operating within such a highly competitive marketplace with changing customer preferences, auto retailers will have to transform their business models to become more customer-centric and deliver on customers’ expectations. They will have to reinvent customer engagement frameworks to create ones that are built around customer needs, and are simple, frictionless, more transparent, quicker, and convenient for today’s savvy car buyers. On the one hand, this will help OEMs and dealers win more business, while on the other hand customers will benefit from an accelerated and hassle-free sales process, resulting in an improved customer experience.

Although transforming current customer engagement model seems inevitable, this will not come easy and will involve massive changes in existing marketing models. At present, majority of industry players lack the resources, infrastructure, and systems required to execute this transformation. In addition, as signification investments will be required, amid current business environment with high cost and competitive pressure, many automakers as well as dealers will still continue to engage in sales the old fashioned way or adopt a ‘wait-and-watch’ stance. At a dealer level, implementation of new customer engagement model will be much slower primarily due to capabilities and resources constraints.

In the end, one thing is obvious – in order to retain today’s customers and to win new ones, OEMs and dealers will have to reinvent their marketing and customer engagement strategies. To achieve this transformation, these players will have to work together to deliver rich brand experience and match the simplified and streamlined buying experiences set by Amazon and others. OEMs and dealers should take John F. Kennedy’s words to heart “Change is the law of life. And those who look only to the past, or the present, are certain to miss the future.”

by EOS Intelligence EOS Intelligence No Comments

India – Prime Target for Smart Mobility

India’s rapidly growing urban population (CAGR 2.35% between 2011 and 2031e), increasing motorization rate (CAGR 12.7% between 2010 and 2025e), critical level of traffic congestion, growing rate of accidents, inadequate mobility monitoring and deteriorating air quality make the country a prime target for smart mobility solutions.

Mobility-as-a-Service (MaaS) could be a game changer for India’s traffic and transportation woes by seamlessly integrating the first and last mile connectivity to supplement the existing fragmented transportation systems. MaaS has the potential to help bridge the current gap between rapid mobility demand and the slow pace of infrastructure development. The rapid consumerization of IT and technology and growing smartphone penetration should help boost the adoption of MaaS, as long as the country’s government stands by its words of making India ‘truly digital’.

We take a closer look at MaaS and the potential impact it might have on India’s transportation and travel – two areas that could be radically altered.

To read further, go to Automotive World’s Q2 2017 Megatrends Magazine.

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As GM Says Goodbye, Volvo Says Namaste India!

18th May 2017 was a busy week for India’s automotive industry. One would think that it was the financial year end which was causing all the drama, but not really.

It was the week when, to some people’s surprise and other’s ‘that was expected’ reactions, GM India decide to call it quits – no more of the beloved (?) Chevrolet brand on India’s roads anymore. Cars will continue to be produced (or so GM claims, at least for the time being), but only to be exported to other markets in the APAC region.

The fact that GM is withdrawing from India does not come as a surprise – GM’s Chevrolet brand hasn’t performed well in India, in spite of GM introducing new models in recent years. In the segment, in which GM introduced its vehicles (mostly hatchbacks), there had already been an intensive competition from the likes of Maruti and Hyundai, and more recently Nissan. It would have perhaps been better for GM had it introduced models such as Opel or even Cadillac to lure a wider segment of India’s population. One of the reasons OEMs such as Nissan, Honda, or Toyota have done well is that they constantly innovated for the India market, changed designs, and introduced new models and variants that catered to a wide customer base. GM seems to have fared poorly on that front. GM simply failed to sense of the pulse of India’s car buyer who looks for an all-inclusive deal: value-for-money + safety + luxury + service + brand appeal + etc., which clearly was not being provided by the American OEM.

As GM was announcing its exit, Volvo, a Swedish OEM, shared the ambitious goal of doubling its market share in India’s premium segment by 2020. Interestingly though, Volvo’s announcement to start assembling premium cars did not come as a surprise. It already has a good brand name in the CV segment and in the PV segment, the section of India’s customers who would buy a Volvo car already associates it with classy design and exceptional safety. Local assembly would, in fact, be a boost for Volvo if they are able to introduce locally made, India-priced cars as well as use this India production as a hub for South-east Asia exports. Indian car buyers are hungry for more and more international OEMs to enter the market and provide them with world-class products, and cars are no exception. Albeit late to the party, Volvo has the breadth of quality products and service competence to make a strong dent in the premium segment.

So, while 18th May was good for some and bad for quite a few, the dynamics of India’s automotive market continues to keep OEMs on tenterhooks – yes, there is a great opportunity if one gets the formula right, but the pill of failure can be extremely bitter.

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Autonomous Vehicles: Moving Closer to the Driverless Future

An Uber self-driving car was reported getting into an accident in Arizona last month. But as the saying goes “any publicity is good publicity”, this also holds true for autonomous vehicles. The news sparked a discussion and shed some light on potential challenges the technology may face before it becomes available for commercial use. At the same time, it spread awareness about the level of safety testing being done to improve the technology before it is rolled out to the public. We are taking a look at what’s potentially in store for users waiting to see streets flooded with driverless vehicles.

Autonomous self-driving vehicles have been the talk of the industry for some time now, with some of the initial attempts to create a modern autonomous car dating back to 1980s. However, major advancements have only been made during the last decade, coinciding with advancements in the supporting technologies, such as advanced sensors, real-time mapping, and cognitive intelligence, which are perhaps the most crucial to the success of any autonomous vehicle.

Early advancements in the segment were led by technology companies which focused on developing software to automate/assist driving of cars. Some prime examples include nuTonomy, which has recently partnered with Grab (a ride-hailing startup rival to Uber) to test its self-driving cars in Singapore, Cruise Automation (acquired by GM in 2016), and Argo AI, which has recently received a US$1 billion investment from Ford. These companies use primarily regular cars/vans that are retrofitted with sensors, as well as high-definition mapping and software systems.

However, software alone is not capable enough to offer self-driving driving functionalities, therefore, automotive OEMs are taking the front seat when it comes to driving advancements in autonomous vehicles segment. New cars/vans, which are tuned to work seamlessly with this software, are likely to adapt better with the algorithms and meet stringent performance and safety standards required before they can be rolled out commercially. California-based Navigant Research believes that with its investment in Argo AI, Ford has taken a lead among such automotive OEMs in the race to produce an autonomous, self-driving vehicles.

Advanced levels of autonomy still to be achieved

In a nutshell, there are five levels of autonomous cars. Levels 1 through to 3 require human intervention in some form or other. The most basic level comprises only driver assistance systems, such as steering or acceleration control. Most common form of currently prevalent autonomy is Level 2, which involves the driver being disengaged from physically operating the vehicle for some time, using automation such as cruise control and lane-centering. Tesla’s current Autopilot system can be categorized as Level 2.

Level 3 involves the car completely undertaking the safety-critical functions, under certain traffic or environmental conditions, while requiring a driver to intervene if necessary.

Most OEMs developing autonomous cars target launching their vehicles in the next three to five years. Tesla is probably the closest, with its Model 3 car with Autopilot 3 system expected to be unveiled in 2018 (however, this depends on whether the regulations are in place by then). Nissan, Toyota, Google, and Volvo plan to achieve this by 2020, while BMW and Ford have set a deadline for 2021. Most of these companies are working on achieving cars with Level 3 autonomy, with a driver sitting behind the steering wheel to take over from the car’s programming as and when required.

Level 4 and Level 5 vehicles are deemed as fully autonomous which means they do not require a driver and all driving functions are undertaken by the car. The only difference is that while Level 4 vehicles are limited to most common roads and general traffic conditions, Level 5 vehicles are able to offer performance equivalent to a human driving in every scenario – including extreme environments such as off-roads.

Some OEMs, Ford in particular, are against the practice of using a human as a back-up, based on the understanding that a person sitting idle behind the wheel often loses the situational awareness which is required when he needs to take over from the car’s programming. Ford is planning to skip achieving Level 3 autonomy and target development of Level 4 autonomous vehicles instead.

Google is currently the only company focusing on developing a Level 5 autonomous car (or a robot car). The company already showcased a prototype that has no steering wheel or manual controls – a prototype that in true sense can be the first autonomous car. Tesla also plans to work on achieving the highest level of autonomy and plans to fit its cars with all hardware necessary for a fully-autonomous vehicle.

High costs continue to be challenging

While the plans are in place, one massive roadblock that persists in the development of these cars of future are costs. There are multiple sensors used in these cars, including SONAR and LIDAR. The ongoing research has helped to reduce the costs of sensors – Google’s Waymo has managed to reduce the costs of LIDAR sensors by 90%, from about $75,000 (in 2009) to about $7,000 (in 2016) – but they are still very expensive. The fact that a driverless car requires about four of these sensors, makes the cars largely unaffordable for consumers, and that puts off any discussion of feasibility of commercial production at this stage.

EOS Perspective

The first three months of 2017 have been particularly eventful, with several prototypes launched or tested. This activity is expected to increase further as companies try to meet their ambitious plans to roll out self-driving cars by 2020.

Initial adoption is likely to come from companies investing in commercial fleet, particularly those focusing on on-demand taxi or fleet, similar to what Uber or Lyft offer. Series of investments by large bus manufacturing companies, such as Scania, Iveco, and Yutong, also indicate how this technology will be the flavor of the future in public transport.

It is too soon to comment how and when exactly these autonomous vehicles can be expected to impact the way people choose to travel and how they may redefine the societies’ mobility. It is likely to depend on how the regulatory environment evolves to allow driverless cars in active traffic. Current regulatory environment for driverless cars is still at a nascent stage and allows only for testing of these cars in an isolated environment. Some states in the USA, particularly California, Arizona, and Pennsylvania, have opened up to testing of these cars in general public. However, recent accidents and cases of autonomous cars breaking traffic rules have put pressure on authorities to reconsider their stance until the cars become more advanced and tested to handle the nuances of public traffic. We might need to wait another decade or two before driverless cars are a reality in many markets. As things stand, endless efforts continue to go behind the curtain, as companies strive to win the race to develop highly autonomous and safe vehicles.

by EOS Intelligence EOS Intelligence No Comments

Tata’s Tamo Breaks with Convention, but the Fight Lies Elsewhere

Will the new Tamo sub-brand be able to change Indian consumers’ perception of Tata Motors?

Tata Motors is out to regain its place in the Indian automotive market, where it continues to suffer from a lack of trust among consumers.

Launched in February, Tata Motors’ future mobility sub-brand, Tamo, is intended to act as an incubation center of innovation’ to push new technologies for developing future mobility solutions…

Read our article published on Automotive World.

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