India, China and Electric Cars

Those are the subjects that are exercising the minds of leading motor industry managers and experts if discussions at this week's annual automotive sector conference at Barcelona's IESE, the leading Spanish business school, are anything to go by.
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That doesn't mean that traditional headaches such as distribution and the management of supplier relationships have gone away. At a time of change and turmoil, the event took place under the highly appropriate motto “Reinventing the Industry”.

Contributions from two speakers representing traditional European motor industry interests, Bernd Gottschalk, the former head of the VDA, the main German motor industry trade body, and Ivan Hodac, secretary-general of the European automobile manufacturers association, ACEA, highlighted the double-edged impact of Indian and Chinese growth on traditional car-making nations. On the one hand, strong demand from India, China and other emerging nations has been the saviour of established manufacturers at a time when orders from Europe and North America have dried up - but on the other hand, these nations are emerging as strong future competitors as well. Mr Hodac felt that the European industry was increasingly being disadvantaged by “unbalanced” trade agreements between the EU and emerging countries, and described the recent accord with South Korea, in particular, as disastrous. Dr Gottschalk, however, emphasised that Europe still had formidable strengths such as strong brands and a capacity for innovation, which would be hard to match.

The IESE conference also provided the opportunity to hear leading voices from the Indian and Chinese industries directly – that's still a bit of a novelty for most European audiences. India was represented by Abhijit Gajendragadkar, Vice President of TATA Motors, which, in addition to extensive home-market activities now owns Jaguar and Land Rover in the UK. Mr Gajendragadkar emphasised the scale and diversity of TATA and the Indian automotive sector, and highlighted his company's success in addressing specific Indian-market demands with vehicles such as the inexpensive Nano car and the ACE, a simple small delivery vehicle for “last-mile” distribution designed to be better suited to local conditions than established categories of vehicle such as conventional pick-ups.

The Chinese voice was that of Henry Li, General Manager of the export trade division of BYD, the fast-growing manufacturer of electric vehicles. Mr Li explained that the company, which was only founded in 1995, now had 200,000 staff employed in three main areas of business: batteries and solar power; IT including mobile phones and laptops; and cars, including both conventional and electric vehicles. He said that BYD produced just 20,000 cars in 2005, but made 448,000 last year, a rate of growth that is completely outside the experience of European manufacturers, and one which means that in volume terms BYD is already in the process of overtaking some established brands such as Skoda, Seat or Volvo. And it will probably be moving up a bracket or two as well; Mr Li said that the Chinese market was expected to top sales of 17 million cars this year, and that industry estimates of 24 million sales by 2015 were probably conservative.

Mr Li explained how BYD's electric vehicle activities are part of its much broader development effort in the area of green technologies, which also includes solar power and energy storage systems, which will be essential in matching the power that can be derived from the wind and the sun, which provide energy erratically, with the needs of customers. He explained that targeting taxis and buses for electric drive has a very high impact in terms of emissions, because these vehicles carry so many passengers and are used very intensively. He also mentioned that BYD's E6 taxi and K9 bus have a range of 250km, or about 150 miles, quite a bit more than other recent electric vehicles (EVs) such as the Nissan Leaf; the E6's battery is, apparently, “bigger and better” than some.

While EVs continue to have comparatively limited range, the development of the charging infrastructure, probably with official support, will be vital. Mr Gajendragadkar from TATA said that India's electricity distribution system probably wouldn't allow EVs to take off there at the moment but Paul Mulvaney from Ireland's Electricity Supply Board explained how his country was investing in charging infrastructure even in the face of its current economic problems.

Several EV manufacturers were represented; these included Nissan, Think and Tesla. Nissan is the manufacturer of the Leaf, the first EV to emerge from an expensive full-scale development effort by one of the major manufacturers, and designed to be built in big volumes. Think, and Tesla, by contrast, are EV specialists selling cars in far smaller numbers. It's still not clear whether the large manufacturers' muscle will allow them to dominate the market for EVs in the long run, or whether the disruption to the sector caused by this new technology will allow smaller, nimbler competitors using alternative production methods better suited to low volumes to win out.

If cars themselves are developing fast, there are some areas of the car business that are surprisingly impervious to the impact of new technology; customers, for example, often research their car choices in detail via the Internet and are very well informed when they arrive at a dealership, but as some contributors pointed out, the obstacles to actually buying a car online remain formidable – not least the right of customers to return items ordered on the Internet within two weeks if they change their minds. On the other hand, e-procurement is having an impact on supplier relationships, to some extent breaking down the previous trend towards bigger component suppliers delivering ever-larger sub-assemblies.

The IESE event – now in its twenty-fifth year – also provided plenty of evidence of the broad network of support the Spanish motor industry enjoys from regional and national governments, academic institutions and labour unions; it was notable that the president of Catalonia found time to address the conference in the middle of a busy re-election campaign, for example.

Spain doesn't have the car-making tradition or the famous historic automotive brands associated with France, Italy, Germany or the UK. Its main indigenous manufacturer, Seat, now owned by Volkswagen, previously relied mainly on designs licensed from Fiat, rather than developing its own models. But when post-Franco Spain became more closely integrated with the rest of the European economy, big manufacturers such as Ford and GM looking for low-cost manufacturing locations decided to establish plants there. By the time cheaper Eastern European countries entered the EU, acting as a alternative magnet for investment, the motor industry was already firmly anchored in Spain, aided by local R&D, an expanded supplier base and extensive official support. The result: despite economic weakness, Spain produced 2.2 million cars last year, second only to Germany among the car-making nations of Europe.

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