I believe it is good for us to, from time to time, take a few steps away from the action, and reflect a little on the overall development of the automotive industry, and to ponder on the macro aspects of the business, especially in the field of car electrification. Today, I would like to talk about 4 major changes that are affecting the automotive industry as a result of electrification.
Firstly, there is now a major divide between the traditional automotive powerhouses, and the new players. The traditional players tend to have a long history and has acquired decades of experience that are difficult to duplicate. However, due to electrification, some of these strengths may not be able to be carried into the future. Take for instance the strengths in power train. As the electric motor replaces the engine and transmissions, the decades of accumulated experience in transmissions loses its value. Had it not been the case, it would be very difficult for new players to come in as gear transmission design and manufacturing is a complicated business and the entry barrier would be very high.
However, when the electric motor replaces the traditional power trains, the opportunity for new players to come in is presented. These new players shift the focus from beefing up the muscle of the power train to the software part of the customer experience (rightly so, as the electric motor itself is more efficient and powerful than the engine so there is no need to brag about power anymore).
Secondly, the mix of skills and talent in auto production has also changed. Traditional car manufacturing plants start to see a higher mix of software engineers and fewer mechanical engineers. NIO said in an interview that more than half of their engineers in the production department comprises of software engineers. This is very different from the traditional car manufacturing process where the focus is on the mechanical side, to ensure safety, comfort, ease of operation and durability.
Thirdly, as the mix of software engineers gets higher and higher over time, there is more and more female participation in the workforce. This is a major change in the workforce composition, because the automotive industry is traditionally very male dominated. In the past, due to the focus on the mechanical aspects of design and production, the industry attracts males and deter women from joining.
Fourthly, I predict that Japanese brands will start to lose their dominance, especially in Asia where they are currently still very dominant. Take for instance in Thailand, Japanese brands make up 90% of all new car sales. This is about to change, as we see more and more Chinese news coming into the market (MG, and now GWM/Haval/Ora). More and more Chinese brands will come into the market as electrification becomes more widespread. Other than Chinese brands, new players like Tesla is growing in market share too. Thus, in the longer term, Japanese brands will lose market share as they struggle with electrification.
All these major changes in the industry presents both risks and opportunities.
Great Wall Motor (GWM), through the acquisition of the General Motors/Chevrolet production plant in Rayong, Thailand, embarked on production in Thailand and then using Thailand as the base to reach out to the rest of Southeast Asia and beyond. This GWM factory is their first outside of China and for sure they have great plans and hopes for the growth of GWM in this region. They plan to do this through innovative ways of sales and marketing.
One of the first unique introductions to the Thai market, and possible beyond later, is their new and innovative way of network development. Unlike the traditional way of having the dealer network serve as the proxy for the OEM, by reaching out to the end customers and to try to keep them, GWM's direct sales method means that they play a very active role in the prospecting of customers and then to own the customers. Dealers have been "relegated" to being just order takers and service providers. This extends to after-sales services even, and all the customer database is in the hands of GWM. I think this is the future trend and other brands are likely to follow.
Mercedes Benz has introduced such direct sales method too in other markets as trial and will roll out to the rest of the market when they are confident of the model. Dealers do not even need to manage vehicle stocks, they are all under one roof managed by Mercedes Benz (and this is the same model for GWM), so dealers become more like brokers instead.
The other fundamental change is the skills requirement in the dealership. Many studies have shown that the vast majority of dealers are still not ready to sell EVs. To be equipped with the basic knowledge of EVs for sales and service activities, dealership personnel will need to know about the basics of electrical engineering, at least to understand different types of motors, inverters, on-board off-board chargers, EVSEs, batteries, and to have a basic understanding of words like voltage, resistance, current in ampheres, wattage, AC DC current, current conversion, and the safety issues related to handling EVs and charger installation. Though not likely to become prevalent anytime soon, dealers should still start to traing their staff for basic understanding of even things like induction charging. These are new skills and knowledge that dealerships need to quickly acquire to have a greater impact on promoting electric vehicles.
Dealer staff will also need to be able to liaise with car makers on issues related to software and future upgrading (usually OTA nowadays), and cybersecurity issues. As the technology of EVs progresses, dealerships will need to be able to pick up skills and knowledge to sell and service self-driving cars, GWM already offers level 2 autonomous driving in the Ora good cats now, and they plan to elevate self driving technology further in the next 2-3 years. If the dealers do not start to build the knowledge and skills inhouse NOW, they may have no time to react in the near future.
There has been a lot of reports and media attention on Toyota's very open resistance to car electrification. This comes as a surprise to many and shock to others because Toyota has long been the pioneer of clean energy cars with their first hybrid car Prius and their dominance in ICE and Hybrid vehicles sales worldwide. Toyota is also the first to commercially launch hydrogen fuel cell car with the Mirai.
Despite having the early lead in clean energy vehicles, Toyota currently does not sell any electric vehicles in major markets outside China, while its competitors have been pouring resources into developing EVs and preparing for the end of ICE vehicles. However, Toyota has said that it plans to sell 15 battery-electric models globally by 2025, part of a wider lineup of 70 battery-electric, hybrid and hydrogen fuel cell vehicles to offer “diverse choices” to buyers.
On 14 December 2021, Toyota announced that it plans to invest $35 billion into battery-powered EVs and roll out 30 models by 2030. Prior to this, Toyota announced that it will invest approximately $3.4 billion (380 billion yen) in automotive batteries in the United States through 2030. The venture will first focus on producing batteries for hybrid electric vehicles. Toyota has said that it plans 15 additional battery electric models, including seven different Toyota bZ (Beyond Zero) models, by 2025. Two of those bZ models—the bZ4X crossover, followed by an electric sedan—are due to bow by the end of the 2021 calendar year. One of the others will be an electric pickup.
In its first EV market, Toyota's three electric models are the battery-electric versions of the sister models C-HR and IZOA, which were introduced in 2020 and are built by Toyota’s joint ventures with GAC and FAW, as well as the Lexus UX 300e. The Toyota bZ4X, the first electric vehicle under the automaker's new bZ brand, will come to the U.S. in mid-2022.
Being the world's biggest auto manufacturer, and for a long time the leader of clean energy vehicles and the most valuable car company in the world, why is Toyota losing ground for electrification? There are several reasons.
Firstly, Toyota has invested heavily in hybrid technology and they want to recoup the investment first before moving to fully electric. That is why Toyota has consistently argued for hybrid technology saying that it s better than full EV as it overcomes range anxiety, has efficiency almost as high as full EV (well...) and that EV's are not that green after all.
Secondly, Toyota believes that electrification can only be commercially viable in 10 years or more. Hence, it is in no hurry to electrify its cars. It is betting on denser batteries like solid state batteries and hoping to turn the tables against the current EV leaders. Toyota is also hoping for breakthroughs in fuel cell technology so that it can be the first mover.
Thirdly, Japan has infrastructure limitations to expanding the grid. Unlike China which imports 30% of energy needs, Japan imports 96% in 2020! After Fukushima, Nuclear energy dependence is significantly reduced, and oil and natural gas became the substitutes. Therefore, it may be a politically motivated move for Toyota and Japan as a while to resist electrification.
Fourthly, despite Covid chip shortages, Toyota's market share in China and worldwide remains strong, so there is very little motivation for change. Think Kodak...Toyota, like other Japanese corporations, have very close relationships with their suppliers, even to the extent of cross ownerships, that results in resistance to change as it would impact manufacturer-supplier relationships.
Fifthly, electrification necessitates massive internal restructuring, change in mindsets, new thinking and innovation, which is never the strength of Japanese corporations. Like Germany, Japan has the propensity to seek perfection, so they do well in tasks for continuous improvements (Kaizen), not revolutionary changes with great uncertainty and imperfect information.
Success is not always a good thing. For Toyota and the Kodaks of the world, when you are the clear leader and raking in good profits, it is very difficult to convince yourself and your team to change, to make short term sacrifices, for a long term goal which you may not even be there to enjoy the success when attained. Moreover, I really think there is still a lot of skepticism on electrification in Toyota's power corridors.
I read with interest the new retail concept of Mercedes Benz called Retail of the Future, now in its pilot stage in several markets. If proven to work well in the test markets, this new structure will be introduced gradually in the rest of the territories.
So what exactly is Retail of the Future? The details are still sketchy, but it essentially means that Mercedes Benz will sell directly to the customers, with the dealers relegated to "Franchise Partners" whose main role is to provide after sales service.
Mercedes Benz cited several reasons for doing this. Firstly, the company said that new car sales profitability is always a roller coaster depending on seasonal factors, age of the models, production schedule and so on. After-sales or fixed ops as it is called in US is more stable. Therefore, Mercedes Benz argued that this new format is good for the dealers because it takes out the instability of profits over time.
Secondly, Mercedes Benz argued, retail cost can be reduced since dealership stock carrying cost is minimized. Presently, 10 dealers within close proximity of each other may be forced to display say 3 colours of the same model, but with the new sales format, MB carries the inventory in their so-called central repository, and the cost savings can be passed on to the customers.
Thirdly, with the growing need for touchless service, the role of showrooms have been reduced. More online activities are expected to take place as the new normal, and online services are better served by MB in a centralized manner.
Fourthly, as cars moved towards electrification, MB argues that current dealers are not yet adequately equipped to serve the customers, so MB can apply their expertise for their customers. New sales presentation requires deep understanding of touchscreens and software, energy computations (watts, kilowatts, voltage, current, resistance, types of motors, AC/DC, brush or brushless, permanent magnet or not, types of batteries, cylindrical, pouch, prismatic, blade etc, EVSE types, cables, current, power tariff etc). The expertise on ICE power train becomes obsolete.
So how does EV play a role in the change? Well, because consumers and potential car buyers do not know the new EV players, these new players have to introduce their products and have the customers experience the EVs, play with the features, understand the cars better, drive them to build confidence, and you cannot do this with the dealership format. For the dealership format, the customers walk into the showrooms after doing their homework, and usually already have adequate experience with the cars they intend to buy.
The new concept introduced by the new EV players is called the experiential centre, designed to be family friendly, a place to drop by while shopping, to linger, to try, to test, and to relax. The atmosphere is different from a typical showroom which is often highly pressurized, with a lot of wheeling and dealing, hard negotiation, going on.
The confidence in the format without dealerships is further boosted by the success of the brands which have done away with dealerships, Tesla being a good example.
Are we seeing a future landscape with dealerships being just a place for customer service support? Please feel free to drop your comments
In line with GWM's strategic plan, The Ora Good Cat EV has been officially launched in Thailand on 29 October 2021. Thailand is the entry point for GWM's growth plan for Southeast Asia and, following the success of Ora which garnered more than 1000 orders in 2 weeks, The Black Cat EV is poised to enter Thailand before the end of the year.
This launch is interesting because it is the first time I have witnessed a fully online product launch event and the amount of technology applied is simply eye catching. The theme for the online launch event is "Future Ready", during which 3 models were introduced, namely the 400 Tech, 400 Pro and 500 Ultra. The prices ranged from THB989,000 to THB1,199,000.
Through the proprietary Ora Smart technology, GWM has packaged Ora with lots of technology including AI, facial recognition, sensors and cameras to reach L2 driving, and a distance range of up to 500km based on NEDC. GWM has promised Thai customers new energy driving and smart car technology.
Of the current 19 sales outlets throughout Thailand, 9 are GWM-owned experiential centers, and the others are independent dealerships. GWM plans to expand the network to 35 before the end of next year. Many new dealers have been attracted by the success of the Haval 6 HEV since its launch in June this year.
GWM places a lot of importance on the success of Haval and Ora in Thailand as it is the first time that GWM has ventured abroad and set up production facilities, so it must succeed, there is no other alternative. GWM's other planned production overseas in India has been put on hold due to political reasons.
Early this year 2021, a deadly car crash in Singapore resulted in widespread media attention and discussion. 5 young men were racing in the early hours of the morning in the narrow streets of an older part of Singapore. All died tragically in the crash. The saddest part was that the girlfriend of one of the dead men went to the burning car and tried to save her boyfriend. Without the fire, the men would have been dead anyway, but why was the car engulfed in flames which eventually caused severe burns to the girl trying to extricate her boyfriend from the car? How causes car fires?
For the internal combustion engine cars, there is fuel flowing through many parts of the car. The fuel tank is usually located at the back of the car, and the fuel has to be transported to the front into the engine, passing through various channels. Fuel is carried via these channels through hoses and casings, which have valves, rubber hoses, various types of clips, bolts and nuts and so on, all of which are subjected to ageing and deterioration, or even defects due to lack of proper maintenance. However, sometimes, fuel leaks can be due to manufacturing defects.
Fuel is highly flammable (that's why it is used for the combustion), and when leaked, a small spark can result in fires. Hence, wherever the fuel may pass through, there is a chance of fire. The spark can come from heat, electrical short circuit, or even from external environment (never park the vehicle near flammable items).
Fuel is not the only cause of car fires. Oil can also start a fire. All oil in the car including transmission fluid, brake fluid, radiator coolant, and power steering fluid circulating throughout their respective systems when a vehicle is running can cause fires. However, fuel is the most dangerous because it is highly flammable. Other than fuel and oil, gases can also ignite. For instance, battery charging can result in gas being released, which can lead to fire when ignited. Likewise, storage of fuel also results in gases which can also ignite.
Ok, having explained all these, now let's compare with the electric car. There is no engine. No fuel. Less oil. No combustion operation that causes fires. So EV is much safer than ICE in terms of possibility of fire? Well, yes and no. In the EV, the cause of fire will invariably be from BATTERIES. There is little chance of the motor catching fire. Hence, when battery technology reaches a very high level of fire resistance, we can say goodbye to car fires. To me and all EV supporters, this is great news.