Investing In The Future


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David Smith, Automotive Professional and Local Industrialist, former CEO Jaguar Land-Rover presented on "Investing in the future", the future of the automotive industry and manufacture in the UK, at Warwick Business School 08/03/2010

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Investing In The Future

  1. 1. Investing in the Future David Smith
  2. 2. Or investing in the past? Brand managers are obsessed on the ER words: Newer, brighter, stronger, bolder. Rational benefits nailed by comprehensive metrics. The job of brand managers today is to stomp out intuition, instinct and imagination. Analysis, research and information reign. Researchers are locked into the rearview mirror (not the windscreen). In a consumer-owned market, they're inevitably playing constant catch-up. Consumers have been liberated by the Internet, red-hot competition and a dazzling array of customized choices - from "blobjects" to designer organics. Brands today are table-stakes - they just let you pull up a chair at the conversation. Brand management processes don't have a chance today. Kevin Roberts, CEO Saatchi & Saatchi Worldwide
  3. 3. Time for a model change? Europe Auto Ind Market Cap as % of total market 6 5 4 3 2 1 0 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001
  4. 4. Auto value creation or destruction? ROIC-WACC Value Destroyers Value Neutral Value Creation • GM • BMW • Porsche ??? • Ford • PSA • Honda • Chrysler • Toyota • Daimler • Nissan ? • Fiat • VW-Audi ? • Renault • Hyundai ? • Mitsubishi • Mazda Moving from domestic to international? Tata, Geeley, SAIC etc?
  5. 5. Sunset or sunrise industry? • Saturated markets but • Lower cost sources – long-term BRIC growth China and India • Over-capacity but distinct • Environmental change – regional footprints regulatory, competitive • Product proliferation and and consumer driven. brand cross-overs • New wealthy middle class • Price destruction and in BRIC’s and continued fragmenting power in affluence in mature value chain markets • Consumer behaviour • Changing business • Impact of banking models down value chain collapse/recession
  6. 6. What is the future of the car? • Transportation linked to economic growth. • Electrified but no technology silver bullet • Lighter and smaller • Traffic/usage management • Incentives/fiscal distortions • Different ownership models – segmentation by battery size? • Radical change inhibited by infrastructure • Affordability is still key to consumers • Must still deliver “reasons to buy” • Premium growth driven by wealth/affluence
  7. 7. China • China overtook US in 2009 to be largest auto industry. • Middle class -- by 2015 will have 4th largest population of wealthy households • More millionaires than France • Rapid urbanization -- 39 cities with over 1 million inhabitants – total 600 million (1 billion by 2010) • Increasing competition from low-cost and high- technology Chinese firms. • Talent pool – constraint or driver?
  8. 8. So where does this leave “Team UK”?
  9. 9. State of the UK auto industry • From turbulent labour and poor quality and productivity to . . . • Competitive, high quality, good labour relations, 2nd largest global premium industry but . . . – Declining, now <1% of UK economy; <400k jobs. – Fragmented ownership – lack of cohesion – Significant and growing trade deficit. – Fragile supply chain – hollowing out accelerating – Badly under investing in technology – Climate change agenda – are we being left behind?
  10. 10. Is UK innovation really just ancient history?
  11. 11. Industrial policy – “New Industries” • New Industry, New Jobs outlines a programme of 40 initial commitments that will keep Britain ahead of the game as we emerge from the downturn and towards our successful economic future, including: • Rolling out high speed broadband to give access to virtually all of Britain’s homes and businesses • Investing and laying the foundations in exciting but pre-commercial technologies like wave and tidal energy, and electric vehicles • Adapting Britain’s energy grid to link homes and businesses to the new forms of power generation • Continuing to protect and raise investment in science and research in the years ahead • Spearheading innovation in areas where there are business opportunities for future growth • Anticipating future growth in the economy in areas like low carbon or bioscience and ensuring British people have the skills to take part • Intervening, where necessary, to ensure start-ups and young businesses have access to the finance they need to grow • Helping UK companies, especially small and medium sized businesses to break into new export markets.
  12. 12. UK auto technology road map EU Fleet Average 130 95 TBD CO2 Targets (g/km) Demonstrators Fuel Cell Vehicle H2 Infrastructure Fuel Cell & H2 Supply/Storage Breakthrough Niche EVs Mass Market EV Technology Charging Infrastructure Energy Storage Breakthrough Demonstrators Plug-In Hybrid Energy Storage Breakthrough Full Hybrid Micro/Mild Hybrid IC Engine and Transmission innovations (gasoline/diesel/gas/renewables) Vehicle Weight and Drag Reduction 2000 2010 2020 2030 2040 19% of UK’s carbon emissions come from road vehicles
  13. 13. Case Studies -- Zytek Zytek is now one of the few companies worldwide producing electric vehicle powertrains, and the only one manufacturing vehicles (the Smart Fortwo ED) for a major car manufacturer, Mercedes Benz. The Zytek electric engine is a complex assembly of many high technology products tightly packaged into a single unit. This technology is also being applied into Motorsport – Zytek is developing a hybrid electric drive for a leading Formula One team that has already run competitively in the 2009 season.
  14. 14. Case Studies -- Modec Modec is the first electric vehicle in the N2 class to attain European Whole Vehicle Type Approval
  15. 15. GM Volt/Ampera? Electric Human Machine Interface Engine/Genera – displaying EV and motor/Power tor EV/generating modes electronics Battery packs located under the High Voltage central tunnel and cables rear seats. Limiting volt to a 4 seat vehicle.
  16. 16. Nissan Leaf? The government last year extended Nissan loans and grants to help it finance a £200m-plus plant producing lithium-ion car batteries in Sunderland, now part of a new “low-carbon economic area”.
  17. 17. Even luxury we can afford! Jaguar Range-Extended Hybrid
  18. 18. Should we be picking winners? • UK innovation deficit -- Bosch/Siemens • Test-Bed UK • Business-University Collaboration • Cross-sectoral collaboration • Innovation funding -- UK Banks • From reckless indifference to strategy in Industrial Policy
  19. 19. Links to Energy Industry • Well-to-wheel concept • Renewables vs. carbon-based generation • Clean and smart grid • Standards • Consumer usage patterns • Hydrogen and fuel cells?
  20. 20. Investing in the Future -- unlocking the UK’s potential • Can’t be based on yesterday’s models. • Innovation – from “sustainability” to an integrated low carbon economy. • Export competitiveness – competing in global markets • Leverage global sources of cost competitiveness • Use great British design talent • Needs confident and urgent national leadership, passion and skills • Even now may be too late.