It looks like the whole world is under a crunch right now and the automobile industry is equally shook. Being ‘not an asset anymore’, cars are more of an economic burden on the buyer, considering the current scenario. Let’s take a look at what this means for the automobile industry.
The maximum adverse impact of the pandemic can be seen in the following industries:
Travel
Tourism
Hospitality
Financial Markets
Automotive
The impact on Indian Car industry
While on the buyer’s side, financial crunch will be a problem, on the business side, the supply chain will be heavily affected. A large amount of raw materials are sourced from various regions and one of the biggest suppliers is China. The Coronavirus crisis has seriously impacted the process of car making. Therefore, there’s not just a problem with demand but supply as well. The complete impact will only be known once the ‘new normal’ becomes regular and the economy starts taking baby steps again.
From hindered production and sloppy logistics to depleting consumer demand, the makers need to be prepared for everything that goes into making a car to selling it. Furthermore, most manufacturing plants will remain shut or will run with reduced capacity which will add to the depletion of supply. This isn’t just for India but the automobile industry across the globe will feel the negative impact of the process. Slumped demand for vehicles will be a big hurdle to overcome and add to it the environmental factors that are bound to make things worse.
What could be the revival strategy in such a scenario?
While one size fits all isn’t going to be possible, there are certain ways in which the automobile industry can minimise the adverse effect of the pandemic.
While China will struggle to keep up it’s collaboration as far as supplying materials is concerned, other countries can pitch in for the same and replace China. India is definitely a very good contender for the same. This can be looked at as a great opportunity for India to attract business from those who are withdrawing from China. However, since global markets emphasise on quality, India will have to step up it’s hygiene and cleanliness levels at these supply plants in order to deliver world-class materials of unmatched quality.
Electric vehicles have already been admired and after the environmental disaster we have been facing, the governments will push the use of EVs even more. It is time for the automobile industry to focus on electric vehicles and leverage this opportunity.
While the automobile industry can brace itself for a whopping 40% drop in car sales this year as compared to 2017-18, it can also think of managing the crisis by devising strategies based on the changing world and economy. After all, evolution breeds success. Keep driving!
So, the forced party is finally over. Yes, the “party” because we all were confined to our homes and the commerce and business had stopped. It was universal so we had a sense of being together in this. The plight of migrants walking on the highways and sheer mismanagement of their home journey can bring tears to your eyes at the same time put curse words for all stakeholders responsible for this. But now the economy is slowly getting the green light, while the red and orange zones are waiting in the lurch. Finally, good sense prevailed and we now have only two zones – Containment & Non-containment. Of course, the sentiments will be down to the graveyard, moving around will be cautiously done. For me, how do we open the office without being sure if the housekeeping who comes to clean the office is not COVID positive? That’s the starting point. Then comes your office boy travelling in local transport, milkman to replenish the coffee machines and other staff members who travel publicly. Will we endanger their lives and others? How long can #WFH actually work out? An ocean of difficult questions with no easy answers.
I was trying to analyze all possible scenarios which will unfold as we open our gates considering all angles. But universally, whichever country cracks the vaccine first will be the king, just praying it’s not the Chinese. “Dua” and “dard” both from China will make the world dance to the dragon.
Scenario 1 – Idealistic
Everyone wears a mask, maintains social distance, WFH continues, offices work on 10 -30% capacity, our hospitals, and medical facilities keep pace with the no’s of COVID Cases and slowly we limp back to normal. One confirmed news break from any of the 110 pharma companies globally of a possible vaccine or cure will push the economy into full throttle. If that happens to be an Indian pharma company – Serum Institute of Adar PoonaWala, for Example [haven’t you seen him suited in news channels these days?] will really put India on a SpaceX rocket which will take us towards the “superpower” colony – just like Elon Musk has successfully sent the two NASA astronauts to ISS.
And yes, China retreats from the borders and a pact is achieved wherein there’s no more claiming of Indian land in return of no more uninstall of TikToks.
Scenario 2 – Most Likely
As we open up, our COVID cases will surge through the roof – 10 lakh, maybe 20 lakh with 2-3 % succumbing to it. We will develop herd immunity and develop antibodies and by September or October, the virus will mutate and give us a real Diwali. Yes, hospital beds will be scarce, there will be mismanagement, the political blame game will be all time high, the economy and job losses will be so deep that everyone will be willing to work at 30-50% of their income with loans and defaults rising at alarming rates. By October, we get a grip and things tread back to the new normal and most likely vaccine developments show impressive results. Meanwhile, China and India continue their dog fight. Maybe a few tanks fire cannons, sorties by fighter jets on each other, show of muscle and nothing significant.
Just like when you have those street fights “Hath Laga kar Dekh” and by July end, Indo x China Bhai Bhai T-shirts begin to sell again. TikTok uninstalls continues and Micromax, Intex, Xolo, Karbonn and other earlier versions of Vivo & Oppos of the world start relaunching their smartphones. It’s possible.
Scenario 3 – Extreme Situation:
It’s July 15, 2020 and the COVID-19 scoreboard reads 50 lakh cases in India. Lockdown 5.0 gets implemented, doctors and nurses are taking the hard decision of whom to save. China versus India intensifies its fight and Pakistan, Nepal & Russia joins the party while the rest of the world backs India to corner China. There’s tension at the border and nerves are stretched. It’s a cold war but nothing happens at the end. Deaths and infections are everywhere, our medical facilities begin to collapse and there are protests and riots everywhere.
Those who lose their loved ones because of callousness, in all likelihood will lose their sanity. It’s grim news and madness everywhere and illegal sales of guns blossom.It’s the Economy which is now to be saved because suicides and poor mental state are killing more people than COVID-19.
In all of the above scenarios, by October either we will have a vaccine announcement or we will have herd immunity. Now comes the lawlessness, going outside, walking will be dangerous snatching, kidnappings will be frequent. Joblessness and poverty will push the dragon in people to fend for themselves. Now comes the Phishing scenarios – we recently faced a situation where a concentrated effort was taken to get money transferred. My accountant – Tanaya Ghosh received a fraudulent mail from my name, [E-mail ID was different] asking her to transfer. Normally, no one will check the Email-ID, just the name but her good sense prevailed and she double-checked with me. In most businesses, CFOs and Accountants are powered to make transactions of up to a capped amount.
We have to tread the next 3-4 months with caution and sanity. I have had friends who in spite of being financially well off get panic attacks even now. Our belief in the human spirit must be reinforced that’s supreme and believe in the supernatural power above you. Maybe it’s his way of resetting the climate, so we don’t have to travel to other planets to set up shop. Are you still seeing Toronto or New York from your bedroom anywhere in India?
While you all were thinking of all the controversies and downfall that Elon Musk must’ve seen in the last two years, he launched yet another milestone, literally. SpaceX successfully launched NASA astronauts into space!
Elon Musk and the team have been working on this dream for the last 18 years and on 30th May of 2020, the automobile tycoon’s SpaceX launched astronauts beyond the skies. The Falcon 9 rocket left Launch Complex 39A carrying two astronauts, Bob Behnken and Doug Hurley. This marked history for Elon Musk as SpaceX became the very first private company to have launched astronauts for NASA.
With all of this, if all goes well, SpaceX will also begin launching astronauts not only for NASA but other space agencies and private companies. The first operational Crew Dragon mission, called Crew-1, is expected to launch to the ISS on or around Aug. 30, with 3 NASA astronauts and 1 astronaut from the Japanese Aerospace Exploration Agency.
A test dummy named Ripley was onboard Demo-1 that was launched previously in March 2019 with no real astronauts on board. This was for a week-long test. Elon Musk has been extremely overwhelmed with emotion and when someone’s hard work does pay off, it definitely is a victory worth all the emotions and celebrations.
While the return is more important than entry, Musk and team are geared up to ensure that the reentry is safe and only then will he consider it to be a true victory. Elon Musk has earned quite a reputation over the years. Tesla fans are many and now SpaceX is all set to create a wave of new fandom. He has shown remarkable resilience even during tough times and his crisis management skills have proven to be unparalleled. After all, courage is the true virtue that one must live by.
Amidst all the Coronavirus chaos that the world has been hit really hard with, there’s consolation here in this huge achievement that showcases what all a human being can do. It is all about setting goals and following through to achieve them. Elon Musk has set an example for all to follow.
Leaving you with a positive note by Adidas – ‘Impossible is nothing’.
Most of you reading this would just like me be sitting in your homes for over a month wondering – What next? If and when, this mother of all ‘Grey Rhino’ events, aka #Covid19 ends how do we go back to our lives and where do we start re-building.
Not wasting much of your time enumerating the Covid-19 chronology since Dec’19, I reckon that most of us have acquired PhD’s from the various Universities of Whatsapp/Google/Social Media in our understanding of this pandemic and what is being done to tackle it across each and every country around the globe.
In my note below I will try to ‘Buy into the Fear’ by showcasing the opportunity that stares at India and its budding entrepreneurs across small, medium and larger corporations post this crisis. In all disclosure a lot of my inferences here have been made by analysing the sentiments across countless conversations with my colleagues/friends/thought leaders spread across a diverse set of industries based in India and the US .
Before we go ahead it’ll be pertinent for us to understand where China stood prior to this event. This should help us all get a deep dive into how small the world is today and how ‘Globalization’ has been a powerful force for economic growth. Movement of goods, services, finance, data, and people across borders adds to GDP and fuels productivity growth. No country on earth has played this cycle better than China aided by a young population willing to put in high teen man hours/day in bettering their lifestyles and futures. China’s period of double-digit GDP growth in the mid-2000s was fuelled by even faster growth in the flow of goods in and out of China.
As exports surged from just $257 billion in 2000 to $3.4 trillion in 2019, China became the world’s top exporter.
In early 2019 Donald Trump, President of the largest consuming/importing country in the world aka the Unites States of America decided to take notice and change this status quo by waging a war of words and threatened a trade embargo against China.
It’s only in the latter half of 2019 that these ‘Siamese twins’ – China & US realized that neither can do without the other.
Below is a representation of what China exported to the world in the year 2019.
Electrical machinery, equipment: US$671 billion (26.9% of total exports)
Machinery including computers: $417 billion (16.7%)
Optical, technical, medical apparatus: $73 billion (2.9%)
Knit or crochet clothing, accessories: $71.4 billion (2.9%)
Articles of iron or steel: $69.6 billion (2.8%)
Clothing, accessories (not knit or crochet): $66.8 billion (2.7%)
Toys, games: $62.8 billion (2.5%)
China’s top 10 exports accounted for approximately two-thirds (67.6%) of the overall value of its global shipments. As seen above it’s a high chance that the cell phone or computer.
you’re reading this note on, or the TV that you’re watching or the furniture & lights you see around or worse your child’s favourite toys are all (you guessed it right) – ‘Made in China’.
The world has literally been dependant on a game of mass scale production by only one country and that’s China.
Now we arrive at the most critical question in our note today- Is China a TINA (There is No Alternative) market or can the world diversify?
This question gained fire in early Jan’20 when large companies across the globe started seeing supply side disruptions owing to a complete lockdown of all the export ports present within China. The world since then has increasingly started realising that the over dependence on one single country has come to hurt global GDP’s now.
With the spread of the Covid-19 cases, a lot of questions have been raised on China’s style of governance and its secrecy with respect to key developments. In order to better understand whether China is really TINA we re-visit the China advantages in the points below:
Cheap Labour
Lower manufacturing costs
Higher production capability
Better expansion and diversification opportunities
Coming out of these Global Lockdowns from a new world perspective; of the four BRIC (Brazil, India , Russia & China) nations, there’s only one that possesses the above mentioned skillsets, scale and good bilateral global ties- INDIA!!
Yes! India has been a friend to the world exporting IT, Textiles, Agri and a host of other products since the last few decades. Now it would be theoretical and almost foolish to assume that India will take over the Chinese edge and be the new hub of exports. Let’s admit the fact that things in theory don’t necessarily translate into practise. But we are trying to chalk a path for that shift over the next decade up ahead.
Low Hanging Fruits
Below are exports from China that result in negative net exports or product trade balance deficits.
Mineral fuels including oil: -US$296.6 billion
Ores, slag, ash: -$161.8 billion
Gems, precious metals: -$39.7 billion
Oil seeds: -$37.3 billion
Copper: -$34 billion
Optical, technical, medical apparatus: -$25.7 billion
Pharmaceuticals: -$24.4 billion
Woodpulp: -$19.1 billion
Meat: -$18 billion
Aircraft, spacecraft: -$15.5 billion
Within this very list India can opportunistically use its expertise and manufacturing facilities across MSME/Larger corporates to take away a bulk of the global business. Indian pharma capacities, metal manufacturing capacities, meat production is already of sizable scale. It essentially lacks efficiency and ability to scale 10x from here.
This is where we apply the First Principles Rule and break down each industry capacities and start synergising with the underutilised ones. For example: A couple of years ago we invested in a toy manufacturing company in Pune. The toy product was the popular NERF series of guns for Hasbro Plc. Now Pune and its nearby manufacturing belts have been long time auto ancillary hubs sitting on huge injection moulding capacities that have been running at 30-40% utilisation levels since the last few years. We contracted over 45 different MSME’s to mould the plastic parts needed for the NERF gun; thereby saving both time and money in achieving a scale of 400crs a year within 18-24 months.
The Chinese have learnt a lot of their manufacturing processes/skillsets from the Japanese conglomerates who were amongst the very first ones to set-up large shops in Mainland China. On 8th April’20 Japan has announced that it’s now looking at bringing both its talent and facilities out of China over the year up ahead. Historically India-Japan have shared exceptionally good relations which now can be leveraged to their peak capacity. Imagine a scenario where a Japanese knowledge team camps in India and teaches our local entrepreneurs the right processes to build at scale and achieve global QC standards.
Hitting where it hurts
Imagine a near future where India using a global knowledge partner base (Japan, EU, US) coupled with access to low cost money clubbed with local innovation backed by a work force that’s aspirationally driven starts tapping into the Top 10 export categories of China- Electrical machinery, Cell phones & computers, Furniture, Plastics, Vehicles, Medical apparatus, Clothing, Toys.
With companies like Samsung, Apple, Amazon, Xiaomi setting up India facilities that wheel of change has already been put into motion. Post Covid-19 the world will increasingly be ‘protectionist’ in nature and its literally the opportunity of a lifetime for India and its massive SME & MSME space.
Parting Note
I don’t wish to sit on the side lines and comment on things or worse blame/wait for governments to announce packages of relief and respite. For the last 73 years our whole regulatory system, the priority sector lending system has incentivised SMEs to think and stay small. Small needs to grow because they are the biggest provider of employment.
I believe in the quote- “Be the change you want to see in the world”
If India has to ever be taken seriously on global export scale then we need to radically change our DNA of business and open our arms to the new world out there.
