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Ashish K Mishra
Ashish K Mishra
Counter intuitive motor head with a fancy for old cars, green tech and clean fingers
Karl Slym

Karl Slym, MD of Tata Motors (photo credit: Vikas Khot)

We’re deeply saddened to hear of the passing away of Karl Slym, Managing Director of Tata Motors. News reports say that Mr Slym, who was 51, passed away on Sunday, after a fall in a hotel in Bangkok, where he had gone to attend a board meeting of the company’s Thailand arm.

Tata group chairman Cyrus P Mistry said in a statement released to the press, “I am deeply saddened to inform you about the untimely and tragic demise of our company’s Managing Director, Karl Slym. Karl joined us in October 2012, and was a valued colleague who was providing strong leadership at a challenging time for the Indian auto industry. In this hour of grief, our thoughts are with Karl’s wife and family.”

We at Forbes India have chatted with and written about Mr Slym often. He was a speaker at our Leadership Awards in 2012, where he sportingly agreed to deliver a three-minute talk as one of a set of speakers invited to gaze into the future.

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Mr Slym is survived by his wife Sally. Our thoughts are with her, and Karl’s many friends. May they have the strength of cope with this huge loss.

I remember Karl as a person who had absolute clarity of his task in India. Both at General Motors and at Tata Motors. And he liked to have fun. If you remember, back in 2009, Karl Slym was often on TV selling you ‘the Chevrolet promise’. Few executives would dare to associate their face with a brand. But Karl was absolutely clear that Chevrolet’s crediblity had to be restored and it will start from the CEO’s office. This is from a chat with Karl in late 2009: “I am not sure if my coming on TV is a good thing or not. I did manage to get a free haircut the other day when the person said hey you are the man on the television and I said, sorry, yes I am. He said, no, that’s great; we will cut your hair for you. But, anyway there is much better reason than a free haircut why I’m on TV. In India, people wake up in the morning and say we are going to buy a Maruti, they don’t wake up saying which one shall I buy? We have a challenge and our task is to convert them during the day to ours.”

And Karl loved India. While the automobile industry attracts a lot of expats to the country, for Karl India was home. I remember chatting with him in early 2012 when he had to leave GM India for a stint at the company’s JV in China. He didn’t want to go. This is from our conversation back then: “My wife and I are really going to miss our India, we have loved our time here and do not feel at all like foreigners, it is our home and our family, honestly speaking we do not want to leave!”

Apollo Cooper

Cover: How the Apollo Cooper deal was botched

The story of Apollo Tyre’s failed $2.5 billion merger attempt with Cooper Tire & Rubber Co of the US is a story of many mis-steps.

The deal, if it had gone through, would have catapulted Apollo to 7th position in the global tyre stakes, from 17th position now.

The three central characters in this story: Neeraj Kanwar, vice chairman of Apollo, Roy Armes, CEO of Cooper and Che Hongzhi, chairman of China’s Rongcheng group – Cooper’s joint venture partner in that country — never really understood each other.

When their paths crossed, it resulted in distrust and miscommunication. For a company like Apollo which has successfully carried out two acquisitions in the past (Dunlop in South Africa and Verdestein in Europe), its diligence on the people and their expectations was completely off the mark. Cooper was in a hurry to sell itself. Che wanted money. And lots of it.

The deal, which was called off by Cooper Tire on 30 December, 2013, also demonstrates that the two principal players – Apollo and Cooper – failed to foresee the dangers lurking around the corner. Whether it was the Chinese partner’s strident approach or the United Steel Workers’ (the union at Cooper US) move to extract better terms for themselves at the time of the deal, Apollo was caught off guard, resulting in an eventual bitter parting of ways between the two sides.

This deal also raises important questions for Indian companies attempting cross border transactions. Business strategy is one part of it. But in the end it all boils down to people. In the Apollo – Cooper deal, this bit went seriously wrong. Poor cultural due diligence, an integral part of any major cross-border M&A, was clearly one of the contributing factors to the deal being botched.

The markets and M&A watchers will be keenly following whether Apollo gets out of this setback and, if so, how soon.

(The full story of Apollo’s M&A misadventure with Cooper is featured in Forbes India’s latest issue dated February 7, 2014)

(Photo: Amit Verma)

Neeraj Kanwar, vice chairman and managing director of Apollo Tyres really put everything he had in chasing Cooper (Photo: Amit Verma)

Earlier yesterday, Cooper Tire & Rubber Co announced that it has terminated its sale to Apollo Tyres, India’s second largest tyre manufacturer.

“It is time to move our business forward,” said Roy Armes, Cooper’s CEO in a statement issued by the company. While the strategic rationale for a business combination with Apollo is compelling, it is clear that the merger agreement both companies signed on June 12 will not be consummated by Apollo and we have been notified that financing for the transaction is no longer available. The right thing for Cooper now is to focus on continuing to build our business,” he added.

Apollo Tyres in a statement said that it was ‘disappointed’. “Apollo is disappointed that Cooper has prematurely attempted to terminate our Merger Agreement.  While Cooper’s lack of control over its largest subsidiary and inability to meet its legal and contractual financial reporting obligations has considerably complicated the situation, Apollo has made exhaustive efforts to find a sensible way forward over the last several months, however, Cooper has been unwilling to work constructively to complete a transaction that would have created value for both companies and their shareholders. Cooper’s actions leave Apollo no choice but to pursue legal remedies for Cooper’s detrimental conduct.”

Now, it would be fair to say that Neeraj Kanwar, vice chairman and managing director of Apollo Tyres really put everything he had in chasing Cooper. It would have been a prized acquisition, a proof of his globalization strategy, but alas it has amounted to nothing. It was sometime in 2009 that Kanwar first approached Cooper Tire, the Ohio based manufacturer for an acquisition. They met, discussed and negotiated. The discussions and negotiations lasted almost three years before the deal was formally announced in June 2013. And almost as soon as it was announced, it got into trouble.

First Apollo’s share price tanked. Investors felt the company was taking on too much debt. The Kanwars had seen this coming so they held a long press conference to allay all fears. A few days later, workers at Cooper’s joint venture plant in China went on a strike. They didn’t want an Indian company to take over. Cooper’s joint venture partner Che Hongzi, a local businessman is believed to be behind this agitation. Soon the factory stopped producing Cooper branded tyres. Kanwar traveled to China to meet Hongzi but it didn’t materialize into anything.

If that wasn’t trouble enough, back in the US, the United Steelworkers, the workers Union at Cooper’s plants in Ohio and Texas, began agitations for a new wage agreement. Once the matter was in arbitration, it was a deal breaker. Thanks to the number of surprises, Apollo wanted to re-negotiate and bring down the $35 a share price it was willing to pay earlier. Cooper sued Apollo for trying to delay the deal. And it has been a downhill ever since. For a company with a fair degree of experience in cross border transaction, Apollo should have known better. And it is quite strange that almost everything that’s transpired in the last six months or so has taken the company by surprise.

What happens now? More litigation. Over damages. The question now may boil down to who has actually called off the deal first. If it is Cooper, then Apollo can claim $50 million. If, on the other hand, it is Apollo, then Cooper stands to gain $112 million. Watch this space.

Formula 1

Vicky Chandhok with Bernie Ecclestone at the 2012 Indian GP

The Indian Grand Prix has been dropped from the Formula 1 calendar for 2014. F1 supremo Bernie Ecclestone used two words to describe his pain with the India GP – ‘taxes’ and ‘politics’. Sure one can blame taxes or politics, but at the heart of the F1 controversy is a fundamental question – Is Formula 1 really a sport? Because if the Indian government was to acknowledge it as one, then it would have been like any other sporting event in the country. I spoke with Vicky Chandhok, president of the Federation of Motorsports Clubs in India (FMSCI) to get his perspective on the issue. Here are a few excerpts from that interview.

Is Formula 1 a sport?
This question has been raised by many people taking a cue from former sports minister M S Gill, who decided that it was not. Now that can be his personal perception. It is up to him. It is a free world. Fact of the matter is that Formula 1 is a sport and there is no doubt about that in my mind. It is perhaps one of the most hi-tech and riskiest sports in the world, where participants need to make decisions in micro seconds which could either let them live or could kill them. For those that say that motorsport is not a sport, I would like to remind them that the fitness levels of the participants are far superior than many athletes or any sporting disciplines recognized in this country.

A basic question, what defines a sport?
A sport is defined by a result. By competition wherever it may be. I know for a fact and I am taking an example of all the Formula 1 drivers that I know in terms of their fitness regimes. And these guys they cycle 500 km a week, they work out for 3 hours a day, they swim, they do triathlons. Those who claim that it is not a sport have never been in a rally car ever in their life and I would love to have them as our guest any given day.

Critics have made another point which is that Formula 1 is entertainment. Do you agree?
Of course it is entertainment. Cricket is entertainment. Any sport has to be entertaining as well. Unless you combine sport with entertainment, nothing will sell. Is Indian Premier League (IPL) sport? Fantastically, Formula 1 is both sport and entertainment. I think it is time for people to open their eyes and realize that sport has to be combined with entertainment if you are expecting people to actually come at the venue and not just watch it on television. And if I may add, there is no sort of ‘fixing’ in Formula 1. It is a fantastic experience and I love it.

Since Formula 1 is not considered a sport in India, has taxation become the deal breaker. What’s your perspective on this?
From what I understand, they are trying to tax 1/19th because there are 19 races of which one is in India– but the strange part is they are taxing 1/19th percent of income and not the profits. Either we encourage the sport or we dump it, and say go to hell. Post what happened with Commonwealth Games, we did a good job of hosting the Formula 1 in India and this is a matter of pride. All over the world, governments fund Formula 1 with the exception of UK and India. They do it because they see value in it from a tourism point of view and a platform to promote their country. Whereas we have found ways to charge all kinds of taxes and make people pay customs duty on import. We are not trying to welcome them, but asking them to get lost.

Today the promoters of Formula 1, the Jaypee Group have been asked to pay Rs 10 crore annually to the National Sports Development Fund. Nothing wrong with that. But why make the motorsport fraternity which is already struggling because of the expensive nature of the sport, why tax them to fund athletics? Sure let’s have this fund but use it back for motorsport so that we can develop our own drivers or for the infrastructure.

Is there a profitable business model for people who invest in Formula 1 circuits?
No Formula 1 circuit in the world will make money. That’s why the government funds it. The circuit itself is not a money making exercise. For instance Malaysia pays $ 66 million in rights fee. But they feel it is worth it because the track helps in increasing the brand equity of Malaysia world wide. But where it is privately funded like in UK or India, let’s make it easy because we are reaping the benefits of Formula 1 in an indirect manner. You take the team Williams. A large part of their inertia systems, flywheel and inertia energy systems are built in Pune. Tata for example provides the CFD technology for Ferrari. You know, you talk to all the taxi companies, taxi drivers and hotels in and around Noida and Greater Noida when Formula 1 happens. They love it because they do more business in those 10 days than they do in many months.

Do you think Formula 1 has long term prospects in India?
I am hoping that it will. I can’t expect the Jaypee Group to privately go on hosting it forever. I am hoping for a miracle with the government coming in.

How significant are the events that unfolded over the last few days?
Formula 1 wanted Jaypee Group to hold the event in March 2014. By hosting it in October 2013 and then to host it four months thereafter is both economically and physically not possible in terms of logistics. So it makes logical sense to push it to March 2015 and extend the contract to 2016. So what Jaypee Group has done is to abandon 2014 completely but maintain the contract for five races.

 

Datsun3

A five door hatchback, the car will have a 1.2 liter engine paired with a manual transmission. (Photo : Amit Verma)

Every idea has an expectation at its core. The return of the Datsun is no different. Nissan expects that cars from the Datsun stable will give the company big volumes in the high growth markets of the world. Almost four years after this idea was first conceived, yesterday in a first global preview, Nissan showcased the Datsun Go in New Delhi.

Let’s talk about the product first. It is a five door hatchback. Carlos Ghosn, the CEO of Renault-Nissan Alliance said it will be launched in India in early 2014 at a price of under Rs. 4,00,000. Early 2014 means March 2014. “Like the original DAT go car, the new Datsun Go will allow the driver to go anywhere,” said Ghosn. The car will have a 1.2 liter engine paired with a manual transmission. “In addition the car will be available with a mobile docking station, a practical solution that will allow owners to connect their smart phones and personal music libraries to the car’s audio system,” he added. The car will be available in six colours.

Nissan plans to launch three products with the The Datsun brand by 2016. Nissan executives did hint that there could be a car below the price point of Datsun Go – one that is clearly aimed at the Maruti Alto segment. In terms of product attributes, what I gathered from my meetings with Nissan executives is that the pecking order of what the car should achieve is – interior roominess, number of people you can put, good visibility, nice acceleration with good fuel economy and good braking performance.

Vincent_cobee

Vincent Cobee

What is the magic number in terms of fuel economy? Vincent Cobee, head of the Datsun project says it is 20 kmpl. Will the Datsun Go get there? “I hope. The tension between acceleration and fuel economy is interesting. In Indian driving conditions…you don’t want to compromise on either. One way around this is weight. In order to improve on weight, the good trick we have is that we started on brand new development. I am not bringing in weight which the Japanese regulations stipulate a car needs to be. We will substantially improve on if you want to look at on weight per square meter,” he said.

On the business strategy bit, it is pretty clear that Nissan is targeting the mass market segment in high growth markets like India, Indonesia, Russia and South Africa. Like most of his speeches, this time too Ghosn used statistics to make his point. “By 2016, we expect 50 percent of all auto sales to take place in high growth markets. To put the global markets in perspective, in the United States there are about 800 cars per 1, 000 residents, among mature European markets it is around 500, in Russia the rate of ownership is 280, in South Africa it is 160, in Indonesia it is 70 and in India it is 15. We see significant opportunity in these growth markets where demand for cars is increasing and will continue to increase,” he said. Ghosn added that by 2016, Nissan will launch 10 new models in India which includes the ones from the Datsun line up.

Nissan is extremely ambitious with its India target. They want to take their 1.3 percent market share (right now) to 10 percent by 2016. Ghosn added that the Datsun brand will contribute significantly to this growth. How much is significant? Almost 50 percent of the total volumes.

On 14th July, a day before the event, I spent some time with Vincent Cobee, head of the Datsun project. And he made an interesting point about the global unveiling of the car. “I am optimistic, excited and challenged about how to bring the Datsun to market and secure it. But that is not for tomorrow. Tomorrow is just one big step which we need to get right. It is a communication event,” he said. It has gone well. In my view, the car looks good. But it enters a crowded category where there are several competitors already. There’s Maruti Suzuki with the Wagon R, Ritz, A Star and Hyundai with the Santro and the i10. The challenge in the next eight months for Nissan is to ensure that the implementation of its product strategy goes right. And finally customers, the first time buyers Nissan has in mind for the Datsun, end up buying the vehicle.

“In each country, for each product you need to get at least 20 things right. We have to make sure that we don’t under estimate that my target customer in a Tier III city of India might be put off because the acceptance ratio of the financing option is not good. That the way I price my spare parts or distribute it might be a make or break for my strategy. I need to get those 20 things right. Two years ago, it was about getting the right product with the right styling. I think I am there,” he added.

Nissan executives don’t dispute the fact that distribution (marketing, sales and service) is a key challenge before them. “In some countries I have more challenges on the product side, in others I have more challenges on the distribution side. To be honest, I accept the fact that in India we have more challenges on the distribution side. What should we do? We should accept the challenge that it is difficult,” said Ashwani Gupta, programme director for Datsun. Gupta says that was the starting point and the first thing the company did is a detailed customer mapping. Interestingly, Nissan finalized this Standard Operating Procedure (SOP) only on 14th July.

Gupta explains this with the help of an example. “You know Vasant Vihar in Delhi. How do you think I will be able to sell a Datsun if I open a showroom in C Block Market? Even if we will find investors to invest in Vasant Vihar. Now if I go to East Delhi…people near the Ghaziabad border who are traveling to Noida or Nehru Place. What is the probability? It is more. So the point is we have to be where our customers are. It is very difficult. But let’s try. If you don’t do nothing, you have nothing,” adds Gupta.

P.S: Read our cover story on the launch of Datsun Go

(The journalist was in New Delhi for the unveiling of Datsun on invitation from the company)

Karl Slym

Karl Slym, MD of Tata Motors (photo credit: Vikas Khot)

Karl Slym would have you believe that the company has turned a new leaf. It has learnt from past mistakes and met customers to understand what they really want from a Tata car. Slym has been shaking things up, ever since he took over as managing director in September last year. He has pushed the R&D team and prioritized product development. The idea is obviously to boost the company’s stagnant sales, as well as build a ‘world-class’ car company. Sounds like a tall ask. I think it is.

Sales are yet to pick up but it is undeniable that Slym is transforming Tata Motors in many different ways.

On the passenger vehicles side, the changes are in the facelifts being given to most of the product line. Tata Motors has launched upgrades in almost all the cars in its product portfolio (except the Manza and Aria). So there’s a new Nano, Indica, Indigo, Sumo and Safari. Slym believes that the changes, though cosmetic—like a new front grille for the Indica, better steering for the Nano, finger slick gear shift in the Indigo and music system with USB in the Sumo among many other tweaks – will attract buyers. CNG versions of the Nano, Indica and Indigo are also in the offing. Ranjit Yadav, president of the passenger vehicles business unit says the CNG Nano can travel about 550 km and the CNG Indigo about 900 km, in one fill.

Past experience shows that Tata Motors has tried facelifts before. In fact, they have been playing this game for much of the last decade. With 8 upgrades at one shot, Slym is aiming to make an impact. What he really wants to say is: Every vehicle has got a new look. See that? He’s got another impact strategy. By the end of this year, Tata Motors will upgrade 150 of its dealerships across the country, to improve the customer sales and service experience. The cost will be borne by both Tata Motors and the dealers. The company didn’t specify in what proportion.

Tata Nano

The new Tata Nano

Beyond products, what I found more interesting, are the changes within the organization. Most significant is the return of Girish Wagh as the vice president of program planning and project management, in the passenger vehicles business. Post the Nano debacle, Wagh (who played a critical role in developing the small car), almost went underground. Yesterday, at the company’s Pune plant, he was back at the centre stage. He says the one lakh rupee price tag made the Nano sound cheap from a marketing point of view. The Nano never got the target customers it was intended for. Thanks to the lottery idea during the launch, it was only people who needed a third or fourth car, who bought the Nano.

But Wagh is looking ahead now. He is kicked about the car being projected, as a vehicle for the young. The CNG Nano which goes on sale starting next month, will further drive sales for a value for money buyer. He also had some fun asking journalists to try and locate the CNG tank in the Nano. Want to know where it is? Under the front seat. Wagh says it is not a safety risk. Tata Motors has completed several trials and tests on this vehicle. A lot of European small cars too have the tanks similarly positioned.

Tim Leverton

Tim Leverton, Head of R&D at Tata Motors

The other change I found was Tim Leverton, Head of R&D at Tata Motors taking a far more important role than before. Leverton spoke about the changes, the values and effort the company makes in its product development in a neat corporate video. The video also had bytes from a few of his colleagues in the exterior design, safety and infotainment verticals. I checked with him if he’d ever done this before. He said, it was his first time. “I think the idea is to communicate what’s good at Tata Motors,” he says. It is quite clear that the company is feeling the heat. And Slym is obviously trying to build morale within the company. It is not only about the products. The R&D team has been working on them for quite sometime now. Leverton says what Slym has done is make a priority list detailing the line-up to the market.

‘Horizonext’ launched at Pune, is Slym’s branding exercise to show the world how Tata Motors is transforming. At this stage, it is not clear if this will result in sales picking up. But even if it doesn’t, the process will certainly make a lot of employees happy. Well, everybody got a free shirt from the company. And that is a good start, isn’t it?

To read more, do check Vikrant Singh’s perspective on the event from Overdrive magazine.

(The journalist was at the Tata Motors facility in Pune on invitation from the company)

Car

The Mercedes Benz A-Class

Mercedes Benz today launched its premium hatchback, the A Class in the Indian market. The car will be available in both petrol and diesel versions. The A 180 CDI Style (diesel) has been launched at a price of Rs. 21. 9 lakh (ex showroom Mumbai) and the A 180 Sport (petrol) will be available at a price of Rs. 22.7 (ex showroom Mumbai). The company has quoted a fuel efficiency of 20.06 kmpl (diesel) and 15.50 kmpl (petrol).

At the launch, Eberhard Kern, managing director and CEO of Mercedes Benz India said he is targeting younger buyers. Who would be his target customer? A guy who is 26 years old (he assumed the name Vihan), has a post-graduate degree from a foreign university, his father has a large business in India and is now back in the country to take over his dad’s empire. Vihan loves to party, loves Formula 1 and spends a lot of time on social media.

Well, Mr. Kern’s Vihan certainly looks good as a prospective buyer, but then I checked with a couple of experts if the A Class can get Mercedes back in the volumes game. After all, the company has lost its No. 1 spot to Audi and BMW in the last five years. “Can the A Class get Merc into the volumes game? No. It is a halo product that will pique interest from premium hatchbacks but will not do volumes because of its price. There are other options that provide more value around the same price,” said Bertrand D’ Souza, editor at Overdrive magazine.

There are other skeptics too. Most prominently, Michael Perschke, the outspoken head of Audi India. Earlier today at about 10 AM, Perschke tweeted– Here is the big question of the day? Why buy an #A Class @ 23L as petrol when you can get a #Q3 2.0 Tdi with 177 bhp Diesel quattro power @27L.

The guys at Mercedes are obviously not too happy about this. I spoke with Boris Fitz, director, member of the board of management, sales and network development at Mercedes. He believes the Indian market is ready for a premium compact hatchback. “It has been a success the world over, I don’t see any reason why we should not bring a product like this to India,” he said. “Anything new does have skeptics but Mercedes Benz has been around for 126 years and I believe will be around for the next 126,” he added.

I think the A Class is certainly a great looker. But it will address a very niche audience – perhaps the well heeled looking for a second or third car. Mohan Mariwala, owner of Auto Hangar, one of the largest dealers for Mercedes Benz in the country says that this is a bold move by the company. “This opens up a new segment in the luxury car market and we should credit Mercedes for that,” he added. For now, there’s no competition for the A Class in the premium hatchback segment. In September this year, there will be one in the form of BMW 1 series.

Tata Motors car

Men walk inside a Tata Motors showroom

Tata Motors, one of India’s largest auto companies, has reported a Q4 FY13 profit after tax (PAT) of Rs. 3, 945 crore. This was down 36.7%  from PAT of Rs 6, 234 crore reported in Q4 FY12. The company said that a one off tax gain contributed to a significantly higher net profit in the year-ago quarter. Tata Motor’s consolidated revenue grew 10 % to Rs 56, 002 crore in the period. In the India business (Jaguar Land Rover not included), Tata Motors reported a loss of Rs. 312 crore compared to a profit of Rs. 565 crore in Q4FY12. Tata Motor’s EBITDA margin in this business has dropped sharply from 9.5% in Q4FY12 to 3.6%  in Q4FY13.

Here are the key takeaways from the results-

-Tata Motor’s performance in the domestic car business continues to be bad. Karl Slym, the company’s managing director said that Tata Motors is a ‘products’ company. There are high growth segments in the market where the company currently does not have a product. The company will announce new launches and variants for the car business (which includes a refreshed version of the Nano) sometime by the end of June, 2013.

-The commercial vehicles (CV) business environment continues to look difficult. Ravi Pisharody, head of Tata’s CV business said that while the company has maintained its market share in the medium and heavy commercial vehicles space, he doesn’t see the demand picking up anytime soon. In FY 13, Tata Motors gained market share of about 2 percent in the light commercial vehicles business.

-Since the CV market continues to remain tough, Pisharody said that competitive intensity will result in higher marketing expenditure for Tata Motors.

-Jaguar Land Rover continues to be the cash cow for Tata Motors. JLR will launch eight new products next year. JLR’s sales for the year ended March 31 rose 22 percent to 374,669 vehicles. China continues to be the fastest growth market for the company.  Last year sales in China surged 48 percent to 77,075 units.

-Last year Tata Motors spent about Rs. 2, 900 crore for product development and capacity expansion of its plants. Slym says the split between passenger vehicles and commercial  vehicles should be about 50 percent each. Investment will continue at the current levels for the next year too.

-On the new announced Quadricyles segment, Slym said that the company already has products that will qualify for it but it will wait for some time to get clarity on safety and emission criteria. Slym added that India should look at mobility solutions for the next 10 years rather than select just one item and push it.

Shares in Tata Motors closed 2.7 per cent higher at Rs. 303.80 before the quarterly numbers were released.

Shai Agassi

Shai Agassi, Better Place founder and chief executive, walks in front of an electric car during the inauguration of a new vehicle demonstration center in the Israeli city of Tel Aviv February 7, 2010. (Photo: REUTERS/Gil Cohen Magen)

Shai Agassi wanted to make the world a better place. The company he founded, Better Place, to encourage the growth of electric vehicles filed for bankruptcy in an Israeli court yesterday.

According to Reuters: a November 2012 earnings report published by conglomerate Israel Corp, which owns about 30 percent of Better Place, said the company had an accumulated deficit of $561.5 million with more losses expected. “Revenues are still insufficient to cover operating costs, and in the light of the continued negative cash flow position, the board has decided that it has no option but to seek to make this application to the courts for an orderly liquidation of the company,” Better Place said in a statement on Sunday.

In the world of electric vehicle (EV) evangelists, Shai Agassi was as big as it gets. A former SAP executive, Agassi founded Better Place in 2007, an electric vehicle infrastructure company with a revolutionary idea – one which found resonance with Carlos Ghosn, CEO of the Renault – Nissan Alliance, Simon Peres, President of Israel and was bankrolled by Idan Ofer’s Israel Corporation, GE, HSBC and Morgan Stanley. Eight months ago Agassi was booted out of Better Place and now the company is in liquidation.
Why did Shai Agassi’s dream fade away?

Agassi, in fact had a fantastic idea on paper. People find it hard to buy electric vehicles because they are expensive and they are expensive because the battery used to power the vehicle is costly. Agassi’s Better Place allowed a customer to buy or lease the electric vehicle at the same price of a gasoline powered car. How? The customer didn’t have to pay for the battery. Agassi came up with the concept of the Electric Recharge Grid Operator (ERGO). Whenever the vehicle ran out of juice, a customer could walk into a battery swap station, swap the battery and continue with his journey. It took just 5 minutes to swap the battery. ERGO owned the batteries and invested in setting up the charging infrastructure.

The production commitment with Renault of about 1,00,000 EVs for Israel and Denmark. Robotic battery swap stations and charging spots were set up in Israel and Denmark. Agassi had tie-ups with Renault to sell the Renault Fluence ZE

Better Place

Better Place

What went wrong?

The main problem was there weren’t enough takers for Better Place’s deal. Better Place managed to sell the concept to just 400 customers in Denmark and about 900 in Israel! On the car side, Renault was the only company which supported the idea. As a result, Better Place burnt through $ 850 million of capital it raised from investors.

“I think the concept is good but the execution was flawed which is why the volumes didn’t work out. Plus Better Place spent a lot of money to prove that the battery swap technology works. Any new eco system relies on a lot of partners coming together but Better Place could not get a lot of partnerships going,” said an EV expert who didn’t want to be quoted because of his association with the company.  Here it is interesting to note that last month Renault launched the Fluence ZE vehicle in France and sold about 800 vehicles. “On a similar car leasing model, the OEM has managed to sell more volumes in a month that what Better Place did in a year,” he added.

In many ways than one, this was always going to be the question. Which comes first, the electric vehicle or the infrastructure (whatever it might be, battery swap stations or charging spots)? In the Better Place model, the company spent all its money in setting up the infrastructure. A piece by The Atlantic states that each battery swap station costed the company $ 500, 000. Add to this the cost of maintaining stocks of batteries at the stations. And after the infrastructure was ready, the so called mass adoption didn’t happen. One clear limitation was that anybody who had to be a part of the Better Place model had to own a Renault Fluence ZE. Then a few sections of the Israeli media have also pointed out that Better Place didn’t market the idea well which points out to poor execution of strategy.

Chetan Maini, Chief Technology Officer of Mahindra Reva, an EV manufacturing company in India says that it is unfortunate that an innovative business model like Better Place went down. “I hope this doesn’t get killed as a concept because new business models need innovation.”

Bajaj RE60

Bajaj RE60 (Photo: Amit Verma)

Like most battles in his life Rajiv Bajaj has fought this one in his own no-holds barred style. He has been vocal to the point of sounding arrogant, direct and has not hesitated a bit while attacking his opponents – in this case Tata Motors, Maruti Suzuki and TVS Motors. I mean, how many times in corporate India have you seen a media communication like the one reproduced below:

Rajiv Bajaj: “A 700 kg quadricycle’s exhaust emission & fuel efficiency will be no different than that of a small car…Who’s going to make a 450 kg quadri that can be exported to Europe & will ensure a sustainable world? Bajaj. Who’s going to make a 700 kg quadri that cannot be exported to Europe & will continue to choke India? Tata.”

Despite the opposition, it emerges that Bajaj has won the first round of the quadricycle battle. Earlier yesterday, the Government of India approved the quadricycle to ply on Indian roads. In a meeting chaired by Vijay Chhibber, the secretary of Ministry of Road Transport & Highways, it was decided to amend the Central Motor Vehicles Rules (CMVR) to include quadricycle as an additional category vehicle to be manufactured and registered in India. Only as a commercial vehicle though – which means taxi or fleet operations. Nope, it cannot be used as a personal vehicle.

It is no surprise that Bajaj is ecstatic at the decision. “It is a very profitable way to expand the 3 wheeler segment; the RE60 will soon be joined by many more similarly small, light, & low speed vehicles that will make for a cleaner, safer, quieter world. As an anti-car company we’re just delighted: 3 cheers for Indian engineering!” says Mr. Bajaj.

What does this mean for Bajaj Auto? Well, the RE60 is ready and Bajaj certainly will have a head start over every other manufacturer in the country. And the first mover advantage counts a lot. There are a few things though that Bajaj wouldn’t have liked in the decision – like a prominent ‘Q’ to be displayed on the quadricycle and its use only as a commercial vehicle. Everything else seems to have gone according to plan.

How big is the opportunity? Bajaj sold 2,26,131 three wheelers in the period April-March 2013.The total size of the passenger three-wheeler market in the country for the same period was 4,41,118 units. On the car side, the taxi segment is currently dominated by the likes of vehicles from Tata Motors, Maruti and Hyundai. That’s another opportunity. While Bajaj has said that it is going to sell both three wheelers and quadricycles, at this stage, there are no numbers to go by.

“With an innovative product that creates a new category, quantitative predictions don’t work as there’s nothing to base them on. Qualitatively this development resets the rules of the game for the global automotive industry. It presents an opportunity for those who can adapt to change & a hurdle for those who can’t or won’t,” adds Bajaj.

I believe this is still the first round. Now that the quadricycle category is open, manufacturers like Maruti Suzuki will take a shot at it. Tata Motors would need to answer the tough question – can the Nano make a better quadricycle than a passenger car?

Update: I spoke with Puneet Gupta, principal analyst at IHS Automotive, an auto forecasting firm and Puneet isn’t very confident that Bajaj is looking at huge volumes to start with. It is not that three wheeler guys will be lining up to replace their vehicle with a quadricycle. “I think Bajaj is looking at policy changes at a state level, as and when new permits are made available, as the potential market. Once that happens then volumes could be quite big. I don’t expect Maruti to enter this segment considering their brand position in the market but it definitely makes sense for Tata Motors,” says Gupta.

 
 
Ashish K Mishra
Former senior principal correspondent at Forbes (India). Since 2008, I have been writing on corporate strategy in the automobiles, clean technology and supply chain space. Before I got onto this assignment, I was part of the team that covered feature articles at The Economic Times. I actually started out as a trainee journalist on the ET desk in 2006. I graduated in commerce from Shri Ram College of Commerce in New Delhi and now live in Mumbai.

I love automobiles and spend hours reading up on them and then devote painfully long hours to work on old cars that attract my fancy. Right now I own four cars (my colleagues call them fancy, junk or whatever) and a bicycle which outside my work hours get most of my attention.
 
 
 
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