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Bet Everything on Electric: Inside Volkswagen’s Radical Strategy Shift

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If Volkswagen realizes its ambition of becoming the global leader in electric cars, it will be thanks to a radical and risky bet born out of the biggest calamity in its history.

The German giant has staked its future, to the tune of 80 billion euros ($91 billion), on being able to profitably mass-produce electric vehicles – a feat no carmaker has come close to achieving.

So far mainstream automakers’ electric plans have had one main goal: to protect profits gleaned from high-margin conventional cars by adding enough zero-emission vehicles to their fleet to meet clean-air rules.

Customers have meanwhile largely shunned electric vehicles because they are too expensive, can be inconvenient to charge and lack range.

The biggest strategy shift in Volkswagen’s 80 years has its roots in a weekend crisis meeting at the Rothehof guesthouse in Wolfsburg on October 10, 2015, senior executives told Reuters.

At the meeting hosted by then VW brand chief Herbert Diess, nine top managers gathered on a cloudy Saturday afternoon to discuss the way forward after regulators blew the whistle on the company’s emissions cheating, a scandal that cost it more than 27 billion euros in fines and tainted its name.

“It was an intense discussion, so was the realization that this could be an opportunity, if we jump far enough,” said Juergen Stackmann, VW brand’s board member for sales.

“It was an initial planning session to do more than just play with the idea of electric cars,” he told Reuters. “We asked ourselves: what is our vision for the future of the brand? Everything that you see today is connected to this.”

Just three days after the Rothehof meeting of the VW brand’s management board, Volkswagen announced plans to develop an electric vehicle platform, codenamed MEB, paving the way for mass production of an affordable electric car.

For months after the Volkswagen scandal blew up in 2015, rival carmakers treated diesel-cheating as a “VW issue”, according to industry experts. But regulators have since uncovered excessive emissions across the sector and unleashed a clampdown that undermines the business case for combustion engines, forcing a sector-wide rethink.

Now the “villain” of dieselgate is likely to become the largest producer of electric cars in the world in coming years, analysts say, putting it in pole position to flood the market – should the demand materialize.

“Decisions to convert the Emden factory (in Lower Saxony) to build electric cars, would never have happened without this Saturday meeting,” said Stackmann, one of five senior VW executives who spoke to Reuters.

However the full scale of VW’s ambitions were only revealed two months ago when it took the industry by surprise by pledging to spend 80 billion euros to develop electric vehicles and buy batteries, dwarfing the investment of rivals.

It plans to raise annual production of electric cars to 3 million by 2025, from 40,000 in 2018.

STRATEGIC PERILS

It’s a risky bet.

With regulators and lawmakers, rather than customers, dictating what kind of vehicles can hit the road, analysts at Deloitte say the industry could produce 14 million electric cars for which there is no consumer demand.

It’s also an all-or-nothing bet in the long run.

VW, whose ID electric car will hit showrooms in 2020, has set a deadline for ending mass production of combustion engines. The final generation of gasoline and diesel engines will be developed by 2026.

Arndt Ellinghorst, analyst at Evercore ISI, said betting on electric vehicles (EVs) could be risky because customers did not want to own cars dependent on street-charging facilities.

“What if people are still not ready to own EVs? Will adoption be the same in the U.S., Europe and China?” he said.

But he added that EU and Chinese emissions regulations made electric vehicle adoption inevitable and that being an early industry mover in that direction offered a “positive risk-reward”.

Another by-product of dieselgate that quickened VW’s electric drive, according to the senior executives, was a purge of the company’s old guard, who became the focus of public and political anger.

This empowered Diess, a newcomer who had joined as VW brand boss shortly before U.S. regulators exposed the carmaker’s emission test cheating.

Diess, who joined from BMW where he helped pioneer a ground-breaking electric vehicle, has since been appointed CEO of Volkswagen Group, a multi-brand empire that includes Audi, Porsche, Bentley, Seat, Skoda, Lamborghini and Ducati.Slideshow (3 Images)

Carmakers have failed to mass-produce electric cars profitably largely because of the prohibitive cost of battery packs which make up between 30 percent and 50 percent of the cost of an electric vehicle.

A 500 km-range battery costs around $20,000, compared with a gasoline engine that costs around $5,000. Add to that another $2,000 for the electric motor and inverter, and the gap is even wider.

Even electric start-up Tesla’s cheapest car, the Model 3, is on sale in Germany at 55,400 euros, priced just below a base model Porsche Macan, a compact SUV. In the United States, Model 3 prices start at $35,950.

VW believes its scale will give it an edge to build an electric vehicle costing no more than its current Golf model, about 20,000 euros, using its procurement clout as the world’s largest car and truck maker to drive down the cost.

“We are Volkswagen, a brand for the people. For electric cars we need economies of scale. And VW, more than any other carmaker, can take advantage of this,” a senior Volkswagen executive told Reuters, declining to be named.

The carmaker’s electric-vehicle budget outstrips that of its closest competitor, Germany’s Daimler, which has committed $42 billion. General Motors, the No.1 U.S. automaker, has said it plans to spend a combined $8 billion on electric and self-driving vehicles.

Renault-Nissan-Mitsubishi said in late 2017 they would spend 10 billion euros by 2022 on developing electric and autonomous cars.

“On a 2025 view, we expect Volkswagen to be the number one electric vehicles producer globally,” UBS analyst Patrick Hummel said. “Tesla is likely to remain a niche player.”

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STRICTER TESTING

VW’s test cheating using engine management software – “defeat devices” – resulted in the introduction of tougher pollution tests which revealed in 2016 and 2017 that emissions readings across the industry were up to 20 percent higher under real-world driving conditions compared with lab conditions.

This has raised the bar on the auto sector’s efforts to cut emissions of carbon dioxide, blamed for causing global warming.

EU lawmakers in December agreed a cut in carbon dioxide emissions from cars of 37.5 percent by 2030 compared with 2021 levels. This was after the European Union forced a 40 percent cut in emissions between 2007 and 2021.

“This goal is no longer reachable using combustion engines alone,” Volkmar Denner, chief executive of Bosch, the world’s biggest auto supplier, said about the 2030 proposals.

Every gram of excessive carbon dioxide pollution will be penalized with a 95 euros fine from this year onwards.

Strategy firm PA Consulting forecasts VW will face a 1.4-billion-euro penalty for overstepping average limits in Europe by 2021, while Ford and Fiat-Chrysler face fines of 430 million euros and 700 million euros respectively.

Daimler, BMW, PSA, Mazda and Hyundai will miss their 2021 average emissions targets, PA Consulting forecasts. Toyota, Renault-Nissan-Mitsubishi, Volvo, Honda and Jaguar Land Rover are on track to meet their goals.

PA Consulting’s forecasts were extrapolated using 2017 registration data for each powertrain type and consumer buying trends, but do not include more recent sales trends.

Ford, VW and BMW said they would meet their targets because of a push to sell more hybrid and electric cars in 2018. Daimler said it aimed to meet the targets, PSA said it would respect the targets while Fiat-Chrysler declined to comment. Mazda had no immediate comment, while Hyundai did not respond to a request for comment.

Carmakers have struggled to lower their average fleet emissions because of a shift in customer taste toward heavier, bigger SUVs (sports utility vehicles), which make it harder to maintain the same levels of acceleration and comfort without increasing fuel consumption and pollution.

SUVs are now the most popular vehicle category in Europe, commanding a market share of 34.6 percent, according to JATO Dynamics. Even Porsche, which makes lightweight sportscars, relies on sports utility vehicles for 61 percent of sales.

As the industry-wide scale of excessive emissions prompted Brussels to push through tougher laws late last year, VW executives concluded that purely electric cars were the most efficient way to meet carbon dioxide goals across its fleet.

This was the point of no return, according to executives, when the company made the final electric investment decisions and committed to staying the course it had plotted after dieselgate.

“After evaluating alternatives, we opted for electromobility,” chief operating officer Ralf Brandstaetter told Reuters about VW’s deliberations in November. -Reuters

-Ilona Wissenbach and Agnieszka Flak

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Walmart Sues Tesla Over Solar Panels That Allegedly Caught Fire

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Topline: Walmart is alleging in a lawsuit that Tesla solar panels caused fires on the roofs of seven Walmart stores, and is accusing Tesla of breach of contract, gross negligence and failure to comply with industry standards. 

  • Walmart claims that Tesla installed faulty solar panels that eventually spontaneously combusted and caught fire at seven Walmart stores around the country.
  • The lawsuit alleges that Tesla inspectors didn’t notice defects that were visible to the naked eye, used cable connectors that weren’t compatible with one another and failed to see that loose and hanging wires were present at multiple sites.

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  • Walmart says in the lawsuit it believes the failures were the result of rushed installation because Tesla’s solar division “adopted an ill-considered business model that required it to install solar panel systems haphazardly and as quickly as possible in order to turn a profit, and the contractors and subcontractors who performed the original installation work had not been properly hired, trained, and supervised.”

Tesla did not immediately respond to a request for comment from Forbes.

Key Background: Tesla got into the solar business after it acquired SolarCity in 2016 for $2.6 billion. But production of its residential solar panels under Tesla has been mired with delays and plunging sales. 

Just this week, CEO Elon Musk announced a revamped pricing plan in an effort to boost the slowing business. The new pricing model allows residents in six states to rent solar power systems starting at $50 a month ($65 a month in California) instead of buying them up front.

Further Reading: Read the full lawsuit here.

-Rachel Sandler, Forbes


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How To Cut The Cord: The Top Smart TVs For Streaming 2019

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Freeing yourself from the shackles of cable or satellite television is easier to do than you might think, especially if you have a smart or connected television.

Smart TVs have integrated internet and interactive features that allow users to stream music and videos, browse the Web and view photos. Almost every new high-end television sold within the last two years or so has smart capabilities. So how do you choose?

If you want to take advantage of streaming services like Netflix, Hulu, Amazon Prime and more, then look at these television sets.

LG C9 OLED 65-inch TV
Best smart TVs
On the streaming front, it provides a single place to browse and search for TV shows and movies from apps like Hulu, Amazon Prime Video, ESPN, PlayStation Vue, and more. LG

In addition to a beautiful, detailed picture and a big soundstage, this 4K OLED sports cutting-edge connectivity, including an HDMI 2.1, and a comprehensive feature set including both Google Home and Amazon Alexa built in. It also comes with Home Dashboard, a new tool that turns the set into the central control hub of all your connected home devices—from doorbell cameras to smart thermostats to appliances like a washing machine or a stove.

On the streaming front, it provides a single place to browse and search for TV shows and movies from sites such as Hulu, Amazon Prime Video, ESPN, PlayStation Vue, and more. It also lets users rent, purchase and watch TV shows and movies from Apple’s iTunes store.

Vizio 55-inch M-Series Quantum
Best smart tVs
This Vizio is equipped with updated SmartCast 3.0 software includes support for Apple AirPlay2 and HomeKit, making it just as suitable for iOS users. VIZIO

At under $700, the 55-inch M-Series Quantum offers a serious value in the smart TV arena. Not only does it deliver an excellent picture and sound, but it is also equipped with updated SmartCast 3.0 software, which includes support for Apple AirPlay2 and HomeKit (making it just as suitable for iOS users).

The update also has a more vibrant selection of locally installed apps, including Netflix, Amazon Video, Hulu and Vudu. Thanks to a partnership with PlutoTV, the Vizio also offers a dedicated streaming channel called WatchFree, which gives you a TV-watching experience with more than 100 free channels, including sports, news, cartoons, and movies. You can also pair the set with an Amazon Echo device for voice control with Alexa.

Sony Master Series 65-inch A9F OLED TV
Best Smart TVs
This 65-incher also comes with Google Assistant capability, which lets you search for content, find online information, use online services and even control smart-home devices.SONY

If money is no object and you want a TV with loads of features, an incredible picture and terrific sound, go with the Sony A9G. The A9F is one of the first Sony Android TVs to ship with the newest version of its smart OS. The most notable names in video are preloaded, including Amazon Prime Video, Google Play Movies & TV, Hulu, Netflix, Sling TV,and YouTube. For music, Google Play Music, Pandora, SiriusXM, Spotify, Tidal and a slew of internet radio stations.

This Sony 65-incher also comes with Google Assistant, which lets you search for content, find online information, use online services and even control smart-home devices. 

TCL 43S517 Roku Smart 4K TV
Best smart TVs
The Roku TV interface is uncluttered and easy to navigate, with big square tiles for all your apps and streaming services, including Netflix and Hulu. TCL

Great things can come in packages costing less than $400. Not only will you get a terrific picture, robust sound and a slew of genuinely exciting features, this TCL 43-inch model sports Dolby Vision HDR, Dolby Atmos audio support and integrated Roku voice search.

The Roku TV interface is uncluttered and easy to navigate, with big square tiles for all of your apps and streaming services, including Netflix and Hulu. There are also apps for major broadcasters, major sports leagues, and premium channels such as HBO and Showtime. Of particular interest to cord-cutters will be support for Sling TV, which provides a cable-like experience without the expense of a cable subscription.

Insignia 43-Inch 4K Fire TV Edition
Best Smart TVs
This under $300 43-incher offers most of the apps you’d expect, like Netflix, Hulu, HBO Go and HBO Now, as well as Amazon Prime Video. INSIGNIA

Amazon finally seems to have a Fire TV that can compete with the Roku-powered smart sets. This 4K television with HDR support is packed with features for the Amazon faithful, with Alexa voice interaction built-in, Amazon’s huge selection of Fire TV apps, and a smart TV experience that puts Prime Video centerstage.  

This 43-incher costs less than $300 and offers most of the streaming apps you would expect, such as Netflix, Hulu, HBO Go and HBO Now, as well as Amazon Prime Video. Plus, Fire TV will soon get an official YouTube app packed with services such as YouTube Kids, YouTube Music and (most critical for cord-cutters) YouTube TV.

-Chuck Tannert, Forbes

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Multi-Disciplinary Education In The 4IR Era

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There is an adage that states “if you want to know the future of a nation, study the behavior of its teachers”.

The most potent force for political, economic and social progress in society is education. The measure of how great a nation will rise is determined by how many people in its population are educated. The African continent today has a total purchasing power parity gross domestic product (GDP) of $6.7 trillion, and a population of 1.2 billion people.

According to the United Nations Educational, Scientific and Cultural Organization (UNESCO), in 2016, sub-Saharan Africa had a literacy rate of 76% compared to 89% in South and West Asia, 87% in the Arab states and 98% in the developed nations.

This literacy rate in sub-Saharan Africa is far from adequate, and calls for urgent and practical action to improve it.

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We are living in an era characterized by the fourth industrial revolution (4IR) where technologies such as artificial intelligence (AI) and blockchain are changing all aspects of our lives. Factories are automating. Because of these changes, the nature of work is changing.

Many jobs are disappearing altogether, and new types of jobs are being created. For example, we now have jobs that did not exist 20 years ago, such as Data Scientists. AI is now able to diagnose severe diseases such as pulmonary embolism, epilepsy and leukemia complementing the work of medical professionals. Because of the rapid automation in the medical field, doctors today require an in-depth knowledge of technology.

These changes in society because of 4IR require new sets of skills. Are our education systems ready to capacitate our people with the requisite skills to tackle the problems of 4IR?  Do we have enough teachers at all levels of our educational systems to be able to give our people skills that will make them useful in the 4IR era? Do we have enough educational institutions to be able to skill our people? Unfortunately, the answers to these two questions are in the negative.

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Given that we do not have enough teachers nor educational institutions to provide a critical mass of our people the requisite capabilities that will help them survive in the 4IR, what is to be done? One way of tackling this problem is to take a lesson from the first Indian Prime Minister, Jawaharlal Nehru, who realized that for India to thrive in the 20th century, it needed to invest in elite technical education. In this regard, he introduced the Indian Institutes of Technology (IIT).

Nehru had this to say in 1956 at the first convocation address of the first IIT in Kharagpur, a city in West Bengal: “…Here in the place of that Hijli Detention Camp stands the fine monument of India, representing India’s urges, India’s future in the making. This picture seems to me symbolical of the changes that are coming to India.”

It is vital that African countries create a few elite institutions that will drive the African continent into the 4IR. The Pan-African University supported by the African Union is a good start, but we can do more.

Additionally, these elite institutes should not be limited to higher education only but must also focus on primary and secondary education. One example in Johannesburg is the African Leadership Academy (ALA), which targets gifted 16-to-19-year-olds. Today, the ALA has alumni from 46 different countries making an impact on the political, economic, and social aspects of the African continent.

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For us to thrive in the 4IR era also requires our educational experience to be multi-disciplinary. In our limited institutions of higher learning, students enrolled for programs in the human and social sciences must also study technological subjects.

Those enrolled in technological programs must study human and social subjects. Technological subjects should focus on the issues that confront the African continent, such as affordable and appropriate technology, limited and incomplete data, and cost-effective manufacturing.

The human and social subjects should focus on the urgent issues facing Africa today, such as social cohesion, connectivity, stability, conflict and unity. Due to the limitations of physical infrastructure and good teachers, African countries should pull their resources together and invest in online platforms to facilitate education through modern techniques such as blended and augmented learning.

The outcome of the education system, whether at primary, secondary, or tertiary levels, should be logical, numeracy and verbal skills. These skills will give our people the capacity to tackle the challenges of the 4IR such as coding, problem-solving, critical thinking, creativity and decision-making. 

– Tshilidzi Marwala is a professor, Vice-Chancellor and Principal of the University of Johannesburg. He deputizes President Cyril Ramaphosa on the South African Presidential Commission on the Fourth Industrial Revolution.

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