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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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How Google Is Using AI To Make Voice Recognition Work For People With Disabilities

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Want to schedule an appointment? Just ask your phone. Need to turn on your bedroom lights? Google Home has you covered.

Now a $49 billion market, voice-activated systems have gained popularity among consumers, thanks to their ability to automate and streamline mundane tasks. But for people with impaired speech,  technologies that rely on voice commands have proved to be far from perfect.

That’s the impetus for Google’s newly formed Project Euphonia, part of the company’s AI for Social Good program. The project team is exploring ways to improve speech recognition for people who are deaf or have neurological conditions such as ALS, stroke, Parkinson’s, multiple sclerosis or traumatic brain injury.

Google has partnered with nonprofit organizations ALS Therapy Development Institute and ALS Residence Initiative (ALSRI) to collect recorded voice samples from people who have the neurodegenerative disease, one that often leads to severe speech and mobility difficulties.

For those with neurological conditions, voice-activated systems can play a key role in completing everyday tasks and conversing with loved ones, caregivers or colleagues. “You can turn on your lights, your music or communicate with someone. But this only works if the technology can actually recognize your voice and transcribe it,” says Julie Cattiau, a product manager at Google AI.

The company’s speech recognition technology utilizes machine learning algorithms that require extensive data training. “We have hundreds of thousands, or even millions, of sentences that people have read—and we use them as examples for the algorithms to learn how to recognize each,” says Cattiau. “But it’s not enough for people with disabilities.”

With Project Euphonia, the team will instead use voice samples from people who have impaired speech in the hope that the underlying system will be trained to understand inarticulate commands.

While the goal is to create technology that is more accessible for people with speech impediments, the end result is still unclear.

“It’s possible that we will have models that work for multiple people with ALS and other medical conditions,” says Cattiau. “It’s also possible that people, even just within ALS, sound too different to have such a machine learning model in place. And in that case, we may need to have a level of personalization so that each person has their own model.”

Google’s speech recognition technology can comprehend virtually any voice command for people without speech impairments, due to the large data set that has been available for training. But some uncertainty exists about how broadly speech technology will be able to understand and act on directives from those who have difficulty speaking. The Project Euphonia team has only a limited number  of voice samples from people with speech impediments, which allows it to focus only on specific-use words and phrases such as “read me a book” or “turn off the lights.”

Though Cattiau’s team has collected tens of thousands of recorded phrases, she says it needs hundreds of thousands more. That’s partly why Google CEO Sundar Pichai unveiled this project at the company’s annual developer conference in May.

“We are working hard to provide these voice-recognition models to the Google Assistant in the future,” he said, calling on people with slurred and impaired speech to submit their voice samples.

“Impaired speech is a very difficult data set to put together. It’s not as simple as asking people to record phrases, and there’s no data set just lying around,” Cattiau says. “We have to first put it together, and that’s a lot of work.”

Perhaps the most groundbreaking of Project Euphonia’s initiatives is its work on new interactive AI systems for people who are completely nonverbal. Also in its early stages, these systems are being trained to detect gestures, vocalizations and facial expressions, which can then trigger certain actions like sending or reading a text message.

“We want to cover the full spectrum of people—and not only those who can still speak,” says Cattiau. Although Project Euphonia is still in its infancy, it could eventually have a great impact on those with disabilities, giving them the freedom and flexibility to live independently.Follow me on Twitter.

-Ruth Umoh; Forbes Staff

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Nigeria Needs A More Effective Sanitation Strategy Here Are Some Ideas:

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In November last year, Nigeria declared that its water supply, sanitation and hygiene sector was in crisis. This was partly prompted by the fact that the country has struggled to make progress towards ending open defecation.

Almost one in four Nigerians – around 50 million people – defecates in open areas. They do so because access to proper sanitation, like private indoor toilets or outdoor communal toilets, has not improved in recent years.

In fact, it’s got worse: in 2000, 36.5% of Nigerians had access to sanitation facilities that hygienically separate human excreta from human contact. By 2015 the figure had dropped to 32.6%, likely driven by rapid population growth and a lack of sufficient private and public investment.

Open defecation comes with many risks. It can lead to waterborne diseases, cause preventable deaths, and hamper education and economic growth. It also infringes on people’s privacy and dignity.

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The government has tried several strategies to address this problem. In 2008 it adopted an intervention called “Community Led Total Sanitation”. This is a community-level intervention aimed at reducing open defecation and improving toilet coverage.

It draws in community leaders and ordinary residents so they can understand the risks associated with open defecation. By 2014 the intervention was deployed in all 36 Nigerian states, covering around 16% of the country’s 123,000 communities.

We wanted to know how effective the programme has been, if at all. So we conducted a study and found that community-led total sanitation programmes alone will not eradicate the practice of open defecation. But they could be part of the solution.

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We found that the programme currently works quite well in poor communities but is less effective in richer places – that is, places with higher average ownership rates of assets such as fridges, motorcycles, TVs, smartphones and power generators.

Poorer communities distinguish themselves from richer ones in other ways, too. They tend to have higher levels of trust among their citizens, lower initial levels of toilet coverage and lower wealth inequality. But none of these characteristics is, on its own, as strong a predictor of where the intervention works better than community wealth.

Low community wealth is a simple measure that encompasses all these different features, and is associated with greater programme effectiveness.

The intervention

Community-led total sanitation typically starts with mobilisation. This initially involves community leaders and then, through them, communities more broadly. Then, a community meeting is held at which residents typically start by marking their household’s location and toilet ownership status on a stylised map on the ground. They also identify and mark regular open defecation sites.

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Facilitators use the map to trace the community’s contamination paths of human faeces into water supplies and food. A number of other activities may follow, such as walks through the community that are often referred to as “walks of shame” during which visible faeces are pointed out, to evoke further disgust and shame.

Another common activity involves calculating medical expenses related to illnesses that are caused by open defecation practices.

The research

In 2015 we worked with the charity organisation WaterAid Nigeria and local government agencies in the states of Ekiti and Enugu to design a field experiment in areas with no recent experience of community led total sanitation, or similar interventions.

The community-led total sanitation programme was implemented in a random sample of 125 out of 247 clusters of rural communities.

To study the intervention’s effectiveness, we interviewed 20 randomly selected households before community-led total sanitation took place. We followed up with these households eight, 24 and 32 months after the intervention.

We found that the programme’s roll-out didn’t lead to any changes in sanitation practices in richer communities. But it worked in the poorest communities. The prevalence of open defecation declined by an average of nine percentage points in poorer communities when compared to other poor areas where the programme wasn’t implemented. This drop was accompanied by a similar increase in toilet ownership rates.

Impact depends on wealth

Our results are in line with observations by the designers of the programme. But we are the first to show quantitatively that community asset wealth is a good predictor of whether the intervention can be expected to be successful. Unfortunately, our data does not allow us to pin down why households in poorer communities are more susceptible to the programme. However, these results have important implications for more cost effective targeting of the programme.

Most countries, including Nigeria, have access to readily available datafrom household surveys that can be used to measure how asset-poor a community is. These data can be used to identify and target communities where community-led total sanitation is likely to have the biggest impact.

Eradicating open defecation is not just a Nigerian priority. Today, an estimated 4.5 billion people globally don’t have access to safe sanitation. So we also looked at data and research about this same intervention from other parts of the world.

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Community-led total sanitation intervention was first developed in Bangladesh in 1999. It has now been implemented in more than 25 Latin American, Asian and African countries.

We used information from evaluations of this intervention in Mali, India, Tanzania, Bangladesh and Indonesia. The studies found widely differing impacts. These ranged from a 30 percentage point increase in toilet ownership in Mali to no detectable impact on toilet ownership in Bangladesh.

Using a measure of wealth for these countries, we found that sanitation interventions have larger impacts in poorer areas, such as Tanzania, and low or no impact in relatively richer areas, such as Indonesia. This supports the idea that targeting poorer areas maximises the impact of community led total sanitation.

Conclusion

Our research shows that while community-led total sanitation is effective in Nigeria’s poorer areas, there are two main challenges.

First, community-led total sanitation had no perceivable impact in the wealthier half of our sample. There, open defecation remains widespread. And second, even in poor areas, a large number of households still engaged in open defecation after the intervention.

This suggests that while community-led total sanitation can be better targeted, it needs to be complemented with other policies – subsidies, micro-finance or programmes that promote private sector activity in this under-served market.

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African Music Platforms Soar As Spotify And Apple Snooze

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Creators and consumers of music seek African online music platforms even as global entities and record labels hesitate to fully commit on the continent.


Africa is a continent of over a billion people, with a young, increasingly tech-savvy population that has growing spending power and a desire to find new ways of accessing a wider range of content. And, at a sociocultural level, music plays a huge role in Africa.

A ripe environment for major global players in the music industry, you would think, but things have been rather quiet around digital music on the continent.

Spotify only launched in South Africa last year, and its only other African markets are Algeria, Egypt, Morocco and Tunisia. Apple Music is still only available in the same handful of African countries as at the time of its launch.

Where these companies have, so far, looked on, others have filled the gap. Chinese company Boomplay, founded in 2015, through a joint venture between phone manufacturer Transsion and consumer apps firm NetEase, now has 42 million users across multiple markets on the continent, and recently secured $20 million in funding to break into more countries.

Locally and regionally focused platforms are also seeing traction. Key among them is the Nairobi-based Mdundo, which has more than 3.5 million monthly active users in countries like Kenya, Tanzania, Uganda, Rwanda, Zambia, Zimbabwe, Mozambique, Cameroon, Ghana and Nigeria.

The company works with 50,000 musicians across Africa and has signed a licensing deal with Warner Music Group.

The company’s CEO Martin Nielsen says the sector is seeing strong progress, with artists flooding to online platforms to distribute their music and labels paying more attention to the continent.

“We’re experiencing an increasing interest in Africa and the music industry, both from commercial partners, record labels, music distributors and global music services. This is a very positive development, Africa is next in line,” he says.

The growth of platforms like Mdundo, and the launch of new ones, has benefits for both creators and consumers of music on the continent. For artists, they provide new ways of getting their music out there.

Dumisani Kapanga is founder of the Malawi-based streaming platform Mvelani, which has almost 100,000 songs in its catalogue and claims to have at least 40,000 users each day. He says services like his have broken down barriers to entry for artists.

“It’s now easier than ever for musicians to put out music to their fans without relying on record labels to do so. Within minutes an artist can have their music on some of the biggest platforms out there. We are providing the means for artists to be heard easily, without the need for expensive middle men,” Kapanga says.

For consumers, it is ever easier to access music new and old, in a variety of different ways. Damola Taiwo, co-founder of Nigeria-based music downloads platform MyMusic.com.ng, says download platforms such as his own remain the most popular due to factors such as accessibility and affordability, but sees a future in Spotify-style streaming services in Africa.

“The download services seem to still be the preferred method, where individual tracks are downloaded on devices and permanently owned. This is probably due to the cost and quality of internet access on the continent,” he says.

“However, there are other more structured platforms that also exist where listeners consume music. Some of them are streaming services similar to Spotify and Apple Music while others are download services, or a mixture of both.”

What business model to pursue, and how to monetize, are key challenges faced by local music platforms, and the fact that there are, as yet, no clear answers might account for the wariness of the likes of Spotify and Apple Music to bet big on Africa. Taiwo says another key issue is the lack of major record labels on the continent.

“Most artists will fall under the ‘indie’ bracket, and even the ones that have record labels are more like a one-man business with a maximum of three artists. This makes licencing difficult as there are too many entities to talk to,” he says.

The diversity of what is loosely referred to as the “African consumer”, but is, in fact, a huge mass of people with differing tastes and preferences, also poses a problem for music platforms. Nielsen says there is a rapidly growing middle class that demands the same service that global music services offer, yet they are still very data-cost conscious.

“Plus many of the smart devices have limited storage, so we tailor-make our solution to their needs. In addition to that, we have a mass-market segment on our service with low-end smartphone devices that we see a huge potential in with simpler music offerings,” he says.

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