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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

Current Affairs

Here’s How The US Claims The Assange-Manning Conspiracy Worked

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The U.S. government has disclosed more of its case against WikiLeaks cofounder Julian Assange. It hinges on a claim he and Chelsea Manning worked together to crack a password for a computer storing sensitive government files.

An affidavit unsealed Monday outlining the case against Assange said he conspired with Manning when they discussed working together to crack a password “related to two computers with access to classified national security information.” More specifically, the password belonged to a user called FTP (not to be confused with an FTP server) on two Windows computers that Manning could access from a base in Iraq, the government said.

The FTP account wasn’t associated with any specific individual, and the government alleged that if Manning had used it to pilfer files and hand them over to Wikileaks, she could have foiled investigators looking into who was behind the leaks.

“Although there is no evidence that the password to the FTP user was obtained, had Manning done so, she would have been able to take steps to procure classified information under a username that did not belong to her,” the affidavit read. “Such measures would have frustrated attempts to identify the source of the disclosures to WikiLeaks.”

The alleged conspiracy to crack the password took place in March 2010, two months after she’d walked out of the Iraq base with classified war reports from Iraq and Afghanistan. She was later convicted and served seven years in jail for downloading tens of thousands U.S. military documents and diplomatic cables.

How passwords are cracked

The reason any password had to be cracked in the first place was the use of what’s known as a “hash.” Microsoft’s Windows operating system doesn’t store passwords in plain text. That’s to prevent hackers who find a way on to the computer from seeing and stealing them. Instead, Microsoft makes life harder for cybercriminals and snoops by turning that plain text into scrambled code. That string of letters and numbers is known as a “hash value” and it’s created when an algorithm is applied to the plain text of the password.

For an attacker to get at the plain text it’s possible to do a so-called “brute force attack.” The process for this is basic: The hacker creates a huge list of guessed passwords through the same hashing algorithm used by Windows to find a matched hash value for the hidden password. Once the same hash value is calculated, the password has been found.

Sometimes a password will be too complex for guessing to work in a short enough time frame. That’s where “rainbow tables” come in. These contain a massive number of hash values for previously calculated passwords. Hackers use them to do a quick comparison of the hash they have with the ones in the table, in the hopes that it’s already been seen before and a match is available.

“In computing terms we call this a time/memory trade-off. Rather than spend time on a task, we pre-calculate parts of it and store them somewhere, essentially trading time for memory,” says Tom Wyatt, senior penetration tester at cybersecurity provider Bulletproof. “These tables can be calculated or downloaded from various online sources, and it simply boils down to paying for storage for it all; even in 2010 this was fairly cheap and entirely possible.”

But Microsoft goes one step further in protecting those hash values by splitting them in two, storing the parts in separate files. Here’s where a little trick comes in handy: A hacker might be able to recover those two separate pieces by rebooting a Windows PC using a CD with the Linux operating system. Back in 2010, it was possible to do that and recover the full hash value.

Ken Munro, a penetration tester with Pen Test Partners, told Forbes the technique still works, as long as there’s no additional layer of security over it, such as full disc encryption. “Whilst the technique still works, it’s quite rare to find systems that don’t now have full disc or similar encryption,” he added. (Microsoft hadn’t responded to a request for comment at the time of publication). According to the government’s telling of the story, evidence suggests Manning tried, and very possibly failed, with this technique. In a footnote in the affidavit, the government said Manning hadn’t provided Assange with the full hash, only one of the two halves required.

It’s alleged Manning passed what she thought was a hash value to Assange. The Wikileaks chief then said he would pass it on to a specialist in cracking, according to chats over the Jabber encrypted communications app, as provided in the affidavit. But, as per the investigators’ claims, there was some confusion: Manning said she wasn’t even sure what she handed to Assange was the hash value they wanted. Assange messaged Manning to ask if there were “any more hints” about the hash and that he’d had “no luck so far,” according to the government account. From there it’s unclear what happened. The government admits it didn’t know whether the password was ever cracked.

Not that it changes much for Assange: The charge is that of conspiracy. If he did offer assistance to help Manning gain access to U.S. government systems and encouraged the then intelligence analyst to leak files, the charge still stands. Manning, who served seven years in jail before being pardoned by President Barack Obama, is back behind bars for refusing to testify in the investigation into Wikileaks. Her lawyer had not responded to a request for comment at the time of publication.

Assange’s lawyer, Jennifer Robinson, couldn’t be reached for comment at the time of publication. She told Sky News yesterday that the indictment against her client showed “the kinds of communications journalists have with sources all the time.” Following Assange’s arrest, however, various journalists have said on Twitter that any incitement to hack organizations or steal documents was far from normal and risked breaking the law.

Meanwhile, the fallout from Assange’s arrest continues. According to Reuters, Ecuador’s telecommunications vice minister Patricio Real said the government’s networks had been hit by a mass of cyberattacks after it decided to revoke Assange’s asylum status. He claimed various government websites had been slammed by 40 million hacking attempts per day, double the number it typically sees.

-Thomas Brewster; Forbes Staff

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Health

10 Rules Of Email That Will Reduce Your Stress Levels

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Email and smart phones can be stressful. Academics are calling this constant work connection “technostress”. Consequently, many European countries are now offering employees the “right to disconnect”.

The way email is used is complex, it cannot simply be labelled as “good” or “bad” and research shows that personality, the type of work people do and their goals can influence the way they react to email.

Good practice with email use is not just about limiting the amount of emails sent, but improving the quality of communication.

Here are ten tips to reduce the stress of email at work:

1. Get the subject line right

Use clear and actionable subject lines.

The subject line should communicate exactly what the email is about in six to ten words, to allow the recipient to prioritise the email without even opening it. On mobile devices, many people only see the first 30 characters of a subject line. So keep it short. But make it descriptive enough to give an idea of what the email is about from just the subject line.

READ MORE | Burnout, stress lead more companies to try a four-day work week

2. Ask yourself: is email the right medium?

Are you in the same office? Could you go and speak to the person? Could you call? Often these other forms of communication can avoid the inefficient back and forth of emailing.

Instant messaging and video calling platforms like Slack and Skype could be more appropriate for quick internal back and forth messaging. Also, remember that most of the advice below applies to all types of electronic communication.

3. Don’t email out of office hours

Research shows that out-of-hours emails make it harder for people to recover from work stress.

Try and influence your company culture by avoiding sending or replying to emails outside your normal working hours.

Management should lead by example and avoid contacting their staff outside of their normal working hours. Some workplaces even switch off email access to employees out of hours. Consider implementing this while keeping a backup phone system for emergency contact only.

New research has also shown that just the expectation of 24-hour contact can negatively affect employee health.

READ MORE | A Career Secret Weapon: Thank-You Notes

4. Use the delay delivery option

Some people like integrating their work and family lives and often continue working from home during their off-job time. If you are one of these people, or if you work across time zones, consider using the delay delivery option so your emails do not send until the next working day and do not interfere with other people’s off-job time.

5. Keep it positive

Think about the quality of email communication. Not just the quantity. Changes to email use should also focus on the quality of what is being sent and take into consideration the emotional reaction of the recipient.

Research suggests that conflicts are far easier to escalate and messages to be misinterpreted when communicated via email. Therefore, if it is bad news, think back to rule #2: is email the right medium?

6. Try ‘no email Friday’

In order to shift company culture and get people thinking about other methods of communication than email, try a “no email Friday” on the first Friday of every month, or maybe even every week. This is an initiative suggested by experts from the National Forum for Health and Wellbeing at Work, and is being used by businesses around the globe. Employees are encouraged to arrange face-to-face meetings or pick up the phone – or just get on top of the many emails they already have in their inbox on that day.

READ MORE | The 12 Biggest Career Crashes Of 2018

7. Make your preferences known

Research has shown that not only too much but also too little email can cause stress due to a mismatch between the communication preferences of different people. Some people may like being emailed and cope much better with high email traffic than other means of communication. For these people, reducing the amount of emails they receive may cause more stress than it alleviates.

So consider people’s individual differences and make yours known. Add your preferred contact preferences to your email signature whether it is email, text or instant messages or a phone call.

8. Consider a holiday ‘bounce back’

Having a backlog of emails that builds up over the week appears to be one of the most commonly mentioned sources of technostress for workers. Think about setting up a system where emails are bounced back to the sender when someone is on holiday, with an alternative contact email for urgent requests. This would let you come back to a manageable inbox.

9. Have a separate work phone

Make this the only mobile device you can access work emails on, which gives you the freedom to switch it off after work hours. Also consider turning off email “push” (this is where your email server sends each new email to your phone when it arrives at the server) and instead choose a regular schedule (such as once per hour) for emails to be delivered to your phone (this also increases battery life).

10. Avoid late night screen time

Research suggests that late night smart phone use reduces our ability to get to sleep and also leads to constant thoughts and stress about work. This in turn reduces your sleep quality. Make the bed a phone-free zone to improve your sleep hygiene.

The Conversation

-The Conversation

-Ricardo Twumasi; Lecturer in Organisational Psychology, University of Manchester

-Cary Cooper; 50th Anniversary Professor of Organisational Psychology and Health, University of Manchester

Lina Siegl; PhD Researcher, University of Manchester

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Technology

The World’s Largest Airplane Takes Flight. Next Stop? Outer Space

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On Saturday, the world’s largest aircraft, the Stratolaunch, made its first complete test flight. The aircraft flew for about two and a half hours over the Mojave desert, reaching a speed of 189 miles per hour and an altitude of 17,000 feet.

The aircraft was created by the Stratolaunch Systems Corporation, which was founded by the late Paul Allen. The purpose of the plane isn’t normal commercial travel, but rather to carry rockets into high altitudes, then launch those rockets from the plane itself.

“What a fantastic first flight,” Jean Floyd, CEO of Stratolaunch, said in a statement. “Today’s flight furthers our mission to provide a flexible alternative to ground launched systems.”

Scaled Composites, which was acquired by Northrop Grummon in 2007, worked on the design and build of the Stratolaunch aircraft. Saturday’s test flight was piloted by Scaled Composites test pilots Evan Thomas and Chris Guarente.

“I honestly could not have hoped for more on a first flight especially of an airplane of this complexity and this uniqueness,” Thomas said in a press briefing following the flight.

Stratolaunch in flight
Stratolaunch in flight on Saturday, April 13 Picture: STRATOLAUNCH SYSTEMS CORPORATION

The Stratolaunch aircraft was first announced in 2011, and is the largest plane ever built out of composite materials. Its wingspan is 385 feet, the longest of any aircraft that has ever flown, including the Spruce Goose, which had a wingspan of about 320 feet. By comparison, a Boeing 747 has a wingspan of about 212 feet – making the Stratolaunch plane nearly twice the size. It’s propelled by six PW4056 turbofan engines, and is actually capable of launching multiple rockets on a single flight, up to about 500,000 pounds.

Airplane-launched rockets seemed at one point to be a good bet as a way of providing more convenient flights into space. Scaled Composites won the Ansari X Prize for launching the first private, reusable spacecraft into space in June of 2004. That effort was backed by Paul Allen, and this approach was not only adopted by Stratolaunch but also by Richard Branson’s Virgin Galactic.

However, it’s taken much longer than expected to develop these types of spaceflight. Virgin Galactic only first reached a space-approaching altitude at the end of 2018 – 14 years after that first Scaled Composite flight – though it hopes to be providing passenger service as early as later this year. Stratolaunch at one time was developing a rocket for its aircraft, but abandoned that effort earlier this year.

Rather than launch its own rockets, Stratolaunch has shifted strategy to be a platform for other aircraft-launched rockets. In particular, for Northrop Grummon’s Pegasus family of rockets. First demonstration Pegasus flights off of the Stratolaunch plane are scheduled for 2020.

Though they’ve taken longer to develop, the arrival of private plane-launched rockets via Virgin and Stratolaunch may be well-timed, as more satellite startups are looking for options to get satellites into space on their own timetable. Rockets launched from airplanes have more flexibility in terms of timing than their counterparts that launch from the ground, which may be a critical factor for companies looking to build up constellations in a hurry.

-Alex Knapp; Forbes Staff

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