TIME TO GET INTO 4TH GEAR ? STRAIGHT-AWAY TOO !

Car  Grave-Yard  of  World  ?

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BACKGROUND :

Countries all around the World, are in the process of phasing out Petrol-Diesel vehicles and switching over to Electric vehicles

Here are the target dates ( for change-over ) set , for some of the countries :

·         UK………………. 2040

·         Scotland…….. 2032

·         France………..  2040

·         Norway……….  2025

·         Austria……….   2025

·         Netherlands.   2030

·         China……….     2030

·         Finland…….     2030

·         India……….      2030

Now an electric vehicle has only 20 parts against 2000 parts in a Petrol-Diesel vehicle

With switch-over to EV , following parts will be no longer needed :

Engine – Transmission – Brake – Clutch – Levers – Fuel Injection system – Exhaust System – Lead Acid Battery – Pedals – Dashboard Instruments – some Wiring  etc

These parts will get replaced by :

Lithium-ion Battery – Electric Motors – Sensors – Electronics – Computers etc

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IMPLICATIONS :

·         Thousands of companies manufacturing components for Petrol – Diesel vehicles , will go out of business .

·         These include , Foundries , Forge-Shops , Machine Shops , Fabrication Shops , Sub-Assembly Shops , Electroplating Shops, Heat Treatment Shops , Wiring Harness Units etc

·         Currently , Indian Auto Component industry employs some  25 million people  ( directly and indirectly ) and contributes 7 % of our GDP

·         These Auto Component manufacturers are worried !  Over the next 10 – 20 years, no one will need to buy these current components .

·         A few hundred Auto Component manufacturers will , no doubt , switch over to manufacture of components required by Electric Vehicles but that is only 20 parts ( as against 2000 parts required currently ) .

     What will / can , thousands of the rest do to survive ?

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MY  SUGESTION :

·         In order to survive, they need to ask themselves ( ala Ted Levitt’s seminal essay , “ Marketing Myopia “ ) :

·          

“  What business are we in ?

 

Instead of considering ourselves as being in the business of  “ Auto Components Suppliers “ to vehicle manufacturers, could we think of being in the business of  

     CAR  GRAVE-YARDS  of  the WORLD ? “

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WHY  THINK  SO ?

·         World Scenario :

#  Car population    ( 2010 )………………………………………………….. 1  Billion

#  Car population    ( 2017 ) ……………………………………………………2  Billion

#  Cars manufactured in 2011……………………………………………….  80  Million

#  Manufacturing Target for 2035 ……………………………………….   127  Million

·         India Scenario :

·          

#  Vehicle Population ( 2016 )……………………………………………. .  230  Million

#  Vehicle Population ( 2037 )……………………………………………….. 500  Million

( Source : https://www.strategyand.pwc.com/media/file/Strategyand-India-Automotive-Market-2020.pdf

#  Passenger Vehicles produced in 2016-17…………………………    3.7  Million

#  Total Vehicles produced in 2016-17…………………………………… 25.3  Million

HOW  MANY  NON-EV  GET  SCRAPPED  NOW  EACH  YEAR  ?

·         USA ………………………………… 15  million

·         Europe…………………………..    9  million

·         Japan……………………………..   6  million

·         China……………………… ……..   6  million

·         Developed Countries……….. 30  million ( generating 27 million tons of scrap )

·         India………………………………..   4  million

( Transport Ministry wants to scrap immediately , some 28 million petrol-diesel vehicles which are older than 15 years , for which proposed tax exemptions are :

#  Rs  30,000 for passenger vehicles / Rs 150,000 for Commercial vehicles )

( Source : http://events.steelmintgroup.com/scrap-recycling-in-india-rise-of-a-new-phase-of-steelmaking/  )

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THIS  IS  ABOUT  TO  ACCLERATE :

·         But , if entire World wants to switch over to Electric Vehicles in nest 20 years, then the number of Petrol – Diesel vehicles to be scrapped could well be 200  Million per year !

Of this , India should target to capture a 25 % market share , at 50 million vehicles per year ( inclusive of scrapping of our own old vehicles )

    ( Current population + new Petrol-Diesel Vehicles that will continue to get

      manufactured in next 20 years )

·         In India alone, that figure could be as high as 20  Million per year for next 20 years ( - as compared to current level of 4 million ) !

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WHERE  IS  THE  OPPORTUNITY  HERE  ?

·         Car scrap/recycle yards around the World, just do not have the capacity to scrap / recycle 200 Million vehicles per year ( - a 7 FOLD jump from current 30 million )

·         In any case , car scraping / recycling is considered a “ dirty business  “ in developed countries

In developed countries , labour costs are very high ( as much as 20 – 30 times of prevalent labour costs in developing countries ), making this industry , a “ high cost “ industry

·         That forces scrap Yards in developed industry to employ high level of expensive / automatic machineries ( scrappers / crushers / balers / sorters / grinders etc )

·         As against this , Indian scrap yards employ simple electric hand-tools and cheap labour , making them very competitive against scrap yards abroad

IS  THERE EVIDENCE TO  SUPPORT THIS  THINKING  ?

·         Take the example of ALANG SHIP BREAKING YARD in Gujarat , with following figures :

#   A small town ( population of 18,464 ) near Bhavanagar , Gujarat

#   Alang Ship breaking yard set up on a 6 mile beach in 1983

#   180  Ship breaking companies employing 40,000 direct workers and 200,000

     indirect workers , who work 12 hours per day for Rs 400 per day ( or less ),

     as compared with a Semi-Skilled worker in USA getting Rs 11,000 per day ( $

     170 per day - $ 850 per week for a 40 hour week )

#   Alang companies generate revenue of Rs 6,000 cr / year and pay tax of Rs

    2,000 crore to government

#   Breaks 60 % of World’s “ Ships to be broken “ ( 29 million tons in 2013 )

#   Broken 7,000 ships till date

#   As many as 200 ships lining up for breaking at any given time

#   10 % of all steel consumed by India comes from Steel Scrap from ALANG

#   No doubt working conditions at ALANG are miserable / safety standards are

    sadly woeful / labour laws are flouted. All of these need big improvements

#   For the past few years , Shipping Industry has witnessed a downturn,

     rendering ALANG under-utilized

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WHAT  SHOULD  BE  THE  NEXT  STEP ?

·         Start a new initiative called “  Break  In  India “

·         Set up 100 Alang type “ CAR GRAVE YARDS “ all along the vast Indian coast , as part of already announced Coastal Economic Zones (CEZs), Coastal Economic Units (CEUs) and Port-Linked Industrial Clusters

     ( Source : http://sagarmala.gov.in/project/port-led-industrialization  )

     Each Car Grave Yard to house 100 Car Braking Units ( total of 10,000 units )

     Each unit would have ( mandated ) minimum scrapping capacity of 5,000 vehicles

     per year , aggregating 50 million vehicles per year ( our 25 % market share )

    

·         “ Break In India “  must find meticulous / detailed, implementation schedule in :

#   EV  Road  Map  ( Policy Document awaiting Cabinet approval )

#   Automotive Mission Plan 2016-26   ( AMP 2026 )

·         Exempt CAR  BREAK YARDS from payment of Corporate Income Tax for next 20 years

·         Encourage existing Auto Components units to set up such “ Car Break Yards “ by offering to them , free land ( in those CEZ ) and free electricity

·         From world over, encourage “ Cars to be Scrapped “ to get loaded onto “ Ships to be Scrapped “ and brought to these CEZ .

·          

      After unloading , those ships to be re-directed to Alang !

Foreign Ship Owners can make money ( by hauling cars to India ), even in the last journey !

·         Permit 100 % FDI ( automatic route ) in Car Breaking Units . This will help bring latest technology, safer working conditions and high productivity . It will also raise the wage levels

·         There should be no “ Import Duty / Customs Duty “ on cars imported for breaking

·         GST on sale ( domestic or export ) of salvaged materials should be only 5 %

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BENEFITS  :

·         25 million persons currently employed by Auto Component Industry will be able to retain their jobs ( - of course , they must agree to be re-trained / re-skilled , in order to save their jobs )

·         Cost of our STEEL MANUFACTURING by Indian Steel plants will go down since they will get 45 Million tons of Steel scrap ( from those 50 million cars ) at very low input cost

The price of iron and steel has increased from Rs 30,000 per tonne 6 months ago to about Rs 48,000 to Rs 50,000 per tonne today without any such steep hike in input costs.

( Source : https://www.thehindubusinessline.com/economy/roll-back-price-hike-of-iron-and-steel-builders-association-of-india/article10049757.ece  )

·         We will be able to salvage / recycle metals ( Grey Iron / Steel / Aluminium / Lead and precious metals such as Nickel – Copper – Cobalt etc )

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I urge our Policy Makers  / PM-EAC / NITI Aayog /  Industry Associations ( ASSOCHAM – FICCI – CII - SIAM – ACMA ) to consider my suggestion

15  Feb  2018

www.hemenparekh.in / blogs