Most of the times simplification of things leads to such radical changes leading to far reaching impact. And typically technology has big role to play in this simplification. Invention of tractors, the modern yarn, convenient information searching platforms, simplified shopping through websites and mobiles, watching TV with streaming technology, talking bots, digital payments, etc. are all examples of simplification of an earlier complex process. But what happens when a simplified technology replaces an existing (and successful) complex technology.
It requires skills, commitment and patience.
Recently, Tony Seba, the famous Stanford university economist riding on the now very famous Seba Technology disruption model, has studied and shared his insights for the impact of Transportation as a Service (TaaS) and Electric Vehicles (EV) on the auto industry.
So what is TaaS?
Transportation-as-a-Service (TaaS), also known as Mobility-as-a-Service (MaaS), is a shift away from traditional vehicle owning and operating consumer habit to provide an alternative form of transport availability with on-demand services. The on-demand services include the basic like buying food to entertainment system and many more. This encompasses ride-hailing companies like Uber, Ola and Lyft providing the private transportation and bike-sharing programs like Divvy, CoGo etc and now commercial sharing options like Shuttl . When further extrapolated with the advent of electric vehicles and research being done on self-driving vehicles in Google Waymo, Apple Car, this provides a strong technology based platform for seamless, comfortable transportation experience.
- Transportation as a Service (TaaS) is the new normal that will hit the US in the next 7-10 years and soon after to rest of the world. There could be exceptions here too.
- TaaS will provide 95% of passenger miles within the next 10 years
- Consequently, transportation and travel costs will go down significantly
- The Technology disruption will grow along as Exponential S-Curve.
- High vehicle utilization would lead to lesser demand of new vehicles in the markets
Additionally, his key use case was the Tesloop where in the Tesla lifetime warranty is put to test. Tesloop is a CA local startup that provides commute to people in a Tesla across CA. Tesla Lifetime Warranty ensures that the only upkeep cost that this company has to bear is the wear and tear from tires.
So how did Tesla come up with the infinite mile warranty?
Model S from Tesla had only 20 moving parts while a traditional Internal Combustion Engine (also known as ICE and is used by most cars in the Petrol and Diesel world today) have more than 10,000 moving parts. More the number of moving parts, more is the wear and tear and higher is the upkeep cost. The high price we pay for service of vehicles every 6-9 months is due to this high number of moving parts in the current ICE engines. A mere simplified design along with a clean energy source has led to a whole new set of dimensions of the auto industry. Lot more can be found here.
Impact of just this case study of Tesloop and Infinite Mile warranty:
- Low maintenance cost for the vehicles, Consequently, lower Total Cost of Ownership.
- Lesser to no consumption of oil so lower oil prices. May oil based economies will be impacted. So a certain shift in axis in the world economic powers.
- More vehicles in TaaS would mean lesser number of cars on the road. So, lesser auto insurance cost as there would be lesser accidents with lower density of vehicles. The insurance matrix would change.
- More cash in hand with people so improved consumer spending
- And what is not reported by Tony Seba – the 90 million jobs questions
The Indian companies do not appear to be geared up for this yet. If you go through the annual reports for Maruti Suzuki and Tata Motors, there is hardly any mention of the electric vehicles. Perhaps, it is not in a stage yet that it can be reported.
But the bigger problem appears from the famous campaign of ‘Make in India‘ initiated by the current regime of PM Narendra Modi in India.
The ‘Make in India‘ campaign for Automotive Sector has the following aspirations:
- Automotive Industry to be “prime mover” of the Manufacturing Sector and “Make in India” initiative
- Exports of vehicles to increase by 5 times and of components of 7.5 times
- Add 65 million jobs on top of current 25 million commitment for the sector
When combined with Tony Seba’s research, this initiative would need a major overhaul very soon. Following are some of the impacts that are visible:
- Large automotive manufacturers need to start planning for appropriate interventions for electric vehicles – new technology, new assembly lines and new skills for workers
- Large automotive manufacturers would need to settle with lesser domestic demand and lesser exports
- Auto components sector will undergo a significant consolidation and shrink as ICE’s will be replaced with electric engines. Lesser complexity as lesser number of parts are required so lesser number of OEMs.
- Auto insurance will undergo significant overhaul. Lesser premium, pressure on margins and shrunk workforce are immediate impacts.
- Roadside garages will no longer be there.
- And of course, the 90 million additional jobs that are being planned to be added would require new skills and re-training.
Unfamiliar and unknown impact to Skill India campaign:
The astounding impact of this is surely going to benefit the Skill India sector where the current training organisations will have a ready pool of candidates to train. The question truly remains whether Skill India or other training organisations have this kind of capacity to support such a quick switch in skills. As per National Skill Development Council reports, the current capacity of their training partners for Automotive Skill Development Council is 6.5 million.
Due to several reasons these are operating at the rate of 67% capacity. So, the current number of trained and skilled workers is 4.3 million.
A simple math shows that it would require 20 years to skill the current commitments. A disruptive change in technology as discussed above would lead to additional number of years. Clearly, much more needs to be done. Its a huge opportunity for budding entrepreneurs.
Another big question is whether the youth is ready to brace this kind of change? No one would know answer to this till the actually impact is visible.
It is still surprising that this shrinking world has global impact of one observation and research concluded somewhere at a time when people were sleeping.
Whether the ‘Make in India’ campaign can lead to this transformation is still an open question? But these 90 million jobs are going to be impacted in some way or the other is beyond doubt! And that the current capacity is not ready to embrace this change, opens a new area for budding entrepreneurs. Surely, interesting times ahead.