By L Ganesh
L Ganesh is Chairman of Rane Group and one of the acknowledged leaders in the auto component industry. Beginning his career as a Management Trainee in Rane Engine Valves Limited in 1979 he progressively handled various responsibilities and became its Vice Chairman and Managing Director in 1990, Vice Chairman of the group in 1994 and Chairman in 2006. He was President of the Automotive Component Manufacturers Association of India and also President of the Madras Management Association. He was Chairman of the Confederation of Indian Industry (CII), Southern Region. Currently, he is Honorary Consul for New Zealand in South India.
The global automotive industry is changing rapidly with the rapid advancements in technology, telecommunication and most significantly the preferences of new generation consumers. The change is encouraging original equipment manufacturers (OEMs) and auto suppliers to evolve and innovate. OEMs are investing in re-aligning their product portfolio to deploy electric vehicles, develop autonomous vehicles and build new mobility business. In this process, their reliance on component suppliers has increased as the technology requirements increase.
The trends of Connected, Autonomous, Shared Mobility and Electric Vehicles (CASE) will gather momentum in the next five years across the world. India has huge appetite for vehicle growth and will be an early follower of trends in CASE. This of course is also dependent on the cost trend in EV, willingness and ability of Government to subsidise them. Adequate infrastructure is another determinant.
Connected vehicles are already in the market. This is used to provide superior in-vehicle experience for passenger vehicle customers and help commercial vehicle customers (logistics, fleet managers, etc.) achieve continuity and profitability. This presents huge data to run analytics for various purposes such as on-board diagnostics, driver monitoring, etc.
Given the nature of operating environment, traffic rules, the development of autonomous vehicles for India will remain extremely complex. However, the adoption of ADAS features such as adaptive cruise control, parking assistance, emergency braking, etc. could gradually increase.
The penetration of mobility services has reached Tier-2 and Tier-3 cities and shared e-mobility has potential to decongest and reduce pollution in cities.The adoption of electric vehicles is expected to increase across vehicle segments particularly in two-wheelers and passenger cars put to commercial use, and intra-city buses.
Despite these changes being disruptive and challenging for auto component makers, it presents them significant opportunities over the next few decades. Rane Group has a portfolio with safety-critical products staying relevant for the future vehicles except engine valves, which accounts for eight percent of sales. Even the engine valves have diversified applications from two-wheelers, passenger vehicles, commercial vehicles and non-automotive applications such as defence, railways, etc. Rane has been observing this space and equipping itself with necessary insights by joining hands with a San Francisco-based venture capital fund. Some of these technologies are in nascent stage and we have taken initial small steps including the acquisition of Rane T4u, which provides connected mobility solutions for people mobility, distribution logistics, etc.
Capital Allocation Challenges
There are significant challenges to make the investment decisions in this dynamic environment.
1. The volume in developed markets has peaked and is expected to be lower driven by new mobility options.
2. Slowing growth in legacy components will put pressure on margins and further technology obsolescence prompting to less investment.
3. Accelerated change of technological focus requires further investment into new technologies such as ADAS and electrification, putting an undue burden without a promise of quick returns as the views diverge on the adoption rates.
4. Technology shifts require suppliers to invest in new and old technologies in parallel.
5. Shifting content per vehicle brings in new players from technology and electronics domain.
Capacity expansion on existing product portfolio is governed based on the new business and market environment. OEMs are also trying to consolidate platforms, which mean the component makers are expected to respond with simpler, more versatile components that are usable across multiple platforms. Product lifecycles for many car manufacturers have been shrinking. This trend is shaped by new age consumers who lookout for fresh options more frequently resulting in OEMs increasing their model-mix and product variety. In this context, the ability to optimally utilise capacity across multiple models will help. At Rane, there is a constant review of product profitability using Return on Capital Employed (RoCE) to prioritise the investments.
In addition to expanding lean manufacturing processes, steadily investing into robotics and technology upgradation will prove vital in bringing agility. The application of Industry 4.0 technologies is being evaluated for smaller range of applications making financial sense. We strongly believe in making incremental investments in the Industry 4.0 technologies and also help our team to manage the transition. In my view, these technologies will enable efficient management of operations by removing variables in decision-making. In addition to capacity expansion, we constantly pursue ideas for consolidation of manufacturing locations to optimise cost.
Electrification of powertrain is not the only change impacting the component ecosystem. Almost all component domains, including chassis systems being impacted by ADAS, active steering and braking, the exterior parts with new materials and composites, the interior on Human Machine Interface (HMI), new age infotainment solutions and increased connectivity, will change. All of these mean new requirements for the supplier base. Further, these requirements may not be met by the core R&D team used for traditional components.
At Rane, we are gradually increasing the R&D expenditure with focus on innovation. The new product development approach remains two-fold. The first is value-added variants to the existing products and the second is feature-accretive next generation products. The product innovation ensures better quality and cost effectiveness addressing our customers’ requirements. The value-add features on existing products include R&D towards advance materials for light-weighting and greater emphasis on fuel efficiency.
The accelerated rate of change on technologies and business model innovation require companies to rewire the talent strategy to enable employees acquire new skills. HR will play a crucial role in enabling organisations manage the transition. Getting the right people, re-skilling employees, educating the workforce, keeping track of changes, are key HR roles that will have to be re-oriented to the future. In my view, the transition will be more evolutionary than revolutionary. A well thought out change management approach rooted on the values of the organisation that further builds the culture and promotes a climate of engagement will weather the disruption well. We continue to focus on channellising our efforts and investments in competent people who will drive us towards realising the aspiration of profitable growth.
The governing philosophy for Rane is prudent conservatism and we build resilience through tough times and stay focused on enhancing efficiency, achieving cost rationalisation and exploring new revenue sources by entering new businesses and geographies. This helps us to prepare adequately to capture new opportunities and steer the company through the next level of accelerated profitable growth.