Interview with Sanjiv Takyar – Head of Innovation, Solutioning & Strategic Marketing at CHEP Automotive & Industrial Solutions.
Q: What do you see as the challenges facing the automotive industry post-Covid?
Sanjiv: Well, we’re not post-Covid yet, so there may be some surprises still to come. However, what we’re seeing is that the pandemic is changing the way that all businesses in the industry are looking at risk – and at risk mitigation.
It’s not just Covid. There are huge changes and uncertainties because of the pivot to electrification (with climate change regulations), Brexit, online retail, etc. How can companies reduce their risk? The more they can mitigate risk, the more resilient they will be for the future.
It all comes down to the consumer, and changes in their buying behavior.
Q: How is that changing?
Sanjiv: People are looking at cars very differently now. On one hand, there is a distinct move away from use of public transport for commuting – a recent EY survey found that it had dropped by 69% globally – partly because of working from home, but also because we don’t want to be cooped up in a crowded space with a lot of strangers. A staggering 31% of non-car owners are looking to buy one in the next 6 months (and nearly half of those are millennials). [Footnote 1]
But within cities there are also many more options to go car-free. Anti-pollution zones are making ownership more difficult, and electric bikes and scooters are becoming more popular for getting around town.
So there’s a lot of flux. And the move to more online buying will have a huge impact on dealerships as well. In a UK survey, 19% of prospective buyers said they would buy a car sooner if there was an online option. [Footnote 2]
Q: What does that mean for electric vehicles?
Sanjiv: With regard to electric vehicles, the public are certainly much keener than they were. In Europe, EV sales were up 90% (from a relatively low base) last year – though cost and lack of at-home infrastructure is likely keeping younger buyers out of the market. And I think this could change with more imaginative finance deals and charging infrastructure collaborations…
I can see there being quite a rapid move towards EVs once they become more visible on our roads. Robert Frank is a behavioral economist who focuses on peer pressure, and he notes that solar roof panel installation is hugely influenced by what the neighbors are doing – once one house installs them, the rest are far more likely to follow. Effectively, people like to “pool risk” in moving to new ways of doing things, which is something that CHEP understands all about!
However, the industry is moving much faster than planned pre-Covid towards a “tipping point” of going all-EV by 2030. Design cycles have been accelerating anyway, but this still means that often completely new systems and supply chains will start having to be put in place in the next few years – which may not be so easy.
Look at the issue that is already happening with specialized computer chips. The demand for more computing power and connectivity in our cars – and the supply problems due to Covid – has caused production delays that may end up costing the global auto industry $60bn this year. [Footnote 3]
All of which means that resilient supply chains have recently become a much more important subject in the boardroom.
Q: How are supply chains needing to adapt?
Sanjiv: I think that there is more of a recognition that change is now to be expected. So supply chains have to build in the capacity for change, rather than just being as lean as possible. Covid isn’t a Black Swan event – the likelihood of a disruptive pandemic has been predicted for decades. And electrification (and new entrants into the market from outside the automotive world) will bring many new opportunities and challenges where a fast response will be critical.
This is something that CHEP is designed for, so we feel we can be a real help to the industry in taking risk out of their supply chain. Packaging is a major cost and risk center and moving parts through CHEP pooling means that whatever the changes in demand, we make sure our customers have the supply and the quality they need. Which is especially important for things like EV batteries that have complex safety requirements.
Which is why, during the initial stages of the pandemic, CHEP was able to keep our customers’ supply chains moving despite dramatic swings in demand and capacity.
And there are greater potential gains through more collaboration. At the moment everyone is doing things differently – so there’s little standardization, and lots of empty truck transport (there’s 25-50% empty running, so much of the time they’re just moving air). [Footnote 4]
Because CHEP is deeply embedded across the global automotive supply chain, we can see the trends happening before many others – and we can see where we can find new efficiencies through working better together.
Q: How important will sustainable supply chains be in the future?
Sanjiv: Climate change hasn’t gone away during the pandemic, and there is a growing global consensus on the need for change. I think we’ll see the same sort of tipping point in the way industry responds as we’ve seen with electrification.
“Sustainability” itself has become a rather overused term – anyone can now claim they’re more sustainable because they switched to recyclable paper on their stationery… So there’s a growing demand for companies to do a lot more than that, and be aiming to reduce their impact on the planet to zero.
And the most effective way to do that is to migrate production towards a Circular Economy model – moving from the linear take-make-waste model towards one that is built on sharing and reuse.
This is how CHEP operates and is one of the reasons why we’re rated as one of the world’s most sustainable international companies. And, by using CHEP, we help our customers become more circular and less wasteful.
I think the most important point to get across is that eliminating waste in your operations isn’t a cost – it’s tangible added value. Tesla’s biggest profit center isn’t selling electric cars – it’s selling their carbon credits to other OEMs (Credit Suisse estimates they will make $2bn from this in 2021). [Footnote 5]
Indeed, CHEP is now looking beyond even zero-waste supply chains towards regenerative ones – where companies’ operations actually put more back into the planet and our societies than they take out.
After the year we’ve had with Covid, I think we’re all looking for a bit of optimism. And at CHEP we definitely feel that the automotive industry has the potential to do more than just survive in the post-Covid world, but to thrive…
Footnote 1: EY Press Release
Footnote 2: Google Surveys, U.K. English, ‘Global Auto Pulse’, May 19th, 2020, n = 886 of respondents who plan to purchase a vehicle in the next 12 months
Footnote 5: https://www.bloomberg.com/news/articles/2021-01-27/tesla-credit-revenue-may-rise-to-2-billion-credit-suisse-says