Chairman, President and CEO, Robert Bosch LLC
Management Briefing Seminars 2008 - Traverse City, Michigan
August 14, 2008
|Thank you, David [Cole]. I am very pleased to be part of this panel discussion today. |
Turbulence caused by external factors is changing our industry like never before. Global economic and demographic shifts, growing raw material scarcity and global warming, as well as dramatic changes in consumer buying are taking place. This turbulence is manifested in tangible indicators:
· Escalating raw material prices
· Skyrocketing fuel prices
· Rising food prices
· Plummeting consumer confidence
· And instabilities in the global financial market.
Many of us wonder where the bottom is in this fast-changing landscape. Specifically, energy has become a major point of concern, since it touches virtually every aspect of our lives – from the way we heat our homes to the vehicles we drive. This is causing people to make major changes as they try to get ahead of the curve. Individuals are rethinking their use of energy in their homes, in their cars and in their communities. And, as they do so, it directly impacts all of us here in the room.
Eighteen months ago, who would have ever believed Americans would give up their beloved SUVs? Few of us would have anticipated the dramatic shift to smaller cars or that Americans would become so passionate about fuel efficiency even at this time when fuel prices in the U.S. are only half of that in Europe
These changes in consumer attitude and behavior are big contributors to the turbulence we find ourselves in: Dropping vehicle sales and production, changing vehicle mix, overcapacity, and in some cases, plant closings.
Our situation causes us to ask: “How did we get here?” It’s not to point blame, but rather to understand, and to help us better set the stage for a successful future. When we candidly examine the situation, we realize that the turbulence was brewing, the indicators were there and change was imminent.
For the industry overall, it’s an example of not reading the warning signs and continuing with business as usual. The ramifications of simply continuing business as usual are far-reaching.
Which brings me to my key point today: We need to improve our industry’s readiness for upcoming change. If we do this right, my deep belief is that this industry can go beyond that, and be the leaders in developing the right solutions to address these complex energy and mobility challenges.
As we struggle with today’s challenges and do our best to mitigate the negative impact, it is even more crucial we prepare for the world in 2020 and beyond.
Because what the world will be in those few years – which is only about four vehicle cycles away – will highly impact what we need and what change we need to drive today,
And the year 2020 is just around the corner. In a few weeks the Class of 2020 will start first grade. What kind of powertrain will be in their first car? Will they still have to worry about increasing gas prices?
While none of us can predict the future with certainty, we need to develop possible scenarios in alignment with the mega trends, track early indicators, and evaluate which scenario will become reality so we can put the right plans in place.
Therefore, I invite you to look into the future with me. Let’s examine two possible scenarios based on availability of energy; two very opposite scenarios. Let’s look at our world and our industry in the case of
· energy scarcity, and/or
· energy abundance.
In times of scarcity, energy becomes more expensive and so does just about everything else.
In fact, high energy costs will have far-reaching consequences. People will be less able to afford to drive their vehicles due to exploding fuel prices. Even at today’s gas prices, which will continue to increase further, we can already see a tremendous change in buyer behavior. And can you imagine American consumers paying more than $200 to fill up the tank of their SUV? This will be the case if European gas prices become a reality in the U.S. In times of energy scarcity, driving a traditionally-powered car becomes a privilege. If we continue down this path, it will become a luxury.
People will opt for shorter commutes. Demand for public transportation will increase. All of this means people will tend to live closer together in urban settings, which will increase the trend of urbanization toward mega cities.
Bottom-line for us: This will mean fewer cars.
Let me come to the second scenario: energy abundance.
Let’s paint a much brighter picture of our planet now. Imagine we have developed advanced technologies for solar, wind and hydro-energy generation and its storage, sufficient enough to close the gap to the world’s energy demand. As an example, the virtually untapped power of the sun is tremendous. It would require just 0.01 percent of the sun’s energy output per year to cover the world’s yearly demand.
Tapping more advanced technologies necessitates investments and changes in the infrastructure. The energy generation would likely be more de-centralized.
Alternative energy and fuels will help make individual driving affordable. An Individual’s mobility choices will remain. People will be able to make choices about their commuting distance, including use of public transportation, and living in urban or less-populated communities.
What then, would the automotive world look like?
Bottom-line: In this scenario we see increasing numbers of cars; a significant portion of them electric cars.
In which direction do we go? Clearly, if we could simply choose one of these scenarios, we would pick abundance. The reality is, both scenarios are on the horizon, and both will occur. It will take a long time to get to abundance. However, the scarcity scenario will begin to materialize first –
and much faster – than most people expect.
Let me explain.
Today’s mobility relies on oil. As we all know, our fossil fuel reserves are finite – the only question is: When will they be depleted?
Studies abound from oil industry and governments alike … each urgently trying to keep a pulse on this issue. While many details of these studies are proprietary, the overall results show one consistent – and quite sobering – trend.
Within our lifetime, the demand for oil will be greater than our ability to extract it. And some sources predict this to be as early as 2016 – just eight years from now.
Reasons for the growing demand are plentiful. To name a few: the industrial and commercial development of emerging countries like China and India, growing need for personal mobility around the world, and still growing energy demands by the mature economies.
The oil production is limited by factors like production rate and cost, discovery rate of new oil fields, and finite resources. Simply put: The growth in demand for oil is outpacing its availability. Clearly, the current situation is headed toward a world of energy scarcity.
However, not all is lost. Further down the road stands the promise of energy abundance. Many of the technologies that have the potential to lead us to the energy abundance scenario are already known. Before we will achieve abundance, we will first go through a period of energy scarcity. It will take a while for us to shift the course from the one scenario to the other.
It is up to us, how deep the scarcity valley will be – where the curve will bottom out – and how fast we will be able to move the curve up towards abundance.
We urgently need to further improve today’s technologies in order to minimize the demand for fossil fuels, while at the same time ramping up the use of alternative energy sources.
For the automotive industry the task is clear: We must accelerate advanced powertrain diversification. By this I mean two things:
· First, make improvements in existing technologies, so as to conserve as much fossil fuel as possible;
· And, at the same time, advance the development of alternative propulsion technologies.
Simply stated, here is how we see the transformation: More mild hybrids with some full hybrids entering the market along with clean diesel technology. Additionally, gasoline direct injection technology with turbochargers while downsizing the engine. These technologies help us use fossil fuel to its best advantage. Then we will also see more aggressive development of electric vehicles, which will allow us to better leverage a variety of alternative energy sources.
While on the path to more-fully developing electric vehicles we view hybrids as a bridge. However, further development of battery technology is essential.
For this reason, Bosch established a joint venture with Samsung to develop, manufacture and sell lithium-ion batteries for the automotive industry.
Electric vehicles will hit their stride, once vehicle battery technology and charging infrastructure are improved. Take specific energy and costs of lithium-ion batteries as an example. If we can increase the specific energy, while at the same time decrease the costs, we know it will improve overall affordability and initiate the much-needed breakthrough for electric cars.
Electric cars seem to be a very viable option for a variety of reasons. Consider driving behaviors. Let’s take Germany as an example – the average daily driving distance of people living in urban areas in Germany is only about 20 miles a day with an average speed of 25 miles per hour. In this case, an electric vehicle with today’s technology – that means without a range extender – would already meet the need.
Considering electric vehicles becomes even more attractive as large cities like London, New York or Tokyo are beginning to – or already have – introduced a “congestion fee” for driving traditionally-powered cars in the city.
As we sort out this complex issue, some may ask: How do we know what’s right? This we know for sure: The energy issue is complex and will require a mix of technical solutions. But we cannot attack all of them at the same time. We need to focus on relevant mega trends, which show us in which direction the world moves.
We need to track the early indicators and constantly watch and analyze developments and changes. Ultimately, they might initiate drastic changes in consumer behavior, and might actually make business cases viable that had been previously rejected. Watching even slight changes in early indicators such as higher battery density, will allow us very early on to align our technology with where the world is headed.
And I fully believe it is possible for this industry to make changes, and to make them with the necessary speed. Let me give you an example: The Tata Nano. For me, the Tata Nano represents the type of mindset shift needed in our drive towards a successful future. Tata did not set out to build a better motorcycle, nor did they aim to just make a cheaper car. They worked to create a new, affordable, and reliable transportation experience. They sought to apply existing technology in new ways, inviting suppliers to join them.
As Bosch approached this project, we didn’t provide old technology. Rather, we re-engineered both the gasoline- and diesel-injection systems. We accomplished the goals of lower cost, greater efficiency, and solid performance. That’s an example of the power we can unleash when there is close partnership between customers and suppliers.
Suppliers and OEMs are investing huge amounts in R&D – we must ensure it is the right kind of R&D. Bosch alone spends more than $4 billion annually for research and development. This represents close to 8 percent of sales. In 2007, more than 40 percent of our R&D expenditure was directed at products that help to protect the environment and conserve natural resources. Together we can accelerate the rate of change and innovation when OEMs and suppliers link their technology roadmaps more closely. Suppliers and OEMs should be asking themselves: Are our R&D efforts aligned? If not, we need to make changes.
While we strive for fuel efficiency, we also need to be prepared that consumers will be increasingly concerned about emissions. Therefore, I also believe, we need to prepare our businesses for a more carbon restricted future. The question of greenhouse gas emissions is closely related to the energy scarcity scenario.
Bosch joined the Chicago Climate Exchange two weeks ago. We did this in alignment with our commitment to manufacture products with energy efficiency in mind we have committed ourselves to achieve a six percent reduction in greenhouse gas emissions by 2010, compared to a year 2000 baseline.
Energy scarcity is requiring us to make fundamental changes as an industry and as consumers. For all of us, much work lies ahead.
At Bosch, we are challenging ourselves to be more forward-thinking. All of us in the room recognize that we must act on the new, instead of simply perpetuating technologies and paradigms of the past. We must get ready for the launch of a lifetime.
Let me close with this: I do not have the answers to this complex and far-reaching issue. My goal here today was to prompt this group to prepare differently for our collective future. And, now more than ever, make the right decisions about energy use and technology development.
If we start fundamental changes today, the Class of 2020 will graduate into a world that can achieve energy abundance.
Let’s demonstrate that we are part of the solution to a global crisis that knows no borders.
Peter Marks' MBS Speech - August 2008