Andy Palmer, Executive Vice Chairman and Chief Executive Officer of Switch Mobility, and the former head of Aston Martin and a Nissan veteran, was in Chennai last week. Based in London, Palmer is spearheading the growth plans of the electric vehicle arm of Ashok Leyland. He spoke to BusinessLine about the group’s growth plans and efforts in achieving economies of scale through common platforms in the UK and India to be competitive in the electric bus market. Excerpts:
How is your plan to rope in strategic/financial investors for Switch progressing?
We are clear on what we need for the short and and long term. We are looking at a mixture of strategic as well as financial investors. Of course, strategic investor doesn’t necessarily come with big bucks. In the area of strategic side, we recently had equity investments of $18 million from Dana, a US manufacturer of drivetrain systems, for 1 per cent in Switch. This means we have already created a Unicorn in Switch Mobility, which is valued at about $1.8 billion. Switch is at an advantageous position to seize the growth opportunities over the next decade, which will see a strong growth momentum for electric buses, vans and scooters.
What are the near-term growth plans even as
the work for bringing
It has been a challenging task to create a separate business in India through paper work. I guess the most immediate focus will be on winning new businesses.
The recent electric bus order in Bengaluru (from BMTC) is a huge success, and a reflection of the lot of hard work and continuing progress on product cost reduction. So, along with securing new business, the cost reduction focus will continue.
We have been able to cut costs through the combining of businesses to create economies of scale, and we have also been able to recruit a great purchasing team. So, with the visibility of the volume, plus a purchasing team that’s really, really focussed, we’ve been able to genuinely take a lot of cost out of the products.
This has enabled us to win the Bengaluru order and allowed Switch Mobility to participate in a number of electric bus bids in Europe and the UK. We have not announced them yet. But we have started to secure good orders.
How are you building
the supply chain and
sourcing of parts for
your electric buses?
In Europe, we rely on an Austrian supplier, who sources cells from Korea for us. Looking at the future, we believe it’s really important that we control, at least, packaging, assembly and the BMS areas. So, as we look to the longer term, our battery sourcing will change as we bring things together.
Predominantly, it’s about having in-house software engineers for development. Also, regulations change, especially around Europe, impacts in some way. What manifested itself out of the Brexit discussion is that Europe sees a geopolitical challenge around batteries as the regulation will seek about 70 per cent of the contents of future batteries to be made in Europe.
So, that means obviously you can’t buy your cells from Korea. That’s not so strongly stated in India now, but it will happen eventually here and, in the US, too. So, going forward, it will become less global, and we need to find a cell manufacturer that is capable of manufacturing in Europe, India, and in the US.
At present, there is no one with such capabilities. Also, I have to accept that at least in the short term there is no route to manufacture cells in India. However, this thought process has opened up the purchasing discussion, and allowed us to find ways to source batteries at lower cost, thereby helping us win new orders.
How do you see the role of Indian operations in domestic as well as international growth of Switch?
Actually, India is the key for our future growth. I think what differentiates Switch from anybody else is its footprint in east and west. None of the new players or start-ups have these capabilities. If I can create strong commonalities between the electric vehicles made in India and Europe, India not only becomes a strong domestic market for sales, but it also becomes an export market for parts. If you see Optare (now Switch) and Ashok Leyland, they grew out of different routes. They are completely different products and basically have no commonality. By making a plan that brings to a common voltage irrespective of whether we commonly source the cell or not, it does mean that we commonly source all of the electrical architecture and then suddenly that makes India as a supply base. Perhaps you know that I put Nissan Micra to be made out of a Chennai factory and the vehicle could get the parts that are of global quality to export Micra to many international markets, including Europe. So, one of the unique capabilities of India is that it offers the ability to source global quality at a relatively lower cost. So, the major advantage for Switch Mobility is that it has Indian sourcing.
Does India allow you to achieve economies of scale like China in the electric bus market?
Now, about 98 per cent of the electric buses in the world are made in China. That’s because Chinese policy was early and they wanted to win. I have nothing but admiration for what the Chinese did. We have two choices – the rest of the world gives up making electric buses or you’ve got to find ways to achieve economies of scale. Here, my view is that the only country in the world that can compete with China as a market is India which has 1.3 billion people. If FAME II works, if the Indian government stands behind their drive towards ‘net zero’ goals and if government acknowledges their commitment to 2070, which actually needs to be 2050, then this market should explode. That will give me economies of scale with a hope that at least one us can be a credible competitor to Chinese players like BYD, Yutong. What I hope is that we can achieve this with Western quality standards. Because we are not interested in making cheap buses.
How are R&D and development capabilities being strengthened?
When I came to Optare, there were just nine engineers. By the end of this year, the total strength will be more than 100. In India, too, we will go from little over 100 to 300. So, we have been scaling up the staff strength in tune with our ambition. We are doing a lot of vertical integration. We’re doing a lot more stuff in house now compared to the past. The work that we’re doing on next generation buses and next generation vans have a much higher degree of integration and we take much more part of software now. I would say that we look much more like a tech company than a bus company.