Electric Vehicles Pose Huge Challenge for Companies

One of the hardest tasks that faces boards and senior managers of large corporations is to manage the fundamental changes in their industries.

The world is dotted with corporations that didn’t manage that change and therefore run into all sorts of bother. There are a lot more to come. The decline of the Fairfax newspapers in the face of the internet and employment, property and car advertisers is a good example.

One of the biggest changes ahead of us is the electrification of cars and probably other forms of road transport. Accordingly, I was not surprised to see Canada’s Ontario Teachers Union Superannuation fund linking with the KKR private equity group bidding for a network of electric wires via Spark. In contrast I was surprised to see the former Caltex company, Ampol, bidding for Z Energy in New Zealand. Ampol already faces a major task to move from petrol-driven cars to electric cars in Australia and has now substantially increased the task by bidding for the New Zealand company.

We have tended to believe car electrification was a long way off, but it is actually coming very fast. Australia does not make cars anymore, so we are going to follow overseas trends.

In the US major motor makers led by Ford, GM and Stellantis (Chrysler, Fiat Peugeot) plan to achieve half their sales volume via electric vehicles by 2030. Mercedes Benz plans to be all electric by 2030 and from 2025 all Mercedes Benz car designing will be based on electric vehicles.

At the moment China has around 44 per cent of the world's ten million electric vehicles and Europe 31 per cent. America is lagging but very clearly plans to catch up. Until now the business of refuelling cars has been a relatively confined industry because it required a major investment and skills base in fuel tankers and bowsers.

Now, unless they are required for trucks, bowsers will be replaced by electric chargers. The idea will be that as you are charging your car you will go to the convenience store for beverages or food. The trouble is that almost certainly Bunnings and other major retailers will install “electricity bowsers” to refuel cars while people shop, and it will be possible to refuel at home often using solar energy generated from the roof.

Clever households will use their cars as batteries to store power for the house when they are not using the car. They will not go to the old or new car refuelling stations. That is a very big set of changes that establish a whole new set of rivals that Ampol and other conventional petrol retailers will now have to cope with.

Clearly Ampol believes there will be economies of scale and they can maintain a major market share of the car refuelling business even though we are moving from petrol to electricity. Maybe they are right, but it clearly requires a set of strategies that carry some risk for shareholders. The risk is expanded by the NZ takeover.

Telstra has looked at this market and decided that it wants to use its database strength to distribute power along with its internet and telecommunications services. The CBA is looking at power retailing, albeit at a very embryonic stage.

Suddenly Ampol is competing with electricity retailers who will devise ways to integrate cars into their networks. Ampol can’t respond easily to that threat because its databases are not strong. This is a fundamental change both to the world and Australia and there will be many corporations, like Ampol, who believe they can adapt their business to turn electrification into a winning situation.

But for everyone who gets it right there will almost certainly be some that get it wrong.

On the global stage there is an even bigger transformation taking place in China. Indeed, I think that the next phase of the Chinese revolution will be as big a story in the next decade as decarbonisation and the next stages of internet development.

The first stage of the Chinese revolution came when Mao Tse-tung implemented the vicious Cultural Revolution as part of the communist manifesto. Then came the next stage when China began to move along western lines and dramatically increased its economic size and technology base. It was a second great transformation.

Now Xi Jinping is recalling that his father was an original disciple of the basic communist manifesto. Accordingly he is now swinging China back to a set of policies that do not have the extreme features of the world of Mao but are nevertheless very different to the China that was being westernised.

China’s emphasis on education caused it to emerge as a global leader in the high quality teaching of mathematics and science via highly skilled tutoring by listed companies that charged large fees to make sure that Chinese children achieved high grades.

The tutoring is being disbanded by Xi because it is unfair to lower income people.

There has been a substantial clampdown on social media and indeed all media needs to be cognisant of the need to promote Chinese talent and good artistic works. China has changed the rules for its high-tech companies and the Communist Party has effectively taken control of their databases and told them that it has become their responsibility to act in a way the benefits the society.

Xi Jinping is trying to take China back to a soft version of the China that existed to the years subsequent to 1949. Australians have benefited from trading in iron ore which has often boosted the price but now speculation is not encouraged. I think it is going to be very difficult to restore our Chinese tourism and education industries because China is heading in a different direction. On the Australian front the most immediate aim of China was to reduce the iron ore price and they were successful.

Like the motor electrification experience, China is going to be a bumpy ride. It is likely that the rate of growth we have come to expect from China will slacken. And those buying from China will need to understand that their suppliers are in a different environment. China does not respect Australia and will not tolerate being lectured by the Australian government. It is also more aggressive. These will be big challenges for Australia.