Economy – Challenges and opportunities for India’s auto industry !!!

Background –

It’s akin to expecting someone to climb Mount Everest in a month, Rajan Wadhera says of having to leapfrog to the much stricter Bharat Stage VI (BS VI) emission norms from BS IV in less than three years.

The task at hand for Wadhera, president, automotive sector at Mahindra and Mahindra Ltd, involves upgrading and overhauling the entire manufacturing ecosystem to ensure it can handle several thousand tests, calibration and validation and also fits in well with the technology choices, while keeping a tight leash on costs.

That will make it one of the most mammoth research and development projects undertaken by the automotive industry in India, says Timothy Leverton, chief technology officer at Tata Motors Ltd.

The transition will involve overhauling the working dynamics of the automakers and will alter the cost structure forever, Leverton says.

So what differentiates the BS VI standard from BS IV?

It’s the introduction of advanced technologies to ensure pollutants emitted by the vehicles are reduced and comply with the specified limits. It will also mean a number of changes to be made in the engine systems.

The implementation of the advanced emission norms might still be three years away, but Wadhera and Leverton are already racing against time to execute the most complex project of their careers.

The task is more onerous for companies that have products spanning several categories, ranging from cars and SUVs to two-wheelers and trucks. Such a portfolio means that the companies would have to invest more resources and time to build the requisite capabilities for successfully executing the programme.

Tata Motors, for instance, uses 34 different engines and has 150 vehicle programmes that will be fitted with those engines. “We have such a huge range to work on—from Magic Iris to 49-tonne trucks,” says Leverton. “Europe took nine years to go to the effective equivalent of BS VI, we have to do it in three. It’s a huge programme.” 

Mahindra’s Wadhera echoes similar sentiments. “In my last 50 years, I have not seen this kind of challenge. It’s far more difficult than most of the technical transformations that I have seen so far.”

To understand the challenges Wadhera and Leverton face, it is worth diving into the underlying emission technologies.

To achieve a reduction in particulate matter by 82% and oxides of nitrogen (NOx) by 68%, auto makers need a combination of technologies—one is the diesel particulate filter (DPF), a device designed to remove diesel particulate matter, or soot, from the exhaust gas of a diesel engine.

Then there’s selective catalytic reduction (SCR) and exhaust gas re-circulation (EGR), which is for NOx reduction.

SCR is a process that uses a catalyst to convert NOx in exhaust gases to nitrogen and water, which are then released into the air. In EGR, the engine re-circulates a portion of the exhaust gas back to the engine cylinders depriving it of certain amount of oxygen thereby leading to lower temperature burn. This reduces NOx emissions, but produces more PM, which is reduced using diesel oxidation catalyst (DOC) and particulate filter.

Auto parts shake-up

The transition is also an inflection point for auto component makers—both Indian and multinationals. By acquiring technologies and capabilities through joint ventures, home-grown companies see this as a chance to move up the value chain.

For multinationals such as Germany’s Bosch AG and America’s Cummins Inc., it’s an opportunity to develop a solution for a market that is unique, and create an economy of scale for low-cost emission control systems and technologies that can be used in other emerging markets.

“The shift to BS VI is set to shake up the auto component industry,” says Raghuttama Rao, a former managing director at Icra Management Consulting Services Ltd. According to Rao, only those that have the requisite technology will be able to pass muster. He expects dominance of global auto component makers to increase, either directly or indirectly.

Jan O. Röhrl, chief technology officer and head of mobility solutions business for India at Bosch Ltd says: “It’s a huge step as compared to a BS IV since the capacity requirement for a BS VI is increased by a factor of 4 to 5.”

The shift, he adds, is an opportunity for the automaker and Bosch as a supplier, pointing out that the company will draw from its previous learnings as it has supplied the same globally and can do the same even in India.

Owing to its long presence in the country, it already has modern testing facilities. Additionally, in May, Bosch broke ground for the second phase of its Bidadi plant near Bengaluru with an investment of around Rs500-600 crore. The unit will manufacture parts for BS VI compliant vehicles as well.

The local arm of the German component maker is developing a lean electronic fuel injection system (LEFIS) for three-wheelers that will help them meet the BS VI norms. 

“We knew that in a cost-sensitive market like India, customers would face the difficulty of being able to afford a fuel injection system that was relevant to European conditions,” he says. The challenge, therefore, was to design a system for India that would not just meet the stringent particulate matter (PM) and NOx emissions of BS VI but also be cost-effective and robust to survive “the harsh use-case here”, he says.

A combination of mechanical pump and electronically controlled smart fuel injectors, LEFIS is estimated to go into series testing phase by mid-2019 and enter 2020 fully prepared to meet the BS VI emission regulation, he says.

Sandeep Sinha, chief operating officer at Cummins India Ltd, says the real challenge is not engines or engine technology as that’s already available, but system integration and optimizing them as per Indian driving cycle and the time required for calibration and validation. Cummins is one of the largest engine makers in the country.

The cost of developing an engine platform averages from Rs150 crore to Rs200 crore, according to Sinha. Cummins is investing Rs1,000 crore in setting up the world’s biggest research and development centre in Pune. The centre, which will start operations from the third quarter of fiscal 2017, will also have test cells for BS VI engines and will help the firm localize a lot of critical parts that are currently imported.

BS VI is a challenge as well as an opportunity for the industry as none of the Euro 6 markets have bikes with small engines, according to Deepak Jain, managing director of Lumax Auto Industries, a Gurgaon-based company that supplies lighting systems for vehicles. Manufacturers in India would have to develop a cost-effective solution from the ground up.

To be sure, it’s not the technical capability which is worrying auto firms as quite a few of them have been exporting Euro 6 vehicles to several markets. “The technology isn’t extremely difficult, but you can’t simply take what is available in Europe and transplant it in India as our driving cycle is very different,” says Vinod Dasari, managing director of Ashok Leyland Ltd. “We will have to apply Indian innovation and this will require investment and time.”

Driving cycle refers to the speed of a vehicle versus time.

It’s the challenge of executing the project of such a huge scale which is giving sleepless nights to companies. As the intermediary BS V stage has been skipped, there’s a time crunch and firms would have to develop and optimize the DPF and SCR systems in parallel, instead of doing it sequentially. 

“I know how to do it. But I need to know how to do it better than others,” says Dasari.

Mahindra’s Wadhera agrees. “It’s not about the technology per se as I have it, my challenge is to multiply it over various platforms in that order, go through the grind with perfection. In the process of doing that, I don’t have to compromise on fuel efficiency,” he says.

Mahindra’s large portfolio of models explains Wadhera’s worries. The company has 10 vehicle platforms across several product categories including cars, SUVs, trucks and pick-ups. For each, it would need at least 20 people and three years’ time to develop a good DPF with good test facility. It needs 5,000 hours on the test bed and at least 700 tests on the chassis dynamometer, a device for measurement and testing developed to simulate the road on a roller in a controlled environment, mainly inside the building. The vehicle is fixed to a building with a restraint device.

To test these technologies for best results, their performance needs to be monitored in every season and across various terrains, says Wadhera. “You are trying to evolve a methodology for calibration. To ensure the technology developed is foolproof, you need a minimum of two cycles—two years, two seasons,” he explains, adding that any laxity in testing and validating the functioning of the device can be a major safety hazard.

The second technology is SCR, which too has a development cycle of three years. It will take close to 4,000 hours of test-bed running. It will need chassis dynamometer and will necessitate development of several new parts and around 20 to 25 new vehicle systems.

There is also the challenge of packaging them all efficiently in the limited space without compromising on fuel efficiency. The addition of parts and aggregates such as the DPF , a urea tank, dozing unit for NOx (required in SCR) will increase the weight of the vehicle by at least 40-50kg. The additional weight can impact the fuel efficiency.

Economies of scale

To be able to develop both DPF and SCR technology simultaneously, across 10 vehicle platforms, Mahindra will need 400 skilled people—20 people per platform. “Manpower needs to be skilled, who will teach them? It’s a new technology. We are struggling, it’s a mammoth challenge,” says Wadhera.

Unlike BS IV and BS V where one can manage with either one of the technologies—EGR or SCR, BS VI needs both. Therefore, the complexity increases manifold, says Leverton. The sheer content means that the number of engineers and test facilities one needs, will have to be accelerated.

One of the biggest areas of engineering activity for example, is in the areas of electronic control calibration—“you make the basic system and you have to adapt it to an application of a vehicle”, he says, pointing out that Tata Motors needs three times the number of calibration engineers it currently has.

The average cost of calibrating and developing each of the ten BS VI platforms could be anywhere between Rs75 crore to Rs100 crore, depending on the extent to which a company seeks external help and engages firms such as FAB, Ricardo and AVL that specialize in emission technology, says Wadhera.

In the run-up to the BS VI implementation in April 2020, Ashok Leyland is likely to spend anywhere between Rs200 crore to Rs400 crore, says Dasari. This is inclusive of infrastructure and people costs, among other things. Ashok Leyland will need to hire around 100 engineers, he says.

It’s critical to do it all at a competitive cost so that Indian companies can compete with big multinationals, who have it all—technical capability, experience, and deep pockets.

“We would be much rather on the lower side. With lower costs, we’ll have a much better pricing power,” says Wadhera, pointing out that the economies of scale Indian companies have will put them in good stead vis-à-vis foreign rivals.