NEVS: Continuing the journey to make a difference

The first day of the Saabfestival 2015 was marked with many compelling events on the agenda. Probably one of the most anticipated elements of all was the presentation by NEVS President Mattias Bergman. Details about the vision for the future, the new product portfolio, distribution strategy, the newly announced Chinese partners, SAAB and how he’s continuing on the journey to make a difference….

“Welcome everyone here to the NEVS open house at the Saabfestival. My name is Mattias Bergman and I am the president at NEVS. This morning I was sitting in my office at the main gate and I saw car after car come by with registration plates from many different countries from all over Europe. Really fantastic and I want to wish you all a very warm welcome here!

What I’d like to do today is to give you an update on where we are. Then I’ll be happy to answer any questions you may have.

First, it’s very clear that NEVS was founded with a very clear mission: we want to make a real difference for future generations. We know that fossil fuels will end. We expect this to be around 2050-2070, depending on what reports you’re using. We also know that we cannot wait until fossil fuels run out as the pollution from the cars will needs to be addressed as well. So if we look around us, it’s not just in big cities like Beijing, London or Paris that we have this pollution, the impact is being noticed broader and broader. The global car industry in total is calculated to generate 1/3rd of the total pollution. The pollution kills every year about 4 million people so we feel we have a responsibility. We believe in change and we believe we can actually make a difference. But at the same time we want to be able to provide you with a sustainable transport solution where you don’t have to compromise by doing the right things and still have the pleasure of performance of the car, so we are not going to be a “me too” product with a big compromise, but a premium car that cares about the future.

So if you look at the development of the car –and I hope many of you will visit Frank Smit’s seminar on that topic- you’ll need to think about the process and the time needed to develop. If a process is 2-3 years to develop, the car program will typically last for say 10 years and after that we are obliged to also provide spare parts for another 15 years. So it means we’ll have to have a very long view when we plan our products. And of course, the key trend to understand is the care for the environment, this is crucial. Having said that, another trend to weigh in is the shape of car ownership that is gradually changing. Looking at our children –and I am lucky to have my own son in the room with me today- this is the target group we need to take into consideration as future buyers and they don’t care as much as we do about actually owning a car. The key for them is the ability to transport themselves, so the business model needs to change. We can already see today that car sharing pools are getting more popular. And when we then start to talk about electric cars the business model will change.

Half of the car’s value is the battery and why would you own the battery? There are other companies that can do that and they can also be part of the battery’s second life. So after you have used it in your car for say 5 to 8 years, you’ll have a new battery and the old battery will be reused in an energy storage in your house to store the energy from for example solar panels.

The other trend is connectedness. Again, for all of us who have kids, we may say that they may be connected too much but to be connected is going to be more and more important for us. Having a connected car in case you end up in an accident can be really useful as it will be able to send a signal to the emergency centre but gradually using connectivity for active safety and gradually the cars will be self-driving.

Then when I talk to many of the SAAB fans, they say “why should a car be self-driving? I want to drive”, that is still going to be the option. But thinking about the fact that 90% of all accidents are caused by the driver, that they aren’t careful enough. That the driver is distracted by email or distracted by something else but the system in the new world won’t be. So that will come, but I don’t think all of that is ready just yet.

Even if the technology will be ready very soon, we don’t have the legal systems in place yet. Who will be responsible in case of an issue: is it the internet provider, the hardware provider, the car manufacturer, etc so that will still take some time to sort out.

So these kinds of trends are important to us to understand and take into consideration when thinking about the development of our new cars. The cars of today have a value add from software that is limited to 5%. But if you look 10 years ahead -and we have to that in our planning- we estimate that the value of the software will be over 60%. At the same time, we have less than 3% of our staff in software engineering -and this is a general trend in the industry- so either we have to start recruiting software engineers from for example Ericsson or Sony, etc. or we have to work together. When we look at the industry, automotive is most likely the most competitive landscape in the world. It’s very capital intensive, you really have to do the right things.

So if we visualise on this slide the traditional companies that are in the industry today, they are challenged by new actors. Not only like smart companies like Tesla who understand that EV’s are the future, but also by new actors. We see Virgin, we see Apple, we see Google who say that EV is the future, self-driving is the future and they have other value add for the software that they can take into the car. Or it the component makers like Bosch and Continental? I don’t believe they will become an OEM and produce their own complete cars but they will for sure take a big share of the money for it by developing systems that fit in these new cars. Looking at the trends, there will be a consolidation. Many of the car companies today still don’t seem to understand the issues around the environment, connectivity and changing business models but we do. You will all, at least the Swedish part of the audience today, remember Facit. The story about a company that didn’t understand that the time for typewriters was over and that the world was moving to computers. And if you don’t understand the future trends, you’re not part of the future.

And then we are here, based on the proud background in Trollhättan. Every premium car maker needs their positioning: safe and premium quality, but that’s taken for granted. What is distinguishing a SAAB car, and what is distinguishing how we view the future? Not only the outer design needs to be beautiful, but also there needs to be based on simplicity and functions. You can’t make it overcomplicated. Being a small company, we have to be innovative. We cannot just follow what others are doing and that has really shaped us that with limited resources that we have to find our own base and you have to be part of putting the standards for the future. We have some of the key engineers who have been part of building the SAAB history our first EV and they will also be part of building the future. They have been creating the turbo, side impact protection, nigh panel, so many more innovations that are today standard in the automotive industry. But these innovations have to be directed to implement our vision and that is the environment. To understand this trend, we’re not putting a lot of R&D to develop conventional powertrains. That will other companies do.

We put our resource our resources to implement the vision for us. Then when you like at what kind of resources we will be building our future from, of course our buildings and machinery are great assets but the key really is our people. Today we are 350 people, just the bare minimum with key competences in manufacturing and design, purchasing and marketing. But it is key to continuing the journey. Anyone can buy the same machines, anyone can buy the same software to develop cars, but not just anyone can use them the way we can. This is because of our many years of developing and building SAAB cars that is now also securing that the cars we are doing today are of really high quality, safe and –meeting the DNA of SAAB- are fun to drive. The people we have in the company aren’t just very competent, they also have a unique attitude. This “we can do it” attitude. We believe in the vision, we believe in where we are going. When I talk to other people in the industry, they are actually very impressed with our staff. We have a really difficult year behind us, but we haven’t lost anyone, maybe 4 or 5 people, but we’re all so proud of what we do. This stubbornness and flexibility is a key resource.

But of course the plant is a key resource as well. Last year it was part of an international evaluation of the GM year 2008. It was ranked in productivity as one of the highest, competing with BMW, Mercedes, etc, really top notch production facilities. But the production facility is as I said, not the machinery, it is the people. GM had been neglecting maintenance of the plant over the last years and now we started to catch up. Last year, even though it was difficult, we paid salaries and kept the maintenance of the equipment, so the equipment in the factory is ready to start. What are in process to invest in is very much is in the body shop. To adjust the body shop also to produce cars that are based on the new floor that is required for EVs.

So people, physical factory and then the IP. The IP or Intellectual Property we have is the knowledge of how to build quality premium cars. That means everything from subsystems from electronics to propulsion system, the chassis system, the safety system, etc. And that together is the knowledge how to put together a great car. However, one of the areas we’re currently not the strongest in is self-driving. This is an area I’ll come back to.

But the IP we’re continuing to build from, the Phoenix platform is key. The Phoenix, originally was the way for SAAB Automobile to be independent from GM platforms. If you are a large company, you could have very specialised platforms for each car model, but if you are as we are, a company that will produce only a few hundred thousand cars you have to have the flexibility in your platform, that you can use the same sub systems and structures in more models than one. Then you have to be able to use that modularity to make it easier in production. Scania is probably the master of modularity. So this is one part, so this allows not only to produce different sizes of cars, from small cars to large cars, from SUVs to convertibles but also to be able to handle different car brands.

If you look at Volkswagen, they can share a platform with a brand like Audi and with Skoda. It is also what we intend to do: to be able to differentiate the brand and part of this differentiation will be done with other companies that will be using our IP and assets also to develop cars for other brands. This will give us synergies in purchasing, synergies in sharing development. This modularisation will also be used in our core for the future: our battery technology.

To understand what this modularity gives for advantages we have to understand that we’ll have a product range that will be larger than what SAAB Automobile had before. That means you’ll have to make C, D and E segment cars, so different sizes of cars, but we’ll also have to be able to utilise this in the different models, different chassis, different powertrains, different body structures, different interiors, etc. We have to have these modules to have very clear interfaces so they can be reused. So if we have these interfaces very clear, and understand the different requirements as we do, then we need to look at is it for a premium car or is it for a volume brand. Say we decide to make a C-segment car with a conventional engine, not under the SAAB brand but for a partner of us then we will be able to utilise this kind of transmission, powertrains, this kind of chassis modules and this kind of body structure. And if we then decide that for us, this is an EV SUV for our brand, our premium brand, then you will use this kind of powertrain module, this kind of chassis and body structure, but some of the modules are the same and this is there you have the power in creating this approach. Because we are very clear: our future is electric cars. Electric cars is the only way for us to implement the vision; that have sustainable powertrains but are not compromising on the fun to drive, the driving experience. So there are not only 100% EV’s, there are also hybrids, and there are different stages of hybrids. Our focus is on light hybrids that can have an electric range extender. The battery technology is developing fast, the Watthours per kilo is improving, costs per battery kilo is decreasing and by doing that we can get more power into the battery pack. Then we have a choice: either we are utilising this to go from a range that is 300km today to 400-500kms, or we keep the weight the same. Today the batteries weigh about 400 kilos. Or we decide for a lighter battery, which means lower costs and a more affordable car. Different customers, different needs.

So 90% of car owners drive a maximum of 100km per day, and if you drive 100kms a day, the battery needs to have a capacity of 300 kilometres to be on the safe side. But if you commute more than 100 kms a day, yes, then you need a longer range. And that can be created by bigger batteries or with a range extender, where you have a small gasoline engine that works to charge the battery and extend the range.

You’ve seen it outside and you can see it throughout the day, this is our first EV. We’re really proud of it. When we talk to journalists who compare it to BMW i3 and Nissan Leaf, it is a very good car. We are meeting their performance and it has the capabilities of a larger car; we even have a longer driving range than the competitors.

But our future cannot be achieved by ourselves. We need to cooperate with others. And there will be different partners, companies that share our vision. There will be industrial partners that can have synergies in development, they will be sharing infrastructure, sharing components. When we share components, it reduces our cost but at the same time it gives us synergies in purchasing. We have one partner that we soon will announce but if you make 3 million cars or make 200,000 cars, there is huge difference in the cost of the bill of materials you negotiate with your suppliers as it is a volume game. So we need economies of scale. But we also need technological partners that add modules and technologies, and we also need financial partners. So it’s not just one partner we need, we need a number of them.

We have been negotiating for quite some time with different partners. Internally I called it the “ketchup effect” as we have been shaking this bottle for a while and finally something came out.  We announced partnerships not when we just have a letter of intent or when we have a preliminary agreement but when we have a signed agreement, money is in our bank account, and we have permission from those partners to communicate. Some of them are listed on the stock exchange, some are connected with a government, so we have to respect when and how we announce.

So last week the first part of the ketchup came out: two strategic partnerships, with the city of Tianjin and with SRIT. Let me introduce those two partners:
Tianjin is the harbour city outside of Bejing. but also Beijing and Tianjin our now merging into one big city and a 100 million people. On the pictures I showed you earlier, because of all this air pollution and because you have the political power here, there was the highest pressure to make a change and reduce the pollution. There is a lot of pressure to introduce electric cars and by doing that, there are a lot of incentives. You can basically get a minimum of 10,000 Euro in government subsidy on the Chinese market, compared to 3,000 on the Swedish market. Of course that makes a big difference on the business case.

So Tianjin, they are a city of 16 million people and this city is reporting directly to the central government. This is also the city where Toyota produces, Hawtai produces and many other car companies are present, which means that there is an existing base of skilled workers and critical suppliers. So this gives us the market and the industrial base. In Tianjin, we will build one factory with a similar size as Trollhättan and one R&D centre. Not with the same skillset and the same setup as here, but with complementary skills compared to what we have here.

The other company is SRIT: State Research Information & Technology. It’s a government-owned company, owned in part by the State Council of the central government and by China Unicom. China Unicom is the 3rd largest mobile operator in the world. They will be providing with the area that I pointed out earlier, the future of making the cars connected and then gradually self-driving.
So this is for us an important step to stabilise the owner structure, stabilise the financial situation and also to get access to such an important market and access to key technology.

I also want to point out that China and Sweden aren’t contradictions. It’s not going to be China OR Sweden, it’s going to be China AND Sweden. When Geely bought Volvo, people believed that Geely would close down everything in Sweden and they haven’t done that.
I firmly believe you cannot take away the roots and believe that the seeds will grow somewhere else, but it’s really all based on the people and the DNA of SAAB, and that is here. Yet, when we see a growing market for EV’s in China and we have to pay 30% import duties, we’re not going to be competitive so we need to have production there, and we need to have production here. We need to have R&D there and here. But the head office and control will remain from Trollhättan.

So what we do now, together with our new owners, is refining the business plan. Clear focus on electric vehicles where we are defining out of the platforms that we have, our global product portfolio. So one global portfolio and two global production plants, and then decide where what products will be produced for which customer for which product group, and this is our fine tuning now, and also to have it fully financed.

We’re not going to announce today exactly which week, which model will be produced in which plant. We will be communicating more details when everything is ready, but today we have a message from Jonas Hernqvist and our marketing team that one important input is YOUR input.
Your input on why you drive SAAB, why you have such a passion for SAAB and our product, and we want to listen to that. So please tell your stories, either directly to some of our staff carrying the white NEVS T-shirts, or send it in to mystory@saabcars.com.

So we are now continuing the journey to make a difference. Thank you very much.

So now I am happy to answer any questions!

Q: What about the SAAB name?
A: First of all, SAAB as a brand name is extremely important to us, as it is important to you and to Trollhättan and it is still our focus. We continue our dialogue with SAAB AB -who owns the brand name-, on how we can use it in the future.

Q: The factory has been standing still for about a year, haven’t you lost too much time?
A: It is correct that we stopped production a year ago when we got into financial trouble. We could then only have a minimum number of key engineers continue developing, so we indeed lost some time. Yet, maybe a little bit thanks to the crisis, the global automotive industry is now under transition. Changing as new actors come in, new powertrains come in, but we and our new owners firmly believe that we will be very competitive. If we would have been a company that would have competed only with conventional engines, it would have been very difficult for us to come back and be competitive.

Q (the representative from Shanghai): Is the plan of SAAB to only produce electric cars or will you also be doing conventional engines? If you were to do electric cars only, have you considered that the market may not be ready yet? Finally: why did you select China as your new main market and not other markets like India, will you apply the same business model as Volvo?
A: Under our own brand, we will not produce conventional cars anymore. But we will put our assets to work, which means that from an engineering perspective we are developing cars also for other brands that will use conventional powertrains. So EV and light-hybrids under our own brand only. Our plan for the plant in Trollhättan is to utilise two full shifts, which means we can have a third shift available for another OEM. We are in fact in discussions with other OEMs that are looking for a quality production base for Europe. We can basically offer one shift, which means 60,000 cars. So to answer the first part of your question: yes, we will design and manufacture conventional cars, but under own brand we’ll only do cars with powertrains that are environmentally sustainable. When it comes to China, SAAB as a brand were closed out of the Chinese market by the previous owner, GM. General Motors did not want to have competition with their own brands, which they by the way were quite late allowed to sell on the Chinese market in the first place. Today, China is the largest automotive market in the world, but also the most competitive. Every global company is present and on top of that, you have 57 Chinese OEM makers. I can promise you, not many of them will survive in the long run, as it isn’t good enough to just produce a car that is cheap. Chinese consumers will gradually look for more, for example on safety and quality. We had a lot of visitors here and especially in our labs –and I hope many will go and see our labs today- we get questions like “how many times do you test this component?” And we say: “we test them all until they break” and then we remake them and do the test again. We have a great competence around quality and are willing to share this with strategic partners. In our discussions with the central government at the highest levels, we discussed that the environment doesn’t have borders. We are not a Chinese company, we do have owners from China but we are a Swedish company, but we are willing to share our competence to make a difference also in China when it comes to environmental pollution. And they like what we say and therefore we are putting up a second production facility and a second R&D and are going to provide good quality cars with electric powertrains that will be affordable for a larger number of Chinese customers.
To your third question: no, we aren’t copying Volvo’s business model. We learn a lot from Volvo. First of all I would say the culture journey: from being owned by Ford and GM to swing over to be owned by China and to be owned by two Chinese entrepreneurs, that is a huge culture difference that we undergo now and Volvo is undergoing. So we can learn from that. But we have chosen a very different track on how to address the market. We benchmark against every competitor and we learn from every competitor, and we cherry-pick and we’re not going to copy the Volvo model.

Q: Can you talk more about the production in Trollhättan? It is said that there is an over capacity in the world and now you are building a second plant in China. What does this mean for Trollhättan?
A: First of all, our plan for the future is that we will support the Chinese market from our plant in China. Yet, while they are building their plant we will be providing them with semi-finished products until they will be providing their own cars. Our plant here, will produce for the rest of the world, but also some of the cars we’ll be producing here will be supplied to China. When it comes to attracting another global OEM, you are right, there is a lot of overcapacity. About 30% overcapacity in Europe alone. But if you are talking to someone who wants to produce premium cars, there actually isn’t any overcapacity. Premium makers, if you talk to the European companies like Jaguar, Landrover, BMW, Audi, they are still increasing their production capacity. The ones that aren’t so successful are the medium and lower segment cars and the partners that we can talk to are only companies that want to have a quality car.

Q: I quite like to know when I can buy one of your new cars in Manchester, please? Also, we don’t have an electrical supporting infrastructure in the UK so I am a bit worried on how long I will need to ride a bicycle.
A: I cannot give you a date today. But of course, the UK is a key market for us. It has always been one of the two strongest markets when it comes to SAAB, with always a lot of loyal customers. When it comes to EV’s, the EV is not a revolution but an evolution. Even in the UK, the infrastructure is being built. But I guess most electric cars will be charged while you are sleeping at home. If you live in your own house, then it typically is no problem with the infrastructure. But if you live in apartments and downtown, the challenge is bigger. If you are going to commute to London or longer distances, then you need fast-charging infrastructure. But before that type of infrastructure, we will be providing you with range extenders.

Q: Will you be having hybrid cars in your portfolio and the range extenders you are referring to, what are you expecting the range to be extended to?
A: We will be producing what is called light hybrids, so not the hybrid solutions that most of the time run on petrol engines. We will have range extenders, where you’ll have a 20 litre gasoline tank and a small petrol engine and the function of that system is to charge the battery. That means that if the battery could go for 300km, it will go for 600km and that is the range extender.

Q: You talked about the “ketchup effect” earlier in the context of your partnership announcements. The first two drops are out now, when do you expect the next to come out?
A: We have actually more of these partnerships, with some of them we even have money in the bank, but no permission yet to communicate. There still some partnerships that remain to be finally negotiated so there will be partners in all the three categories announced: industrial partners where we can share development costs with, technological partners and financial partners. And financial means both long-term bank loans but also new shareholders. As soon as we are allowed to communicate, I’ll come back.

Q: How is your relationship with the Swedish government? Are they fully supportive of what you’re doing?
A: It is excellent and the government is fully supportive of what we do. Of course now, when we’re out of trouble it is also much easier for them to react. I believe that the Swedish government will learn more from Norway or Holland on how to support the EV industry and the infrastructure.

Q: Will your company be run from Trollhättan?
A: Yes, from Trollhättan.

Q: Can you elaborate on what markets you will be selling your cars? Will you be setting up national sales companies?
A: We will be a global brand and that will means a global reach with distribution. We’re not going to launch in every market at the same time. The raspberry jam rule: the wider you spread it, the thinner it will be. When we sell a car, we want to be able to provide great service, spare parts and have competent partners. So we’ll be having a gradual rollout across a number of markets. It will be a mix of distribution models. On key markets, we’ll have our own subsidiaries and we’ll also going to be using new ways to sell using the Internet as a base, having demo cars available but doing direct deals with the customer, but also working with agents, so mixed.

OK, thank you very much for coming!”

Full transcript of the “NEVS Future” presentation by NEVS President Mattias Bergman, held on Friday 5 June between 11:30 and 12:30 CET in restaurant Saltes, adjacent to the NEVS Technical Development Center in Trollhättan, Sweden.

Read more impressions from the first Festival day here.