Reflections on 35 years of manufacturing mobility

Meir: Hi everyone. I'm here with Venki Padmanabhan. I've been excited about doing this podcast for a really long time, and I know I can't do justice to everything you've done. But can you try and summarize some of what you've done and where you've been, because I think you bring such a unique angle to everything that moves. 

Why don't you introduce yourself first? 

Venki: Thank you, Meir. Sometimes when you have a career spanning like 30, 35 years it's a miracle that you remember even what you did.

And I don't want to bore your listeners with this big litany of all my career miscues. So I'll just say that we're about 34 years in the auto industry with a brief escapes into mining, electronic, manufacturing but otherwise just mostly automotive. I've worked obviously in the U. S., came to grad school at Pitt. Did a Ph. D. that any self respecting immigrant does until he finds employment. Did that. Then worked for General Motors for 15 years, Mercedes for a couple, Chrysler for a couple, helped set up a Chrysler sourcing operation in India. Then when I got asked to come back to the U. S., I went native. Worked for a motorcycle company mining company and electronics manufacturing company that actually brought me to Tel Aviv quite regularly. And then a couple of startups, and then in a really nice twist of fate, I'm back to the beginning working for General Motors and I'm on the night shift building a car a minute.

As we launch a brand new set of products. So it's a good circle and hope I can be of some value to your listeners, if not at least for some brief entertainment. Thanks, Meir. 

Meir: Listen, it's gonna be fun for me. I don't know if any listeners are getting anything out of it, but I'm going to enjoy.

We'll get back to building a car a minute because it ends up, that's actually pretty important in this industry, but if we can start so just beautifully vague that it might actually be meaningful. You have four decades of experience in every corner of this industry. Geographically you've done U.S., India, you've worked for European brands.

You've done Southeast Asia you've done two wheels, you've done four wheels, small cars, SUVs; are you approaching a general theory of automotive? Are you starting to figure out what makes this industry click? Is there something that three decades in you realize now it makes sense about, how cars are built and sourced?

Venki: I think, with the passing of the years, there's definitely an emerging, let's say, general theory. And I'd say it, it boils down to say this recurring thought I'm actually pressed to write about it. I have to write about it. So this is probably a good venue to start giving it shape.

There's a sort of two parallel themes. One is, and not unlike Maniv's goal, people need to move and a business that provides the ability of people to move to what matters to them will always be needed. Although I remember Anand Mahindra, he was a a chairman of Mahindra in India.

And I remember going to a conference where he made this rather bold statement which says, "Hey, movement could literally be taking the elevator from your home on the 10th floor to your office on the 2nd. And that was pretty ironically, before the pandemic and, of course, movement today as you are sitting in Tel Aviv and I'm sitting in in Lansing. Lansing's where sort of GM started almost 120 years ago.

And so one could argue saying movement is literally what you and I are doing, right? Getting to a common place. Of course, the things I've worked on are things that requires a physical transportation of your body. And I think that's the other part is that at some level, physical transportation of your body will always be if not necessary an aspect of human enjoyment.

I'm definitely not predicting the end of all things that move, they'll be necessary. And obviously those that invent truly authentic ways of delivering that mobility will always succeed. And of course it's going to sound like a plug, but what's going on with one of the companies you invest in with River is something I've been, chaperoning and watching over the last almost three years is, somebody would argue saying, Hey, two wheelers we'd invented every shape and form of it exists on the universe.

Nobody needs a new two wheeler product, and yet, if you can give a 50 gallon storage capacity, and if you can tuck a LPG cylinder between your legs and still have a place to put your feet, you've created value. I'd say one theme is a potential for creating new ways of satisfying the human need to move the body is alive thriving, and whoever comes up with new ways is, you know, going to do well but the other pressing strand of general thinking I have, and this definitely has to be in a book, is for the longest time, capital, obviously the whole business of capital is I take my money out of my money market account where I'm getting 3 percent returns and I want to put it somewhere where my principal is reasonably safe and I want 10.

So capital in this business has always pursued automation as in, hey, I want to scale up. I don't want to deal with the messy aspects of labor and, let's say the vicissitudes of working with other humans. Automate everything, put my capital in, work lights out, build product at great scale that gives me a handsome return on investment.

I would, I still feel, and this is going to sound somewhat judgmental that the model of investment in mobility continues to be that. And the quarrel I pick with that is, wait a minute, you are developing a product that serves the interests of humans. So why is it necessary to invent a model that is hell bent on eliminating the need for humans to make them?

You know what I'm saying? So I'm saying, okay, what if the whole industry says, you know what? This is not about getting the maximum return on investment without humans involved in the manufacturing of it. What if they said, we're building products for humans and engaging humans in its manufacturing.

 Is not just a necessary goal, but what if they were to say, Hey, I want to get the same return on investment by employing as many humans as is possible. What if that was the goal? I think the business round table, all these guys say, they went through a right around the crash a restating of a purpose of a company where they said, it's not just make money for the investor, but it also for the other key stakeholders, the employees, the suppliers.

The local community so long winded answer. I'm obsessed with this notion that what if the purpose of a company and in particularly a company that creates products for human mobility, what if their singular purpose was to enable the lives of those that work for it? At scale. 

Meir: What I love about your perspective I don't think most people look at a car and see a manufacturing process.

I don't think they look at a car and see labor or see automation , and in the last five years you saw all these startups pop up with brilliant designs and brilliant feature sets and really brilliant visions. And then it ends up when they actually had to go and build the thing, it wasn't so easy. 

Venki: It takes humans to build them. And for a hundred years you've tried to get people out of it through automation. And guess what? The pesky human in the manufacturing chain stays. And especially if you look at economies like India, their biggest issue is they've got a demographic dividend that needs to employ people.

And automotive manufacturing is a spectacular way of scaling, employing people. So what if they were to invent their whole business model by saying, my ROI is a function of how many people I employ. And if that was the business model, you would invent a fundamentally different business model. 

Meir: Can I ask from the perspective of the rest of the world, is there a world where we see massive scale Western automakers come to India for manufacturing and assembly? Because there aren't a lot of places left in the world that have the kinds of demographics and the kinds of population and also an emerging industrial strength that India has, is there a way to start seeing more and more production of other, of non -indian brands in India?

Venki: Of course, if you scan the press, there's always a quote unquote, eight, we're going to invest, you're going to invest. I think the latest ones is VinFast, just said they're going to plunk stuff down and. There's this constant flirting between the Indian government and Tesla on them putting a plant down.

I would say Indian mobility, unfortunately is a two wheeler universe. I know there's a lot of froth about India being a, what, third or fourth largest four wheeler automotive industry. But I think still a lot of work still needs to happen on the two wheeler world. And already I think India dominates the volume discussion on two wheelers.

And I've been part of, four wheeler in India too. I think there's probably enough capacity for what that market needs, and that's also the funny thing is you can buy a lot of cars, but if you don't have roads and I ran away from Bangalore at some point 'cause it took me two and a half hours in my Mercedes to get to work 13 miles away and the only way I could do it was two tuktuks and two train rides away, I could get to work in an hour. I know a rambling answer to a question where capacity wise, I don't know if they need additional capacity of more Western automakers coming into India.

And there's, and you probably heard that some of the really established ones, GM and Ford included at some point, gave up and checked out. I would say the potential there just is, at least in my mind, more in the two wheeler world, and I would say a lot, lots and lots of unsatisfied mobility requirements at the, what do they call it?

Bottom of the pyramid. 

Meir: I'm going to keep pushing on four wheelers , I was once a fly on the wall and I'm 95 percent sure I heard you say, and if I didn't hear you say it, I made it up and you were the person I credited to.

So I give you credit for that when I made it up, but I'm pretty sure I heard you say once that the $$18, 000 sedan is the embodiment of the miracle of the automotive supply chain that it's just a miracle that, that a Western automaker can produce a sedan for $18, 000. And first of all, there is no such thing as $18, 000 sedan, really, for the most part in the Western markets.

But if you compare automotive to, the bike supply chain, where an entry level cargo bike is 10, 000. You can see that there's just different efficiency levels between these supply chains. So if you look at the fact that there is no $18, 000 down in the market for the most part, it's really, it's at the very fringe of what's possible.

Is that a function of the supply chain changing? Of just inflation and we just have to adjust $18, 000 upwards for inflation? Or are there marketing executives who had something to say about this? Is the fact that there is no $18, 000 sedan a function of a stress supply chain stressed marketers or just $18, 000 is not what $18, 000 was five years ago.

Venki: No very, let's say thought provoking question. And yeah, you can, if you ever come up with crazy statements off the wall, you're welcome to credit it to me because most likely I said it. Man, I've lived dangerously now. So it's okay. I'm absolutely convinced that a really good $$18, 000 car or shall I say in modern U. S. parlance is an $18, 000 SUV. Entry level SUV is absolutely possible. A compelling $18, 000 entry level SUV is eminently possible in the current, I would say economics of automotive, supply chain, all the things you talk about the trouble is, and I think there's a little bit of a hint of let's say marketing influence on it to, I would say two compelling forces.

One would be that, the stubborn, at least 10 percent pack margin requirement, just the cost of capital kind of requirement still is a really let's say high bar for any automaker at scale to make. And the moment you get into the lower CC vehicles, the smaller vehicles.

$18, 000 to still today cost of, the parts I buy to make the car will probably still be, 65 or 70%. So the only way you make good margins is global sourcing, which of course, auto guys are very good at. That's one of the jobs I did trying to set up sourcing for Chrysler in Southeast Asia.

So I would say sourcing will not be a constraint to make a good $18, 000 car. The trouble is. There's this emissions requirement that's on the firmament where all governments are literally mandating going, Hey, it's got to be zero emissions, or it's got to be much lower emissions, because if you don't make any cars like that, I'm going to charge you a fine.

So you're an automaker open to making $$18, 000 vehicles, but the forces of climate, government, public policy, public interest says, It's got to be of a certain emissions rating and the moment you bring in the emissions rating, you're dealing with newer technology, newer science, newer chemistry that's bearing the burden of research and development costs.

And just, I would say, everything you've heard about battery electric vehicles is... the math behind the chemistry is not quite there. So if you said, Venki, make me a $18, 000 Honda Civic off, when I started grad school, 1989, 1990, that's absolutely doable. But one, governments will not reward you for that.

In fact, they'll penalize you for that. And two, this is the marketing aspect where I think, and this is a little bit driven by the auto companies is they're like, Oh, you don't want that. You want something that drives itself. You want something that, does the Apple car play. I call it the, I don't even know if that's a word, the phonization of the auto industry where, Oh, just think of your car as a brilliant iPhone on wheels.

So there's this whole software feature technology that comes with it and that costs money. That's what will drive you not to have an $18, 000 car where, think about it, if you say your purpose is mobility to get from point A to point B, whoever said you have to listen to the best music and watch the best videos while you drive.

Meir: If anything, it's quite counterintuitive. They should be watching videos while you drive, or they should be building cars that can do that. 

Venki: Yeah. And that's where the technology is headed. Oh, it's going to be autonomous. You're going to sit there facing each other and watching something on the opposite screen.

So there's, so I guess back to the $18, 000, I would say the value streams are there a base transportation product at that price point is eminently doable with the economies of scale. But I would say the distractions of those that are mandating emission standards and the distractions of those that are let's say marketing features quite removed from basic transportation needs.

Make that just something nobody wants to do anymore. Cause if I can sell you a $30, 000 vehicle that allows you to do car play and radar detection of everything, including, if your mother in law is within, 10 feet of the car and I can sell it and I sell it, but basic transportation.

And so I, I know we'll arm wrestle on this all afternoon. That's why I'm high on two wheelers because that environment forces you to address basic mobility. 

Meir: I've heard it argued and I don't know how I feel about this argument that if you look at the reliability of a car coming off the production line now versus that same model 20 years ago, it's going to last longer. And some brilliant economist is sitting in his office and going, this is great. I'm selling you the same number of years of functionality if I sell it to you used. So a three year old car is the new car.

Do you buy that?

Venki: I think the unfortunately a lot of car discussions these days are always ICE versus BEV. And that's the problem because in the ICE world, what you just said would be perfect, right? But in the BEV world, there will come a point and I don't think the chemistry is comparable to what an ICE does where, oh, there will be eight year, nine year, 10 year.

You're going to have to swap the battery out and that's another 10, $12, 000. You've got to fork out to make this car last longer. So yeah, cars will last longer and the irony is, if I sold you a product that lasts 10 years, okay? And let's say we priced it at 20, 000. And then I had another one in front of you that says, Hey, I guarantee this will last 20 years.

Are you willing to pay double the price? No, because you're going to say, Hey I'm definitely not going to be in it. I'm only going to pay for the limited time that I'm going to use it and have a really good example. About 11, 12 years we lived in India, there's a Toyota product.

Toyota used to have a SUV called a Qualys, which was a, like a runaway success, but it was clunky and they just stopped making it and they started making the new Toyota Innova. That's now morphed into something called a crystal.

And I remember buying one for six lakh rupees, just convert about at that point, about 70 rupees to a dollar. And when it first came out, they only sold it at six lakh rupees. Until they discovered that what the Indian market was usually used to is about 100, 000 kilometers and then the cars were kaput.

So the Indian market was reconciled to, hey, whatever car I buy, it only lasts 100, 000 kilometers. And then they found out that the reliability of the Innova was such that it would go 300, 000, it would go 400, 000 kilometers, and the same freaking product that they used to sell for six lakhs now sells for 20, 25 lakhs. Point being, and I think in some sense I'm agreeing with you that the really good OEMs that have really, let's say engineered reliability into their product and hence increase the product's life can literally say, Hey, like I said before, what I told you before lasted a hundred thousand kilometers and I sold it to you for $10, 000.

Now it lasts 200, 000 kilometers. I can sell you the same thing for 20, 000. And the difference being it's no longer a one owner. I'm not going to pay for 20 years of ownership. I'm just going to pay for my part. And with, as much as leasing happens now, that's good. 

Meir: I want to talk a little bit more about sourcing and a little bit more about the supply chain, because, every major OEM at least in the West has made wild promises on carbon neutrality. Most of them explicitly on the drive train, but some of them even on their manufacturing and on their supply chain.

And I'm not the supply chain expert on this call, but I have reason to think that 3000 pounds of steel and rubber and plastic, it has a carbon footprint. Have you seen these huge broad mandates from on high translate down into sourcing procurement, RFQs into the way cars are manufactured?

Is that happening on the ground? 

Venki: I would say it's happening. On a fringe and I'd give you examples of coconut husk based seat foam so I would say I would answer it two ways. One is obviously the whole propulsion discussions around carbon neutrality, right?

And then there's a, there's the materials used discussion around carbon neutrality, like you said, rubber, steel, all that stuff. The problem is that governments and communities in general care about carbon neutrality much more than the average customer who wants to get from point A to point B.

And the challenge that OEMs have is, this transition of finding new materials, new science, new chemistry, propulsion, or I would say structural materials is still the same. You got to pay for the R& D, you got to pay for the chemistry. And the only guy who was reasonable to pay for it, the guy was buying the product and I'm yet to meet at scale customers are willing to pay, 30, 40, 50 percent more for products that are allegedly more carbon neutral.

I think, what's going on with EVs in the U. S. is a really good example where those that were willing to pay for it, that were willing to buy a $60-70,000 car, already did. But that doesn't cover the 350 million people there. The other guys are like, give me a break. I just came out of college, I can't make $1000, $1200 monthly payment.

Give me a car- 

Meir: This is part of a longer rant that you're really hitting a nerve of this longer rant about this, the slowdown EV sales. There's not a slowdown EV sales. There's a slowdown in $60, 000 crossover. Everyone built the same thing that a certain number of people want.

Venki: So the, unless the chemistry, I keep saying chemistry because. At least at the older I'm getting, I'm beginning to feel automotive is maybe now more chemistry than physics like it used to be before. And chemistry, like biology, takes time, so they've got to make vehicles that are less expensive.

And I've got three kids, a 26 year old and two 23 year olds. They're like, I can't afford more than a $20, 000 car. And isn't there, and GM made a really interesting bump just recently where we're bringing in a couple of entry level SUVs from Korea last year, and they're selling like hotcakes. The Chevy tracks, the Buick Encore, and I'm telling you that's indicative of, as like you were admitting the people pass the $60, 000 Tesla.

Meir Dardashti: It's shocking that all the CEOs and the chief strategy officers and the chief sustainability officers of all the big brands got up and said, carbon neutral through the supply chain in this year.

And then we spoke with the tier ones who are supplying them. And they were like, listen, the RFQs don't even factor in. Carbon footprint is not even among the criteria for deciding on the materials they're buying. It's not even in decision making. It's not that it's a low grade among many others.

It's not on the sheet. Is that something you're seeing more broadly as well? 

Venki: Yeah. And the irony is number one, it's not in the sheet. Number two, when I go to the tier one supplier, the tier two supplier, I'm still asking for, I'm only willing to grant him margins either comparable or marginally greater than mine.

So if I'm making 6, 7%, margins, I'm maybe going to give him a 7 or 8%. So you go to this tier one supplier, don't spec out like hardcore sustainability requirements, carbon neutral requirements, and say, I ain't going to pay for it. What are you going to get? The guy's got to go through a lot of R&D.

He's got to build his own, like I said, his own chemistry and his physics. And that needs to be amortized on whatever he makes. And remember, I told you about my 26 year old, and my 23 year old. They got the money to pay for it. In the end, that's who is going to advertise it. And the, like the $60, 000 customers have already bought the physics and the chemistry that we invented before, but for the new stuff, you can't expect the tier one, tier two supplier to foot the bill, and they can't do it at.

And just recently I've had the experience. I worked at OEMs for a long time, but for about four years, I worked for a couple of fairly large tier one suppliers to Mercedes in Alabama. And I got firsthand a feel for life as a tier one or tier two supplier to a large OEM. Oh my God. If you think the degree of difficulty in an OEM is X, then it's at least 10 X as a tier one supplier.

It is. 

Meir Dardashti: I think there's a really interesting way in which the life of the tier one is getting even more interesting, shall we say, in that, at least until now when the job of the tier one was to supply systems, you were bounded by physics. So if you produced an air conditioning system that fit in this space with these specs, then it would work the same way on a Lexus as it worked on an Acura.

There was no way to be frozen out. But as the car moves more and more to software, then the OEM can really define the environment and they can define the rules of the game in a way that make it really hard to get economies of scale if you're a supplier. 

Venki: OEM is actually taking back the software now.

With a vengeance, they're basically bringing back all of software engineering back into their house because obviously they found that unless you design software in house, what is it that you have any more to offer that's differentiated? And so it puts the pressure on tier ones like you won't believe it.

So if they're not doing software. They're relegated to even a lower margin business than they were before. So- 

Meir: I want to come back actually to where we started, you talked a lot about this vision of mobility as a kind of a business for people by people. And without maybe stepping on a rake labor has been in the news a lot in the automotive sector, there, first of all, within the U S there's the complication of.

That there are unionized and not unionized shops there are brands that are unionized versus not unionized. There's the issue of global labor, of competition between very different labor markets. And it's been in the news a lot. 

Do you see the economics of labor fundamentally shifting the competitiveness of any of the major automotive centers in the next couple of years? Do you see any parties- I don't want you to name brands. That's not if this is a, if anyone is listening here with their finger on the short button for any stock that you're not going to get that out of this podcast. If I can be a little bit sharper and tell me if it's too sharp, how did the brands that Americans are used to thinking about compete in a world where there are non unionized American OEMs and there are global OEMs that just don't play by the same labor rules.

Venki: In a way it's almost gratifying that you asked that question. Remember how we were talking about tier ones and tier twos and suppliers to OEMs, right? Take the same sort of line of thinking and imagine that, okay, I come to Meir Automotive and say, Hey I'd like to buy an air conditioning system from you and I'm willing to pay $200.

And, you take your existing model and you gen it up and you modify it and you find out how many like carryover parts you can use and carry your engineering you can use and you make a. Response to an RFQ where it's interesting to the OEM, but also a reasonable margin, let's say 10 percent margin for you, right?

Imagine if in the same vein, I came to Meir and said, Meir, I want to be able to build this $18, 000 car and all I can afford is 300 for labor. Because remember, if you look at a vehicle, it's just, here's all the parts I buy. And just a small tweak to your thinking. Here's the labor I put into it.

Imagine the labor is not unlike the $200 HVAC system I'm buying from Meir manufacturing. And then I slap my margins and then I sell it and I make money. First off, think of, if you were able to think of labor as if it was a part you were purchasing to assemble the product, then it helps you see labor differently.

Because then you say, I can source my labor from the union. Because frankly, it's no different from a. OEM supplier relationship or have a contract, right? If Meir Automotive is going to supply me an HVAC system, I have a contract with you. Here's the price. Here's the annual volume.

Here's the annual year in year productivity improvements I want from you. Here's the givebacks, blah, blah, blah, blah, blah. And oh, by the way, if I bought any less from you, just be happy with it. Okay? I know I gave you a contract with a volume of 200, 000 a year, but if it ever gets down to 100, 000, you're on your own, buddy.

Okay. Like it or not, how we source labor is not unlike that. And a union house is a source of labor. A non-union house is another source of labor. So if you are if you're Kia and you opening a brand new plant in Atlanta and you say, Hey, I'm not gonna go to the union way, you're again looking to source labor from the local market.

I think we're reaching a point where you cannot automate automotive production too much more than it already is. First, if you are an OEM, you reconcile yourself to a certain let's say, part of your buy will always be labor. Okay? And then where you source it from becomes really interesting.

With the view that organized labor unions is one potential source from which to get, and now you look at multiple sources and you find out that for your business, what's the best let's say, area to source from? Keep that thought in mind. And then you go to what I said earlier was saying is, what if you were an OEM or a business that said, I'm going to excel in how I organize my business around employees that build these products?

Companies that can make that shift or reinvent their business model to say, you know what, if I source the right labor, at scale, in the right environment, I will enjoy margins better than those that focus on sourcing parts. If they're able to reinvent their business model around how do I design my business around sourcing the best labor, right?

And what I mean by that is I could hire Meir for roughly $100, 000 a year. Bring your muscle and build a car. But if I create conditions in the plant, create conditions of my business model, where I get the a hundred thousand dollar Meir's muscle and I get another a hundred thousand dollars Meir's intellect, creative energy, engagement.

I pay you the $200, 000, but what you're able to produce for me is significantly in excess of just muscle Meir. Do you know what I'm saying? So I guess that's the other point I'm trying to make is the engagement that automotive has with its labor, frankly, and like you said, step on a rake, this is my step on a rake statement.

We don't even get 10 percent of the value of what we source in labor because all we want is their muscle. And until we keep wanting their muscle, there will always be stress and distress and strikes. And it just drives me nuts, it's like a hundred years of tradition unimpeded by progress, the dialogue between and an automotive company and labor, gosh, around the world is very narrow and limited.

And I don't know why.

And the reason why it's a bulb in my head is: India, for example, is big on, Hey, the only way we take all these teeming masses with the demographic dividend is when we provide manufacturing at scale. And I've been hearing it now for 10 years, and they have not been able to crack that manufacturing at scale because they're still using the same old models off capital and labor. You can't scale. All right, you got my rant. 

Meir: Venki, thank you. I needed that rant. That was good. It's always such a pleasure to talk with you. And if I can steal another hour of your time someday, we didn't touch two wheelers and everything you have to say about four wheelers you have even more interesting things to say about two wheelers. And I really appreciate your thoughts and hopefully we'll find an occasion in person soon. 

Venki: I'll leave you with this thought, this whole rant I did about labor. And one day, hopefully it's a book.

Just chew on this for what it's worth: it needs to go from the current model to what I call the ministry of manufacturing. What if manufacturing was a ministry where you administer to the people that work there? It's a completely different model, and I believe it would satisfy capital markets.

Just nobody's willing to think of it that way.

Meir : This is an amazing vision and if you've been in this industry for 35 years, then I think by my estimates, you have 35 years more experience than me in the field.

Venki: Thank you. Thank you, Meir. 

Meir: It's really good to talk to you. Thank you, Venki.