Monday, October 31, 2016

Composites are next big frontier for carmakers


When the zero-emission Solar Impulse 2 aircraft touched down in Abu Dhabi after its 42,000km, round-the-globe voyage in July, it was hailed as a triumph of human daring and solar power technology.
But had it been made of aluminium, like a traditional aircraft, the Solar Impulse would be at the bottom of the ocean somewhere.
The one-person aircraft was able to make its journey because it was built from advanced materials known as composites that are displacing steel and aluminium in the aerospace industry because they tend to be lighter and stronger. Now, as the cost of these materials comes down, some experts are predicting a much bigger industry will adopt them en masse: carmakers.

“[Automotive] is the holy grail,” says William Wood, head of composites at Solvay, the Belgian chemicals company that supplied materials for the Solar Impulse aircraft. “Between five and 10 years is when these pieces come together — technology, scale, and cost. Enough has come together that you start to see mass adoption [in cars].”
Mr Wood says the Solar Impulse project underscored recent advances in the development of composites — where a fibre is reinforced with another substance to create a novel material with distinct characteristics.
Composites such as carbon fibre reinforced plastic can be tailored to be 10 times stronger than steel or a fifth of the metal’s weight. This makes them essential for high-tech industries where lower weight achieves big performance benefits and cost savings.
The Solar Impulse, for instance, has a wingspan wider than a Boeing 747, but it weighs just 2,300kg — about the same as a sport utility vehicle.  
Composites have a well-deserved reputation for being a space-age technology, but they have already gone mainstream in sports and taken over the market for competition-level bicycles, tennis rackets, and snowboards.
The total market for composite materials last year was worth $78.3bn, and should increase to $107.4bn by 2021, according to Lucintel, the consulting and market research group.
The leaders in supplying high-end composites are Toray of Japan and Hexcel of the US. Solvay catapulted into the top three players last year when it paid $6.4bn to acquire Cytec, a US-based provider of these materials to the aerospace sector.
These companies have been wanting to shift into the car market for 25 years, but composites have struggled to compete with steel. Lucintel said the cost of steel used in cars is about $1.10/kg, whereas carbon fibre ranges from $22 to $33/kg. In a few years, however, it projects the cost to fall to little as $7 to $13/kg.
Meanwhile, demand is just taking shape. Cars have been getting heavier, on average, since they were invented, but governments’ push to reduce emissions and the move from combustion engines to electric vehicles powered by heavy batteries is likely to propel a need for lightweight materials, say analysts.
Increased use of composites could help the average new car achieve a 10 per cent weight reduction by 2020, the year when tighter EU fuel economy standards come into effect, says Adam Collins, analyst at Liberum. A cut of that magnitude would improve fuel performance by 6.5 per cent — about a third of the savings needed to comply with the new standards.
Recognising the competitive threat posed by composites in the car industry, some steelmakers are developing higher-strength grades of the metal to try to reduce a vehicle’s weight. 
“You need to take the competition seriously,” says Greg Ludkovsky, head of research and development at ArcelorMittal, the world’s largest steelmaker. “The ultimate goal is to constantly defend the position of steel by making it very formable and very strong.”
Steel is likely to be the dominant material used in cars in 2030 and beyond, says Martin W├Ârtler of the Boston Consulting Group. But, he adds, about two-fifths of a car’s parts, by weight, have the potential to be made from composites.
In aerospace, a slow start to composite usage eventually led to a tipping point, providing a model for the car market to duplicate.
Just 1 per cent of materials used in a Boeing 747 jumbo jet created in the 1970s were composites. Today, in the Boeing 787 Dreamliner, composites are more than 50 per cent of the jet’s airframe by weight.
So far, BMW is leading the shift in the auto market. It introduced the first mass-produced passenger car whose frame and panels are made of carbon-fibre reinforced plastic in 2013 with its i3 model, an electric vehicle for city use. The same year it launched its hybrid i8 sports car, which also has a body made from composites. In both cars, the carbon fibre is 30 per cent lighter than aluminium.
The i-series has not yet been a huge market success, but it is certainly “piloting a new development”, says Mr W├Ârtler.
Andreas Martsman, vice-president of sales at Oxeon, a Swedish start-up that makes a proprietary composite called TeXtreme used in tennis rackets, bicycles and snowboards, says he is closely monitoring the shift into cars because economies of scale could drive innovations that aid the entire market. “When the car industry makes that step, it will be dramatic,” he adds.
BMW says its early investment has given it a two to three-year edge over competitors in understanding how to build a car from carbon fibre materials. On Thursday, it doubled down on its bet, launching a lightweight design centre just outside Munich to employ 160 engineers to rethink how future vehicles can be designed and produced.
“If you put batteries and sensors into the cars, you have to counteract to compensate the additional weight,” says Michael Schuh, head of BMW’s new design centre. “The additional target is to overcompensate, to improve emissions and the agility of the car.”
Once more companies understand composites, the design of cars will be completely rethought — particularly for the advent of self-driving vehicles, says David Hummel, chief executive of Victrex, a British supplier of such materials.
“We are still in the infancy of proving what the material can do,” he adds. “This is the next big frontier.”

Renewables overtake coal as world’s largest source of power capacity



About 500,000 solar panels were installed every day last year as a record-shattering surge in green electricity saw renewables overtake coal as the world’s largest source of installed power capacity.
Two wind turbines went up every hour in countries such as China, according to International Energy Agency officials who have sharply upgraded their forecasts of how fast renewable energy sources will keep growing.
“We are witnessing a transformation of global power markets led by renewables,” said Fatih Birol, executive director of the global energy advisory agency.
Part of the growth was caused by falls in the cost of solar and onshore wind power that Mr Birol said would have been “unthinkable” only five years ago.
Although coal and other fossil fuels remain the largest source of electricity generation, many conventional power utilities and energy groups have been confounded by the speed at which renewables have grown and the rapid drop in costs for the technologies.
Average global generation costs for new onshore wind farms fell by an estimated 30 per cent between 2010 and 2015 while those for big solar panel plants fell by an even steeper two-thirds, an IEA report published on Tuesday showed.
The Paris-based agency thinks costs are likely to fall even further over the next five years, by 15 per cent on average for wind and by a quarter for solar power.  
It said an unprecedented 153 gigawatts of green electricity was installed last year, mostly wind and solar projects, which was more than the total power capacity in Canada.
It was also more than the amount of conventional fossil fuel or nuclear power added in 2015, leading renewables to surpass coal’s cumulative share of global power capacity — though not electricity generation.
A power plant’s capacity is the maximum amount of electricity it can potentially produce. The amount of energy a plant actually generates varies according to how long it produces power over a period of time.
Because a wind or solar farm cannot generate constantly like a coal power plant, it will produce less energy over the course of a year even though it may have the same or higher level of capacity. 
Coal power plants supplied close to 39 per cent of the world’s power in 2015, while renewables, including older hydropower dams, accounted for 23 per cent, IEA data show.
But the agency expects renewables’ share of power generation to rise to 28 per cent by 2021, when it predicts they will supply the equivalent of all the electricity generated today in the US and EU combined.
It has revised its five-year forecasts to show renewables’ capacity will grow 13 per cent more than its estimate made just last year, mostly because of stronger policy backing in the US, China, India and Mexico.
Paolo Frankl, head of the IEA’s renewable energy division, said efforts to address climate change were only part of the reason for the governments’ policy drive.
Separate air pollution worries were also spurring growth in countries such as China, a renewable energy juggernaut that alone accounts for close to 40 per cent of capacity growth.
Mr Frankl said the move by countries to ratify the Paris climate agreement only 11 months after its adoption last December — at least a year earlier than expected — was likely to give another boost to renewables.
But he cautioned that growth still depends heavily on government policies that are shifting in many countries. The rapid growth of intermittent wind and solar also poses challenges for power system operators in some markets.
In addition, he said while onshore wind and solar growth was in line with what was needed to meet the Paris climate agreement’s goal to stop global temperatures rising more than 2C, renewables had to be used a lot more for heat and transport if the accord’s aims were to be met.
“There is still lots to be done here. There is too much policy uncertainty,” he said.

Solar industry rollercoaster offers a bumpy ride




They call it the solarcoaster. Since the first silicon photovoltaic cells were developed in the 1950s, the solar power industry has been on a switchback of highs and lows, driven by shifts in energy markets and government policy.
In the US, the rooftop solar market has conformed to that pattern. Shares in Vivint Solar, Sunrun and Elon Musk’s SolarCity have slumped over the past year, even though installations of new solar panels on homes are on course to be about 20 per cent higher this year than in 2015.
Panels are appearing on the roofs of homes all over the US, and about 1m now have solar systems. But the industry is another victim of the perennial curse of renewable energy: although the market is growing fast, it is proving hard for companies to find a reliable way to make a profit.
“Especially in the early days of the growth, you would expect to see a lot of growth, but big book losses,” says Shayle Kann of GTM Research. “The question is whether that’s sustainable.”
This wild ride in US solar power was supposed to come to a halt this year. A budget deal agreed by US lawmakers last December included a commitment to keep the investment tax credit for solar power for six years, phasing it out in stages between 2019 and 2021. News of the deal sent the share prices of SolarCity and Sunrun soaring.
Any hoped-for stability, however, has proved elusive. Sunrun’s shares are down 54 per cent since the start of the year, while Vivint, the second-largest residential solar company in the US, is down 67 per cent.
Shares in SolarCity, the largest US supplier for residential solar systems, dropped about 60 per cent between the start of the year and June, when the electric carmaker Tesla announced plans to buy it in an all-share deal worth about $2.3bn. Shareholders of the two companies will vote on the takeover on November 18.
Mr Musk is chairman of SolarCity and chief executive of Tesla, owning 22 per cent of the former company and 21 per cent of the latter. To some investors, the deal looked like a way for one of his businesses to bail out the other
Lyndon Rive, SolarCity’s chief executive, rejects that suggestion, and stresses the benefits of integrating Tesla’s electric cars and batteries with SolarCity’s panels and systems to provide better products.
On Friday evening, Mr Musk gave one of his characteristically enticing presentations, demonstrating new solar roofs that look like traditional tiles, and an upgraded battery for power storage at home.
But earnings reports from SolarCity and other residential solar companies this year have made it clear that they are facing more difficult times. The market is still expanding, but by an expected 20-21 per cent this year instead of the 59-70 per cent annual growth rates in each of the past four years, according to GTM Research, and the companies’ cash outflows have been increasing.
Sunrun reported a $159m cash outflow from operations in the first half of this year, compared with a $105m deficit for the whole of 2015. SolarCity’s outflow rose from $790m last year to $867m in the first half of 2016.
Cash deficits are not necessarily disastrous for fast-growing companies that are building assets. SolarCity estimates that the panels it has installed on customers’ roofs will bring in $8bn over the lives of the systems. Cash outflows become a problem, though, if they cannot be financed, and in the spring SolarCity showed signs that it could be heading towards that threat.
In May, the company scaled back its projected growth in installations for the year, and revealed that its cost per watt installed, which had been declining reliably, had turned up. Its shares and bonds both slumped.   
The prospect of Tesla’s protective embrace — and faith in the vision of Mr Musk, who is Mr Rive’s cousin — have eased investors’ fears. Mr Rive argues that the problems were only temporary: costs per watt rose because installation slowed, which was in turn caused by customers’ nervousness following an adverse regulatory decision in Nevada.
There, the state’s public utilities commission decided to stop “net metering”, allowing solar households to sell any excess power they generate to the grid at the same price they pay for their own supplies, for existing as well as new customers, imposing losses on many. 
Nevada’s governor last month softened this ruling to protect the rights of existing solar households, and growth was already picking up, but the shock hit the entire US market for a time.
Meanwhile, says Mr Rive, SolarCity’s cash position was affected by investors in the company’s bundles of rooftop systems, which are its principal source of long-term financing, needing to go through additional procedural formalities after the Tesla deal was announced in June. Now they have completed those steps, he adds, investors have put in more than $1bn more to finance solar installations since July.
Other rooftop solar companies are also working to strengthen their cash positions. David Bywater, interim chief executive of Vivint, told analysts in August his first priority was to create a “sustainable business that funds its own growth”.
Solar power still has enormous momentum. The price of panels has fallen by about 25 per cent in the past year to 55 cents per watt, according to Bloomberg New Energy Finance. Next year, it is expected to drop below 50 cents and in some cases below 40 cents per watt, as a result of overcapacity in manufacturing, particularly in China.
The cost of battery storage, making it possible to use solar power at night, is also falling fast, and the market is becoming increasingly competitive.  
Last week, LG Chem of South Korea launched a battery for the US home storage market, to take on Tesla’s Powerwall.
In a volatile and fast-moving industry, market leadership is still up for grabs. As the bigger names grapple with their financial problems, smaller companies are hoping for a shakeout that will open the way for them.
John Berger of Sunnova Energy, a private equity-backed residential solar company, says that people have been misled into thinking that the businesses are like Amazonor Facebook, when in reality they are more like gas pipeline operators.
“The companies that are just fleet-footed are going to be like fireflies: shooting stars that burn brightly and then crash to earth,” he says. “Eventually everybody has to make money.”

The future of television: plotting its comeback


Television was supposed to be dead by now, killed by the internet. Yet as we enter the eighth decade since its mass adoption as the primary form of home entertainment, the glowing box in the living room is showing that rumours of its demise may have been premature.
In the past few years the increase in the popularity of streaming services such as Netflix, together with a shift by younger viewers towards digital platforms such as Facebook and Instagram, has hit TV audience ratings and advertising revenues.
Still, for the main US broadcast networks, 2016 is shaping up to be a solid year.
Like many commodities, television advertising in the US is sold via a futures market — the upfronts — where advertisers can lock in prices for the slots they buy. There is also spot buying, known as the “scatter” market, where unsold inventory is auctioned off throughout the year, and where price moves dependent on demand.
This year, concerns about whether the ads are being viewed and measurement of digital advertising sent brands scurrying back to the relative safety of broadcast television. Les Moonves, the chief executive of CBS, summed up the situation earlier this year. Broadcast television remained “the single best and most effective medium” for brands, he said. Digital advertising “sometimes lacks accuracy and credibility … as a result, there is a clear shift in advertising back to network television”. That shift resulted in significant gains for CBS and rival networks with this year’s upfront as much as five percentage points up on last year’s sales. Across cable and broadcast, total sales were close to $19bn.
But when data were analysed in the second quarter of the year the picture was less rosy. “TV’s share gains look fleeting,” Michael Nathanson, an analyst with MoffettNathanson, wrote in a recent research note. “The narrative of TV taking back share from online could start to unwind.”
In cable television, the advertising picture is not particularly clear. Some networks, such as Turner Broadcasting, which is part of Time Warner, have taken steps to run fewer ads on channels in order to retain viewers and offer advertisers more prominence and less clutter, as well as supporting ad rates in a weak market. After fewer ads ran on Animal Kingdom, a new drama series from Turner’s TNT network, the company says the ads were more effective because viewers were more likely to remember the brand and to say they would buy a product or service. 
The pace of television advertising innovation has been faster in the UK. Sky, the UK pay-TV group in which Rupert Murdoch’s 21st Century Fox owns a 39 per cent stake, has developed a proprietary targeted advertising system that means one Sky customer could see one set of advertisements in its programming and the house next door could get another.
The technology has created new revenues from brands that want to target a particular region, or from local companies, such as car dealers seeking to market special offers to a defined location.
These campaigns can generate “three or four times what we would charge just through a standard, untargeted ad”, Jeremy Darroch, Sky’s chief executive, told the Financial Times earlier this year. He wants to bring the technology to the company’s other territories, such as Germany and Italy.
In the US, a consensus is emerging about the future of the costly packages of channels, or “bundles”, which are distributed and sold by cable and satellite operators. For decades the bundle has generated billions of dollars for media companies but there are signs that consumers are losing patience with having to pay for channels that they may not want. Many have “cut the cord” and cancelled their subscriptions in favour of cheaper, lower cost alternatives such as Netflix.  
Such services are built around on-demand programming: viewers watch what they want, when they want. But there is still interest in the more passive experience of watching scheduled TV — “lean-back” viewing — which explains why so many efforts are under way to create cheaper packages of channels to be delivered to viewers digitally.
Hulu, an on-demand streaming service whose owners include 21st Century Fox and Walt Disney, is at work on such a service, as is YouTube, the world’s largest video site. Pluto TV, a free internet service that recently raised $30m, is also betting on audience interest in a viewing experience that isdelivered digitally but resembles television. “One of the things [TV] has got right is it makes it easy for you to get a broad range of viewing options in one place,” Tom Ryan, chief executive, recently told the FT.
This new wave of digital services is part of TV’s evolution. The medium is about to turn 70, but there is clearly life in it yet.

The future of newspapers: owners seek safety in numbers


Dramatic events this summer such as the UK’s referendum vote to leave the EU and Donald Trump’s unconventional march on the White House boost­ed circulations across newspapers, from The Guardian and the New York Times to the Daily Mail.
However, the surge was temporary and the outlook for print advertising has gone from bad to worse. Print newspaper ad spending in the UK, for instance, is set to fall by £135m to £866m this year, even steeper than the £112m drop in 2015, says Enders Analysis. “These are big numbers,” says Douglas McCabe, an analyst at Enders. “This is not advertising that is going to come back.”
Media owners have already shown some effects of the carnage. Last month Guardian Media Group revealed a full-year operating loss of £69m, which was high­er than expected, and said it would cut 250 jobs. Daily Mail and General Trust also said it would make deep cost cuts and vowed to cut 400 jobs due to “challenging” market conditions.
The fillip provided by big news events cannot ultimately save the sector from its structural problems, the main one being a shift by readers — and consequently advertising budgets — from print to online disrupters of traditional media led by Facebook and Google.
The advertising switch from print is “a fact of life that will continue to be a fact of life,” says Mark Thompson, chief executive of the New York Times. “It’s likely we’ll see some moderation [in the declines] but we don’t know.”
Digital advertising has swung into favour among advertisers, and television has held up well this year, leaving print squeezed. “There was this massive migration first from print to online, and now from online to mobile,” says Tim Elkington, of the Internet Advertising Bureau, a UK trade group. “All you have to do is look at the consumer to understand the newspaper numbers.”  
Newspaper owners have look­ed to fill the print gap with digital sales, but now they are also losing market share in digital to Facebook and Google, which together ac­count for about 75 per cent of new online ad spending globally.
The brutal declines in ad revenues have prompted some of the UK’s biggest newspaper owners, including Telegraph Media Group, Trinity Mirror and News UK, to discuss forming a single advertising sales operation. The aim would be to make it easier for agencies to buy display ad inventory, and thereby compete better with broadcasters and digital media companies.
In the US four leading newspaper publishers — Gannett, Tribune, Hearst and McClatchy — this year created a company called Nucleus Marketing Solutions to sell ad­vertising across their local titles, there­by offering brands a larger potential audience.
Similarly, consolidation of ownership has swept the sector as local print titles look for scale to make themselves more attractive to ad buyers. Gannett, owner of USA Today, is trying to buy Tronc, formerly Tribune Publishing, owner of titles such as the LA Times. “[Gannett] believes they would get a whole new national presence … giving them enough big markets that they can swing some bigger advertising deals that they couldn’t swing before,” says Ken Doctor, of the Newsonomics blog.
With advertising dollars surging to­wards Google and Facebook, “no one expects [print media] to be winning” when competing for advertising expenditure against digital upstarts, says Gabriel Kahn, journalism professor at the University of Southern California. “It’s about surviving.”

Advertising needs a rethink in a brand new world


Bill Bernbach, a founder of the DDB advertising agency and widely regarded as father of the modern marketing industry, once said that advertising “is fundamentally persuasion and persuasion happens to be not a science, but an art”.
Brands spend more than $540bn worldwide on advertising, according to eMarketer, the research company. Yet marketing is increasingly grappling with significant problems. Whether reaching millennial consumers who want to escape marketing messages, or “cord-cutting” television viewers, who ditch cable and satellite subscriptions in favour of ad-free Netflix, advertisers are having to work harder than ever to find their audience.
Technological change has made the task harder still. Ad blocking software has created real problems for digital publishers reliant on display advertising. Ad fraud is a similar worry, with the World Federation of Advertisers, whose members include McDonald’s and Unilever, recently warning of “endemic” digital ad fraud and claiming that up to 30 per cent of all online ads are never seen by real humans. The WFA is forecasting industry revenue losses of $50bn by 2025 unless marketers take immediate and effective action.
“Is it human beings seeing ads or just a machine? And if it’s a human being is it actually a consumer?” says Brinsley Dresden, head of advertising and marketing at law firm Lewis Silkin.
At the same time, there is a big shift in consumer behaviour. Smartphones and mobile devices are fast becoming primary sources of entertainment and advertising dollars are flowing there at an increasingly rapid rate.
Facebook and Google have become the biggest recipients of digital ad spending. Combined, they accounted for 75 per cent of all new online ad spending in 2015, according to the Internet Trends report published this year by Mary Meeker of Kleiner Perkins Caufield & Byers, the US venture capital fund. In the US, 85 cents of every new dollar spent on digital went to the two companies in the first quarter of 2016. 
This shift has profound implications for media buying agencies that make money by placing ads for clients, as well as for the clients paying for ad space. The emergence of a digital duopoly caused some concern at the ad industry’s annual shindig in Cannes this summer, with private discussions taking place about creating a “third block” of TV advertising inventory to rival Facebook and Google. The talks centred on owners of television networks pooling inventory but it is unclear whether the talks have progressed much.
The emergence of new digital platforms and services means brands must also rethink the way they sell their products. For example, Instagram and Snapchat have different audiences and require shorter, punchier ads compared with traditional 30 second TV spots.
Christopher Vollmer, global entertainment and media advisory leader for PwC’s Strategy& consultancy, says advertising “has always been a combination of art and science. Technology is now becoming a third variable”. Advertisers “have to get all three of these things right”.
Not all aspects of advertising’s tech revolution have been a surprise. Video has become a big driver of advertising online and on social media. “It tends to get the most consumer engagement on social media and mobile devices,” Mr Vollmer says. This was one factor driving telecommunications company AT&T’s blockbuster $85.4bn bidfor Time Warner, which faces a year of regulatory scrutiny and no guarantee that it will be approved.
Time Warner owns one of the media industry’s most impressive content portfolios, spanning CNN, the Warner Brothers film and television studio, and HBO, the premium cable channel. The ability to sell advertising against some of Time Warner’s content was a big factor in the proposed deal. New technology means the combined entity would be in a powerful position in selling advertising targeted to individuals and specific consumer groups.
Technology advances should, theoretically, make it easier to market products. Elie Kanaan, executive vice-president of marketing at Criteo, a digital advertising group, says the industry must do a better job of targeting its messages to the right consumer groups.
Criteo uses available data and internet cookies — data sent from a website to a browser — to identify shopping patterns in order to send relevant ads to the right online or mobile user.
This targeted approach means the advertising beamed at consumers on their mobile devices can be more relevant. “Consumers want a seamless experience … they don’t want aggressive advertising that is intrusive,” he says. The company recently worked on a trial with several London retailers that installed beacons sending signals to the smartphones of shoppers. The beacons collected data about how long the people spent in the shops, as well as information about the items they spent time looking at.
Advertising is rapidly moving towards the personalised advertising world depicted in the Steven Spielberg movie Minority Report. But will this new era of targeting result in brands selling more products?
The most important aspect is engaging the consumer, says Mr Vollmer. “There’s no shortage of screens and there’s no shortage of impressions. But there’s a shortage of high value connection points between brands and consumers, which is the whole point of advertising. You have to create effective engagement with the consumer that gets them to buy.”
In this respect, advertising is the same as it ever was. Technology may have disrupted it but the industry’s artistic heart still has a big role to play.

Friday, October 28, 2016

Mahindra 2 wheelers to de-focus from mass market, eyes niche premium segment play



Having failed to make any inroads into the mass segment, the lossmaking two-wheeler division of Mahindra & Mahindra is shifting focus to the niche and premium end of the market. 

Its new target is the 300cc-plus segment, where sales are fewer but margins fatter. 

To boost the premium segment portfolio, the company last week acquired the rights over heritage brands like Jawa and BSA, under which it will produce classic or retro-looking motorcycles in the future. Several new iterations are planned also for the Mojo 300 bike. The Peugeot Scooters portfolio will come in the third leg of the new plans at Mahindra Two Wheelers. 


ET had in May reported on Mahindra’s endeavour to buy heritage brands and the shift in strategy towards premium vehicles. 

Executive Director Pawan Goenka admitted that the two-wheeler business did not go quite the way the company expected and that there was even consideration to close down the business. But Mahindra then decided to restructure and reorient the business. 

“The rationale we had of entering the two-wheeler business eight years ago still remains. We got into wrong segments on entry. If we had entered the premium segment, we would be far ahead now. The new strategy has complete support from the board and they have confidence that we will make it a success,” said Goenka. 

Mahindra & Mahindra has already seen the two-wheeler unit’s workforce halve over the last one year and has slashed marketing budget by 80%. The company plans to invest Rs 250 crore to Rs 300 crore in two-wheelers products, all of which will be in the premium segment. 

Mahindra is currently working on four different variants of the Mojo premium bike (tourer, adventure, street and cruiser) which will help it address wider audience and more affordable price points. In the next two years, the company will introduce the Jawa brand, which will be sold through a different outlet. 

In its new avatar, Goenka said, Mahindra is aiming to co-create the two-wheeler division into a true lifestyle company. 

“Given our experience in adventure, lifestyle and SUVs, we believe that is our DNA. We need to come back to that DNA and look at offering premium niche motorcycle, which has the same essence of lifestyle and adventure. This will be not only in terms of the products, but in the entire ownership experience,” added Goenka. 

Mahindra, which entered the two-wheeler space in 2010 with the acquisition of Kinetic, has remained a fringe player with a market share of less than 1%. The company could not break the strangle-hold of Hero MotoCorpBSE 0.99 % and Honda Motorcycle & Scooters. 

The two-wheeler unit posted yet another year of lower sales in fiscal 2016, with volumes falling 13% to 1.44 lakh units. Motorcycle sales halved to 60,291 units but those of scooters rose 81% to 84,064. 

The two-wheeler unit, which has accumulated losses of Rs 1,000 crore, had hoped to boost sales with a high-decibel Rs 75 crore advertisement campaign last fiscal year. 

Mahindra & Mahindra in 2015 bought 51% stake in PMTC or Peugeot Motorcycles — the balance 49% is still owned by France’s PSA Group. Last week, Mahindra bought the UK-based iconic two-wheeler brand BSA, through Classic Legends for Rs 28 crore crore. Classic Legends will continue to scout for Heritage brands like BSA, it said.  
 

The World's $49 Trillion Infrastructure Problem May Not Get Solved Anytime Soon


An abundance of global savings. Trillions of dollars of negative-yielding bonds. And a bevy of institutional investors hungry for positive, long-dated yields to match their liabilities.
Conditions are ripe for an avalanche of private-sector capital to flow into unlisted infrastructure, turning an industry facing an estimated $49 trillion shortfall into an asset class which, its sponsors say, offers strong cash flows, uncorrelated returns and positive real yields.
58 percent of active investors surveyed in the second quarter of the year by data provider Preqin will invest more than $100 million in unlisted funds over the next 12 months compared to 42 percent who said that in the corresponding period last year, underscoring the increasing allure of alternative assets amid ultra-low yields from more conventional capital-market instruments.
But don't believe the hype: unlisted infrastructure investments fail to deliver bang for the buck — and the asset class remains handicapped by a dearth of investor-friendly investment vehicles.
That's the conclusion of a research report from Deutsche Bank AG this week, which makes for grim reading for governments around the world.
"The supposedly attractive risk-return profile of infrastructure projects for private investors is illusory," the Deutsche Bank analysts, led by John Tierney, wrote on Wednesday. "Simple as it sounds, bringing private capital to bear on the public infrastructure problem is an idea whose time has yet to come."
A lack of well-designed or revenue-generating projects accounts for the funding gap, according to the McKinsey Global Institute. A less well-understood part of the problem is the risk-return profile of infrastructure investments for private investors — which is also what's keeping these investors away. 
The Deutsche analysts argue that returns on such projects are usually meager after taking into account mark-to-market and regulatory risks, the net effect of which crimps the allure of the asset class as a whole. 

Specifically, they say the oft-touted low-volatility characteristics of unlisted infrastructure investments are overstated. "Studies of infrastructure returns are based on cash flows and appraised values since there are no markets for most infrastructure," the analysts write.

"If more money flows in, regulators may require more rigorous appraisal methods, leading to more volatility, lower Sharpe ratios and higher correlations," he said, citing the common measure for risk-adjusted returns. 
Deutsche Bank AG
In effect, efforts to encourage and systematize investment in the sector are themselves laden with risks.  
"As more pension fund and life insurance money moves into public infrastructure, regulators could easily step in and mandate more robust appraisal methods, which could make current infrastructure returns less attractive on a risk-adjusted basis."
Regulatory risks that might reduce the allure of a project's economic value and inflation-hedging potential mean investors might not be adequately compensated for credit risk, they conclude.
The report is the latest in recent weeks from Deutsche Bank analysts pushing back against growing calls for governments in advanced economies to launch public works, citing, in part, the potential monetary offset.
The report this week serves as a shot across the bows for governments seeking to diversify their exposures into longer-dated assets, with the Norwegian sovereign wealth fund, the world’s biggest, expressing its wish this year to invest in unlisted infrastructure investments in the teeth of finance-ministry resistance, with officials citing the asset class's lack of performance data and track record.
There is a case for the bulls: Preqin data shows the asset class has posted steady returns in recent years, while in Australia it outperformed during the 2007-2009 downturn.
But advocates that talk up unlisted infrastructure — for diversification, and its potential in helping pension funds find long-dated assets to match ballooning liabilities — concede there is a big problem.
Ashby Monk, executive director of the Global Projects Center at Stanford University and senior advisor to the University of California endowment, reckons the investment-conundrum lies more with market-structure challenges than the underlying risk-return profiles of projects.
Institutional investors are typically unhappy with the large fees incurred to middle-men, such as private-equity funds, he says. "It's ultimately the high fees that prevent mainstream investors from deploying capital into this space," he said in response to e-mailed questions. "Even 1 percent per year over 20 years is devastating to the net-present-value of an investment. Also, the fee structures push investors into risky, levered deals to generate carry."
Still, efforts to better align the economic value of unlisted infrastructure assets with the underlying investment product are gathering pace. 

Pension funds are forming consortiums to cut fees, while Monk is working on a new venture to help long-term investors gain access to well-curated projects. 

But it's an uphill battle "We think the current market structure makes it difficult for private investors to increase portfolio allocations into public infrastructure even to the modest level of one to five per cent of assets under management," the Deutsche Bank strategists conclude.