Hi Gert-Jan, good afternoon and thank you for your time for having a virtual coffee with me. Can you introduce Punch Powertrain and your role within the company?
"Punch Powertrain is a developer and producer of automatic transmissions, also hybrid systems and electric drivetrains and I am responsible for marketing & sales within Punch Powertrain."
And your headquarters is in Belgium?
"That’s correct, we are headquartered in Belgium, in the city of Sint-Truiden."
The reason we have this chat today is the situation with the corona virus. We all know that the virus first appeared in China. Since your most important market today is China, I was really curious to hear how Punch Powertrain did experience this crisis in China, and what is the effect of the corona virus on the Chinese automotive market?
"First of all we’re quite lucky to have China as our main market now that the situation is getting better there. But indeed we were affected. The company itself was only closed during Chinese New Year plus one week and one additional day, and then we resumed work. We installed several safety measures: protective materials for the employees, temperature monitoring, and initially also avoiding contact with customers. The market itself of course has also been hit hard. People couldn’t or wouldn’t get out anymore to a car dealership to buy a new car.
So our sales had a big dip in the first 4 months. The month of May will be the first month in which we will be doing better compared to last year. The rest of the year is, except from maybe 1 or 2 months, also expected to be performing better than last year. So May-June will be the tipping point, and after that we will see the expected recovery."
Was there a big stock of vehicles in the Chinese market and has that also been reduced?
"It is typical that there is a quite big stock of vehicles, mostly at the dealerships. It’s a general trend that there’s almost always an overstock of vehicles over there. But at the end of last year, just before Chinese New Year, there was a peak in car sales and stocks were reduced. So with that respect, the situation was not too bad."
Do you know of any special government incentives from the Chinese government to stimulate the automotive industry?
"Yes, there are a number of measures being taken:
First, as you probably know, there are restrictions on the amount of car sales in a number of large Chinese cities. These restrictions have been lifted in several cities already. In the past, you could apply for a license plate for a new car, but you didn’t always get it, or you had to pay a lot for it. Those restrictions have been lifted.
Secondly, there has been a relaxation on the taxes for second hand cars. When the sales of second hand vehicles is stimulated, you might see more people selling their current vehicle and going for a new one. This is an indirect effect I guess.
And then the incentives for electric vehicles, which were supposed to be going down very rapidly this year, were extended and go down slower than originally planned. These are the 3 main pillars of government incentives that we’ve seen so far."
So we can expect that the market share of New Energy Vehicles will continue to rise over there?
"To continue to rise is maybe a bit too strong. Maybe it will recover from last year, because the second half of last year it went down quite rapidly.
We will see what will happen, because there are also other regulations that doesn’t only promote the sales of electric vehicles, but also promotes the sales of very fuel efficient vehicles. So mild hybrid vehicles are also benefitting from the government incentives. I’m not sure who will be the winner."
Is the Chinese government than still committed to electrification?
"In one way they still are. The New Energy Vehicle Credit system that demands that the OEMs need to bring, year by year, more full-electric vehicles or plug-in hybrids to the market, is still in place."
Renault will stop selling ICE-cars in China. Is this a good move?
"Renault had a late entry in China. Maybe they were just a bit too late to be able to become a huge success in terms of volumes. They have a certain overcapacity. If you see the trend towards electrification, that it might be a good decision to move on with just electric vehicles. At the same time, they also continue with light commercial vehicles which will still have an ICE."
In terms of sales, what’s happening to all the events and auto shows in China?
"The Bejing Auto Show has been postponed until September or October. Quite a number of shows and conferences have been delayed. At the same time, my mailbox is filled with all kinds of invitations to come over for all kinds of new energy vehicle shows, exhibitions and conferences. So things move on, but basically with a delay of 4-6 months."
What do you think will happen to the European automotive industry? Is it the same as China?
"I’m afraid we will be in trouble for a long time, unless the virus gets back into China. They solved the problem with the epidemic a bit quicker and more effective. I can only hope that we get back to a kind of normal in a similar timing as the Chinese."
Do you think that postponing CO2-legislation is a good idea?
"I believe it’s a good idea to assess the situation. Not just from the element of OEMs and suppliers that have a lot on their plate, they have to make the transition towards all the new technologies and at the same time they have to deal with the corona virus. But when we get to a new normal, we’ll probably work more from home, there will be less traffic. I think there will be a positive effect on the environment from the way we live in the future. That might reduce the need for this quick reduction. If there’s less traffic, there are less emissions. And then we can deal with somewhat more polluting vehicles you might say. So I think we should reconsider whether there is a need. But in the same time, if electrification quickly becomes the cheapest solution, we shouldn’t think that slowing down the legislation will break the trend of people buying more EVs.
Also, apparently in Germany a lot of support measures and financial support to OEMs are connected with conditions that a large part of this support needs to be invested in electric vehicles."
There was already a big consolidation ongoing in the industry. Do you think the corona virus will speed up this consolidation?
"Definitely, it’s impacting companies heavily. There is no other way to survive: close cooperation or even consolidation?"
So in the end only the big OEMs and Tier-1s will survive?
"Not so sure about that, we will also need small and innovative companies. But they are also effected, as an example, startups are being slowed down because of the fact that there is less venture capital available. I’m not sure a big company can jump on the most innovative technologies that easily, so there will still be a need for small and innovative companies. But also for them, I believe it will become harder to start up and to stay successful."
What is the role of software in automotive? Are you also extending your software capabilities at Punch Powertrain?
"Yes, of course, there is a big war on talent going on. It’s a kind of job that you can also do from home, so maybe apart from being the right job that the industry needs, it’s also a job that can deal with the current situation."
Thank you Gert-Jan, I gained a lot of knowledge. It was very insightful for me. It’s good to hear that in China things are getting better and it’s getting back to more or less normal in the next couple of months. I understood that in Europe we are surely not there yet and we have some tough times ahead. And that there are some profound changes happening in our industry, which are being accelerated by the corona virus rather than being slowed down.
"Thanks a lot and we stay in touch!"