Electric motors are a pivotal product that helped change the world. Their future is bright. But there will be upheaval in services as the automotive paradigm changes to electrification. For electric motor service providers, a new large market is being built while for car dealers one is disappearing. At the same time technology is changing the methods of service and maintenance. Who will grasp the opportunity and what can electric motor service providers do to survive and thrive in the new environment?
When asked to consider the future it’s always good to start in the past. And when asked about service it sometimes makes sense to start with products.
So, let’s first look at “pivotal” products. These are innovations that, as the name implies, induce pivots or radical shifts in direction, in the way the world works. There have been many such products throughout history, most of them recognized after the fact. One was undoubtedly the printing machine. Others were the steam engine, the cotton gin or the light bulb. The reason such products create radical disruptive change is that they make things which were previously very expensive suddenly cheap and affordable. This drastic reduction in cost creates massive demand, which, in turn, leads to huge growth rates. For example, prior to the printing machine books were written by hand. It took 208 days’ worth of average wages to produce a book in the late 14th century. After the printing machine, by the early 17th century, producing a book fell to 0.17 days of average wages, a decline of 1200 times! Demand soared and book production went from the hundreds or low thousands a year to the millions and then tens of millions. Books changed the world of course because information could be stored and accessed at scale. And that was helped by another pivotal product, the light bulb. At the time of Edison’s invention light produced by candles and oil lamps was unaffordable for reading purposes for most people. Afterwards, however, the cost (in terms of $/lumen-hour, a standard measurement for light) fell by 400 times. It not only became possible for everybody to afford to read, work and study in the evening or at night but also to have large buildings (shopping malls, schools, hospitals) and factories that previously would have been too expensive to light up. The light bulb changed the world as well. In our own time so have products like the internet or, particularly, the iPhone (and not necessarily only for the obvious reasons as we’ll see below).
But let’s go back to the 1880s. This was the time Tesla’s electric motor was introduced, and it too was a pivotal product. At the time, the prime movers in factories and industrial plants were steam engines rotating huge shafts to which all the plant machinery was attached. If the engine broke down all production stopped. Expanding production was difficult, in many cases impossible, and it always had to be in proximity of a coal mine or a port where coal could be transported. The electric motor changed all that. Not only was it an order of magnitude more energy efficient than steam engines, it was also cheap enough to only attach to groups of machines first (group drives) and then to individual machines (unit drives). It effectively eliminated the risks of total production stoppages, and it enabled the optimization of factory layouts and new forms of techno-managerial organization. It also allowed easy expansion of production by adding individual machines, instead of building completely new facilities. In this way the motor made manufacturing far cheaper and more flexible driving industrialization. In the early 1900s utilities started offering motors (inclusive of service) for free to customers who would buy electricity from them. By the1920s electricity and motors were the dominant drive in a rapidly expanding manufacturing industry. And industrialization was also supported by two other key innovations. One was interchangeable parts and components through standardization, so that a part could fit into any number of products. Originally a demand of governments for weapons, it drove the machine tool industry which produced the necessary machines for manufacturing. The other was the idea of fast repair service and maintenance, itself contingent on parts availability. Ford’s assembly line would not have been possible without it -too much downtime would have killed it. So electric motors, interchangeable parts and fast repair service enabled rapid industrialization and high and sustained GDP growth rates-changing the world in the process.
But as good as the motor was for manufacturing industry, it didn’t succeed in mobility. The weakness of the electricity storage technology of the time ensured that the electric motor virtually disappeared from vehicles by the early 1930s, replaced by the internal combustion engine (ICE). And the ICE had a great run until it ran afoul of its own success producing too much local pollution and becoming a major contributor to global warming. In 1990, California passed the Zero Emission Vehicle Program which eventually heralded the re-emergence of the electric vehicle (EV), slowly at first, much faster later as other jurisdictions followed suit with regulations. Recent progress in battery technology allows modern passenger EVs ranges of over 350 miles at a reasonable cost and demand is growing fast. It took five years to sell the first one million electric vehicles, but only six months to sell the latest million and the trend is accelerating. There are close to five million EVs on the roads globally right now and analysts believe that by 2025 EVs will claim a 15% share (up to 30% in Europe) of new sales and expect up to 150 million EVs on the road by 2030. The electric motor is therefore making a big comeback in mobility. Of the 2.5 billion motors in the world today, roughly 10% are medium sized (0.75 – 375 kW) consuming approximately 35% of global electricity production. EVs mean that that number will increase drastically and quickly. It is no wonder that the funds flowing into electric motor R&D have vastly increased recently -to improve not only energy efficiency but also performance and durability and reduce weight, size and cost. And it goes beyond just passenger vehicles. First versions of electric trucks, ships and passenger carrying helicopters, evenairplanes (experimental) are already off the drawing board and in operation. This will impact industrial applications as well, and, indeed, -through the motor and battery- the industrial and mobility worlds are converging.
While electric vehicles are here, the automotive industry is in many ways not prepared for them. For example, the industry’s business model relies mainly on after-market services for profitability as do the dealer-service networks. But vehicles with electric powertrains require far less maintenance: They have 80% less moving parts and require no oil and filter checks, and have no radiation fluids, transmission, drive belts, air and fuel filters or spark plugs. A study done in the US over 600,000 miles showed the Tesla Model S to be on average 80% cheaper to maintain than comparable ICE limousines by Mercedes and Ford. The electric car will significantly disrupt the automotive industry and its distribution-service paradigm. In addition, most, if not all, car dealers lack the electrical competence to service EVs. Resources will not be easy to find, and training will be expensive.
Some forward-thinking OEMs are addressing this issue by considering eliminating the dealer-service network altogether. Tesla, for example, is bringing all maintenance in-house (including apparently bodywork) and is in the process of additionally hiring 1400 technicians, deploying 350 service vans (they go to customers to fix their problem) and setting up 100 new service centers in theUS alone. Furthermore, it is deploying advanced technology to support remote diagnostics. According to Elon Musk, the system will be able to place the origin of a problem via a customer’s phone through acoustic signaling and triangulation. More OEMs are bound to go down that route, though changing legacy distribution and service structures will be difficult and costly.
And this brings us back to manufacturing and industry. During industrialization (in the West) and up to the 1970s and ‘80s, most (B2B industrial product) manufacturers saw service as a support function, a kind of necessary evil to support the growth of product sales. For example, ABB (Asea at the time) reportedly set-up its electric motor repair shop network in the 1980s, not because it was particularly interested in service, but because repair, as it was done in the motor factories, was disturbing production flows. Many product OEMs therefore, as an alternative to developing their own extensive service networks, encouraged and supported the setting up of independent service providers for their products. However, economies matured, growth slowed and in the 1990s companies discovered that installed bases were now orders of magnitude greater than annual product sales. It was at that time, spurred on also by consultants and academics, that companies started to focus on service, not anymore only as a support for product sales, but as a business in its own right and a source of revenue and profit growth. Initially, companies focussed on support logistics to minimize downtimes for customers (spare parts continue to be a disproportionate contributor to bottom lines), but this expanded to technical- and knowledge-based support, as it was recognized that it’s better to avoid downtimes altogether. Techniques such as condition monitoring (e.g. vibration analysis) became available on computers at the time and were then integrated into automation platforms. Service became strategically more important, to differentiate from competitors, and lock customers in for the longer term. Some companies created dedicated service business units, operating globally across all brands and products. Many, particularly suppliers of large complex systems, expanded their scope outside their own installed base and began to provide service also for competitor products in their sphere of competence. And others moved on to “performance contracting”, in effect supplying not the product or system, but rather its utility and taking the risk for the product performing well (according to specifications) far beyond the warranty. The most well-known example of this is Rolls Royce’s “power-by-the-hour” concept for jet engines, where the customer pays for “thrust” rather than the engine with Rolls Royce providing all the support required to ensure that thrust is available where and when required. Such models can now be found in many industries, including power generation, oil and gas or pulp and paper. Variations can also be found focused on subsystems or asset classes within a plant, such as ABB’s Total Motor Management from the 2000’s, where the company took over responsibility for the performance of a customer’s entire motor fleet, often hundreds, even thousands of motors of all types and manufacture -against a risk-based fee.
And such contracts were indeed risky as it was difficult to assess the operating risk profile of the machines and the probability of failure over a long period of time -and therefore the cost of repairs and maintenance. Often companies tried to minimize downside risks through exclusion clauses in contracts or high margins. But usually, this made them unattractive for customers. And condition monitoring was expensive because it required additional highly skilled resources for analysis with every additional customer or additional product.
This started to change from the 2010s -due to the pivotal product we mentioned in the beginning of this article, the iPhone. Apart from changing communication and photography and creating an addiction for social media, the iPhone enabled and drove miniaturization, sensing and storage, transfer and management of Big (i.e. huge!) Data volumes. It thus set the stage for what we now call the Internet of Things, Analytics, Data Science, Machine Learning and Artificial Intelligence. These now play an increasingly important role in industrial and manufacturing operations, including service and maintenance. Early applications, for example in Augmented Reality, can connect experienced service engineers with machine operators remotely to help diagnose and rectify problems, significantly reducing waiting and downtimes as well as eliminating travel time and cost. Machine sensor data can appear in an engineer’s field of view overlaying the machine in real time, allowing faster and more accurate diagnostics and what-if simulations. And AI/machine-learning based predictive maintenance can indicate remaining useful life of equipment and probabilities of failure, again based on sensor or historian data, allowing users to avoid downtime through timely interventions, but also costly periodic (preventive) maintenance. It effectively automates condition monitoring, and this allows service vendors providing performance contracting models to significantly de-risk their offerings while improving outcomes for customers. These capabilities are now inducing more and more OEMs to move stronger intoservices.
But for that there is also another reason. Through its systems, Tesla is currently collecting huge amounts of data on its cars, especially on the performance of its autopilot. It believes this data will help it not only improve its cars, but also give it the edge in the current holy grail of the automotive industry -autonomous vehicles. Similarly, machine manufacturers see a need to stay close to their products after the sale, more specifically to their data, for the same reasons as Tesla. Not only may the data help with improvements and innovations, but it may also be that soon the knowledge acquired through the data, for example on the critical time for a maintenance intervention or how to optimize yield or production flow, may be more valuable than the actual machine or product. And the way to the data is through service.
Therefore, just as car dealers will come under pressure from OEM moves and the advent of EVs and autonomous driving, so will technology drive OEM competitive behavior in services in industrial markets putting pressure on independent service providers. Lower prices and loss of business may be the result. Let’s also not forget that successful predictive maintenance means like-for-like reductions in repair volumes. The question then is what independent service providers can and should do, companies which are usually smaller, more local and with less resources, particularly electric motor service providers.
Right now, the emerging changes make for a fuzzy future. Certain is that electric motor service providers face both challenges and opportunities. On the one hand through electrification of mobility and increasing convergence of industrial and automotive technologies, they are looking at a greatly expanded market, while at the same time the previous natural players in the vehicle services market (car dealers) are facing not only declining service volumes (and therefore declining sources of revenue), but also lack of skills in electro-technologies. In addition, as more and more industrial companies commit to intermittent renewables (solar, wind), new asset classes and markets open up, including chargers and battery storage – providing opportunities for entrepreneurial companies to service cover the whole ecosystem supporting the motor -not just rotating systems. In fact, an interesting new market includes re-purposing batteries from mobile to stationary applications within the context of the circular economy.
The challenges are driven by technology, but technology may also help find solutions: For starters technology now provides the possibility to share through platforms. What can be shared includes facilities, technical resources and expertise as well as marketing and sales, helping to get not only better access to markets, but also to improve utilization and reduce costs freeing up resources for investment. Platform applications, such as Airbnb and Uber are well known from B2C markets, but a number have emerged in B2B markets as well. Crucially, the key opportunity, not so much for individual service companies, but for companies acting together collaboratively is data. A good number of small independent service providers have more data collectively than individual OEMs, even big ones, -from many plants, types and brands of motors and other assets and operating conditions. This collective data may prove very valuable, whether monetized through direct sales to data brokers or, more importantly, utilized to develop predictive maintenance and other applications to help enhance customer operations, de-risk contracts and improve sales and margins. This is not easy to do and requires significant cooperation and discipline by companies that are perhaps not used to operating in this way. But it is definitely possible, and it might well be worth it. Collaborating to compete may well turn out to be the right way for the future of this service business and a new (at least in this form) general business concept made possible by those astonishing pivotal products -the Internet and the iPhone.
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