Arvind's Newsletter

1.The Indian IT services sector is expected to have muted revenue growth of 5-7% in FY2025, according to rating agency CRISIL.

Growth was slow last fiscal year as well, at 6%. It is expected to continue this year as well, thanks to a slowdown in technology spending in client markets like the US and Europe. However, the IT industry will have stable operating profit margins at 22-23%, thanks to employee cost management by companies, according to the report.

2.Pratap Bhanu Mehta writes: Why voters’ silence is making the BJP nervous

There is a counter-intuitive argument Pratap Bhanu Mehta makes in The Indian Express—that there is a certain nervousness the BJP is beginning to show.

“Authoritarian regimes like to produce silence; but they also quietly fear it. This is the sound of silence that the Prime Minister’s speech in Banswara seeks to break. In some ways, there was nothing surprising about the speech. It contains the standard themes of the BJP’s view of the world: Conjuring the fear of minority appeasement, crudely associating minorities with both a demographic threat and infiltration. These themes are not strategic. They have become the DNA of the party. The only interesting question arises from the need to foreground it with a crudeness unbecoming of a Prime Minister.”

The biggest challenge the BJP faces this election is not the Opposition, but the listlessness of its own support base. The mobilisation energy of the party comes from the fact that for much of the party base, the BJP is not just a political instrument: It is an identity. It is this fervour of identification that has given the BJP the edge in the last few years. But the sense of identity has been diluted for a number of reasons.

Read on

3.IndiGo places first-ever widebody aircraft order for 30 Airbus A350 jets

Indian carriers are trying to keep pace with the world's fastest-growing aviation market, where demand for air travel has surged post-pandemic, even as plane manufacturers struggled to meet output goals.

The drive by IndiGo, which has a 60 per cent share in India's domestic aviation market, also comes at a time when it aims to double its capacity by the end of the decade and expand its network, especially in international markets.

Airbus no longer publishes prices, but such a deal would be worth more than $9 billion, as per the last catalogue rates published in 2018. In practice, industry sources say airplanes are sold for less than half the official price after typical discounts for bulk orders.
 
IndiGo recently launched flights to destinations in Africa, West Asia and Southeast Asia, and is also growing its presence in Europe through its codeshare partnership with seven carriers, including Turkish Airlines and KLM.

4.AI could kill off most call centres, says Tata Consultancy Services head

The head of Indian IT company Tata Consultancy Services has said artificial intelligence will result in minimal need for call centres in as soon as a year, with AI’s rapid advances set to upend a vast industry across Asia and beyond.

 K Krithivasan, TCS chief executive, told the Financial Times that while we have not seen any job reduction so far, wider adoption of generative AI among multinational clients would overhaul the kind of customer help centres that have created mass employment in countries such as India and the Philippines.

In an ideal phase, if you ask me, there should be very minimal incoming call centres having incoming calls at all, he said. We are in a situation where the technology should be able to predict a call coming and then proactively address the customer’s pain point.He said chatbots would soon be able to analyse a customer’s transaction history and do much of the work done by call centre agents. That’s where we are going I don’t think we are there today maybe a year or so down the line, he said.

5.Chip Wars (continued): Micron secures $13bn in US support to expand chipmaking capacity

US chipmaker Micron Technology is set to receive more than $13bn in government funding and loans to help build memory chip factories in New York and Idaho as the Biden administration seeks to shift supply chains away from Asia.

The preliminary agreement, which includes $6.1bn in direct funding and up to $7.5bn in loans, will come under the 2022 Chips Act. Funding packages for Intel, TSMC and Samsung have been announced in recent weeks.

The funding will go towards two new manufacturing plants in Clay, New York, as well as a plant in Boise, Idaho, where Micron has its headquarters. Under the agreement, Micron plans to invest up to $125bn in both states in the next two decades.

Micron’s latest HBM3E memory chips are integrated with Nvidia’s H200 GPUs, which power the data centres behindnew generative AI products. It is also one of Apple’s smartphone memory chip suppliers.

6.A dramatic orange haze has descended over Athens as clouds of dust have blown in from the Sahara desert.

It is one of the worst such episodes to hit Greece since 2018, according to officials.

Greece had already been struck by similar clouds in late March and early April, which also covered areas of Switzerland and southern France.

The skies are predicted to clear on Wednesday, says Greece's weather service.

Air quality has deteriorated in many areas of the country and on Wednesday morning the Acropolis in Athens was no longer visible because of the dust. The cloud has reached as far north as Thessaloniki.

7.Hyundai and Kia to launch first India-made EVs by 2025, aiming for greater footprint in local market

Hyundai Motor Group, encompassing Hyundai and Kia, announced plans to launch their first India-manufactured electric vehicles (EVs) by 2025, marking a significant step in their efforts to strengthen their foothold in India's growing EV market, currently led by Tata Motors.

Production of Hyundai's first locally built electric vehicles is scheduled to commence by the end of 2024, with the official launch slated for 2025. Kia will also debut its India-made electric vehicle in the same timeframe, the group confirmed in a recent statement. By 2030, Hyundai and Kia intend to unveil five new electric models in the Indian market.

India stands as Hyundai's largest market outside of North America and Europe. The company is gearing up for a $3 billion initial public offering (IPO), which would be the country's largest IPO. Hyundai currently ranks as India's second-largest carmaker, best known for its top-selling 'Creta' sport utility vehicle. However, its existing electric models, the Kona and IONIQ 5, are imported, as is Kia's EV6. The new move toward local production represents a strategic shift for the carmakers.

8.Tesla faces an identity crisis: carmaker or tech firm? Schumpeter in The Economist

On the night before Elon Musk unveiled Tesla’s first-quarter results on April 23rd, your columnist brought his car to a halt, noticing a futuristic vehicle hooked up to a Tesla charging station in Los Angeles. It was a dark-purple Cybertruck. Twinkling lights glittered behind the tinted windows. It looked so wedgelike, angular and otherworldly that it could have moonlighted as an armoured personnel carrier in “Civil War”, a new apocalyptic film.

Its owner, Dennis Wang, is a Tesla devotee. Besides his four-month-old Cybertruck, he has owned Mr Musk’s original (“sexy”) quartet: the Models s, 3, x and y. He has held shares in the company since 2018. He has full faith in Mr Musk. Despite a 40% plunge in Tesla’s share price this year in the run-up to the earnings report, as well as the announcement in recent weeks of falling vehicle sales and unprecedented lay-offs, he believes the billionaire remains the best person to run the company. Even an embarrassing Cybertruck recall, caused by a stuck accelerator, was quickly fixed, he says, pointing to a new bolt in the pedal.

Yet however much Mr Wang loves Teslas, he does not think of Tesla as a car firm. He says it is a tech company. As he puts it, all electric vehicles (evs) offer a similar driving experience. What differentiates them is the software—the brains beneath the dashboard. In Tesla’s case, that is the latest version of its self-driving technology, which he calls “fantastic”. His view is shared by many Tesla loyalists. It is why the company’s shares trade at a multiple of earnings typical of a zippy software firm, not of a metal-basher.

Wall Street takes a different view. Though investors hope Tesla will one day make money from its snazzy artificial intelligence (AI), for now they want it to restore growth by selling more cars—the cheaper the better. Hence the sigh of relief when Tesla outlined plans within an otherwise dismal earnings report (revenues, profit margins and free cashflow all crashed) to start producing affordable vehicles by 2025 that would not rely on big new investments. Tesla’s share price promptly soared more than 10%. Call that a $50bn thumbs-up from the unit-economics guys.

Mr Musk has a history of trying to have it both ways. When investors were doubtful about demand for Tesla’s EVs at the end of the 2010s, he promised shareholders that its so-called full self-driving (FSD) technology would put 1m robotaxis on the road by 2020. That did not happen, so during the pandemic, as Tesla’s sales rocketed, he changed his tune. He boasted that sales were growing faster than Henry Ford’s Model T, and that Tesla aspired to sell 20m EVs a year by 2030.

This year it is touch and go whether Tesla will sell more than the 1.8m cars it shipped in 2023. So Mr Musk has flipped the script again. Once more he is highlighting FSD, though this time with a twist: the latest version is so good, he told analysts this week, that it is impossible to understand the company without trying it. He went so far as to say: “If someone doesn’t believe Tesla will solve autonomy, I think they should not be an investor in the company.” His competing narratives create quite the conundrum among investment types. Can Tesla be a car company as well as a tech company? The answer, broadly, is yes. But it depends on which of its markets you are talking about.

From a volume-growth perspective, no country is more important than China. It is the world’s biggest EV market, and though growth is slowing, sales are still rising much faster than in America. However, competition is fierce and a price war is shredding Tesla’s business there. Tesla has not said where the cheaper model it is planning will be sold. But if it is made available globally, it could help it fend off competition from BYD, a low-cost Chinese competitor that is not just the biggest EV seller in China but also has a strong presence around the world (though not in America).

Tesla’s American home turf is different. Mr Musk’s firm is already the market leader, so its growth prospects are probably constrained, more so because of the rising popularity of hybrids. Yet it has to sell more cars to generate cash to fund the purchase of huge volumes of AI chips that it needs to run its FSD technology. That is where a cheaper car comes in. It could help Tesla cross a bridge to the future while it attempts to overcome the huge engineering and regulatory challenges necessary for cars to drive people, rather than the other way round.

There are lots of potential roadblocks ahead. First is the risk of crumbling morale. Besides the sacking of one-tenth of its workforce, Tesla has lost several highly respected executives recently (the latest announced his departure on the quarterly earnings call). Second, trust between Mr Musk and big investors is gossamer-thin. Who knows how he will react if a majority at next month’s shareholder meeting vote against the board’s efforts to reinstate his $56bn payout from 2018 that was voided by a Delaware judge. Third, the difficulty of running many businesses besides Tesla is compounded by Mr Musk’s “demon mode”—irascible outbursts that can leave rubble in their wake.

On the night before Elon Musk unveiled Tesla’s first-quarter results on April 23rd, your columnist brought his car to a halt, noticing a futuristic vehicle hooked up to a Tesla charging station in Los Angeles. It was a dark-purple Cybertruck. Twinkling lights glittered behind the tinted windows. It looked so wedgelike, angular and otherworldly that it could have moonlighted as an armoured personnel carrier in “Civil War”, a new apocalyptic film.

Its owner, Dennis Wang, is a Tesla devotee. Besides his four-month-old Cybertruck, he has owned Mr Musk’s original (“sexy”) quartet: the Models s, 3, x and y. He has held shares in the company since 2018. He has full faith in Mr Musk. Despite a 40% plunge in Tesla’s share price this year in the run-up to the earnings report, as well as the announcement in recent weeks of falling vehicle sales and unprecedented lay-offs, he believes the billionaire remains the best person to run the company. Even an embarrassing Cybertruck recall, caused by a stuck accelerator, was quickly fixed, he says, pointing to a new bolt in the pedal.

Yet however much Mr Wang loves Teslas, he does not think of Tesla as a car firm. He says it is a tech company. As he puts it, all electric vehicles (evs) offer a similar driving experience. What differentiates them is the software—the brains beneath the dashboard. In Tesla’s case, that is the latest version of its self-driving technology, which he calls “fantastic”. His view is shared by many Tesla loyalists. It is why the company’s shares trade at a multiple of earnings typical of a zippy software firm, not of a metal-basher.

Wall Street takes a different view. Though investors hope Tesla will one day make money from its snazzy artificial intelligence (ai), for now they want it to restore growth by selling more cars—the cheaper the better. Hence the sigh of relief when Tesla outlined plans within an otherwise dismal earnings report (revenues, profit margins and free cashflow all crashed) to start producing affordable vehicles by 2025 that would not rely on big new investments. Tesla’s share price promptly soared more than 10%. Call that a $50bn thumbs-up from the unit-economics guys.

Mr Musk has a history of trying to have it both ways. When investors were doubtful about demand for Tesla’s evs at the end of the 2010s, he promised shareholders that its so-called full self-driving (fsd) technology would put 1m robotaxis on the road by 2020. That did not happen, so during the pandemic, as Tesla’s sales rocketed, he changed his tune. He boasted that sales were growing faster than Henry Ford’s Model t, and that Tesla aspired to sell 20m evs a year by 2030.

This year it is touch and go whether Tesla will sell more than the 1.8m cars it shipped in 2023. So Mr Musk has flipped the script again. Once more he is highlighting fsd, though this time with a twist: the latest version is so good, he told analysts this week, that it is impossible to understand the company without trying it. He went so far as to say: “If someone doesn’t believe Tesla will solve autonomy, I think they should not be an investor in the company.” His competing narratives create quite the conundrum among investment types. Can Tesla be a car company as well as a tech company? The answer, broadly, is yes. But it depends on which of its markets you are talking about.

From a volume-growth perspective, no country is more important than China. It is the world’s biggest ev market, and though growth is slowing, sales are still rising much faster than in America. However, competition is fierce and a price war is shredding Tesla’s business there. Tesla has not said where the cheaper model it is planning will be sold. But if it is made available globally, it could help it fend off competition from byd, a low-cost Chinese competitor that is not just the biggest ev seller in China but also has a strong presence around the world (though not in America).

Tesla’s American home turf is different. Mr Musk’s firm is already the market leader, so its growth prospects are probably constrained, more so because of the rising popularity of hybrids. Yet it has to sell more cars to generate cash to fund the purchase of huge volumes of ai chips that it needs to run its fsd technology. That is where a cheaper car comes in. It could help Tesla cross a bridge to the future while it attempts to overcome the huge engineering and regulatory challenges necessary for cars to drive people, rather than the other way round.

There are lots of potential roadblocks ahead. First is the risk of crumbling morale. Besides the sacking of one-tenth of its workforce, Tesla has lost several highly respected executives recently (the latest announced his departure on the quarterly earnings call). Second, trust between Mr Musk and big investors is gossamer-thin. Who knows how he will react if a majority at next month’s shareholder meeting vote against the board’s efforts to reinstate his $56bn payout from 2018 that was voided by a Delaware judge. Third, the difficulty of running many businesses besides Tesla is compounded by Mr Musk’s “demon mode”—irascible outbursts that can leave rubble in their wake.

Like many Muskophiles, Mr Wang expects Tesla’s boss to pull through. As a carmaker, Mr Musk excels. The Cybertruck, says its driver as his corgi scampers on the back seat, is the most comfortable car he has ever owned. As a technologist, Mr Musk continues to improve. Though Mr Wang acknowledges that the latest version of fsd requires driver supervision, he says being able to “sit back and decompress” on his commute is as valuable to him as a pot of money. Above all, no one matches Mr Musk when it comes to turning engineering dreams into reality. As he puts it, “If Elon wants to put a chip in your head, you will get a chip in your head.” Just don’t expect it to be implanted until years after it is promised. And be prepared for its Svengali to melt down in the meantime.