What’s happening with AI stealing our jobs?

Aug 30, 2024

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, but why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

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Today on The Daily Brief:

Does Maruti Suzuki hate EVs?
Analysts disappointed by NVIDA earnings
Will AI take my job or not?

Does Maruti Suzuki hate EVs?

Did you know that Maruti, India’s leading automobile manufacturer by a distance, has yet to launch a single electric vehicle (EV)? In contrast, Tata has 5 active EV models, Hyundai and MG have 2 each, and Kia has 1 active EV model in India. At first, it may seem that these companies have outpaced Maruti in the EV race. But considering Maruti’s dominance with over 40% market share, there must be a good reason why they haven’t dived into the EV segment yet, right?

Indeed, there is.

Here’s Maruti’s rationale:

The company’s primary focus is on affordability, a challenging goal in the current EV landscape.
The government has been adjusting EV subsidies, with the most recent tranche having expired not too long ago.
Maruti is also focusing on alternative fuel options like CNG, flex fuel, and hybrid vehicles.

Maruti is a mass-market brand in India, and it typically ventures into segments only when there is a substantial market opportunity. At present, EVs are not quite there yet. Even in advanced economies like the U.S., EVs represent just 7-8% of total new vehicle sales, and India lags even further behind at around 4%. So, from a strategic standpoint, selling EVs doesn’t align with Maruti’s current business model.

Despite the global buzz around EVs, the infrastructure to support them is still lacking, especially in India. This scarcity of charging stations naturally leads to "range anxiety" among EV owners and potential buyers. For context, India has fewer than 1,000 charging stations today.

There’s also the question of the cost of ownership. Consider this example: If we drive about 5,000 kilometers annually, using a petrol car would cost about 20% less than using an electric car. We would only break even if our annual usage exceeded 12,000 kilometers—something that might not be practical for most Indian car owners. This is a reality for many 4-wheeler owners in India, which is why Maruti’s cautious approach to EVs makes sense.

However, it’s not as though Maruti is ignoring the rise of EVs. In fact, they have been working on EVs for longer than even the market leader Tata! The difference is that Maruti has been strategically silent about it. Rather than rushing to market, Maruti is focused on building the facilities and capabilities needed to manufacture EVs quickly and at a much lower cost than any other company in the country.

By taking its time, Maruti avoids the potential pitfalls of premature investment in a segment that may not be ready for mass adoption. This allows them to continue leveraging their current strength—small and affordable vehicles—while gradually preparing to transition to EVs.

Maruti is also making significant investments in local manufacturing and battery production. In 2017, along with Japanese tech giants Toshiba and Denso, they invested $180 million to establish a lithium-ion battery manufacturing plant in Gujarat. This is India’s first lithium-ion battery manufacturing facility, which will enable Maruti to source battery packs at a much lower cost than other Indian manufacturers.

For context, batteries account for 30-50% of an EV's overall cost. For example, if an EV costs ₹20 lakhs, up to ₹10 lakhs of that could be the cost of the battery alone! If Maruti can reduce this cost within its supply chain, it will gain a competitive edge that no other Indian company currently has. With this strategy, Maruti plans to enter the EV segment with its first car, the eVX, in early 2025.

In the meantime, Maruti is using its battery manufacturing facility to source batteries for its hybrid vehicles. Why hybrids? Because they are much cheaper to produce than EVs due to smaller batteries. It’s likely that Maruti is using hybrids to hedge its bets in case the EV adoption curve slows down.

So, when considering Maruti’s overall EV strategy, it’s probably safe to say they’re doing more than enough to maintain their position as India’s top vehicle manufacturer, even in a future where EVs dominate the market.

Analysts disappointed by NVIDIA earnings

Unless you've been living under a rock, you've probably heard about Nvidia. It’s arguably the most important technology company in the world right now, designing the chips that are driving the entire boom in artificial intelligence (AI).

While Nvidia was already a large and well-known company, it truly became a household name around 2022 when ChatGPT burst onto the scene. Suddenly, everyone was talking about AI—sometimes with excitement, sometimes with a bit of fear. Thanks to a series of fortunate events, Nvidia found itself at the heart of this supposed AI revolution. Their graphics processing units (GPUs), originally designed for rendering complex graphics, turned out to be ideal for running AI algorithms.

Nvidia’s market cap skyrocketed from around $300 to $400 billion to a staggering $3 trillion, thanks to the AI boom. Nvidia now makes up over 6% of the S&P 500—an incredible leap considering that, just two years ago, it was around 1%. So now, when Nvidia moves, so does the S&P 500.

Almost every major tech company—Microsoft, Google, Meta, and Amazon—is pouring money into AI, collectively spending over $100 billion this year alone to build the infrastructure necessary for future AI technology. They’re doubling down to be ready before their competitors, and Nvidia’s chips are central to making that happen.

While there’s a lot of excitement around AI and its potential to change the world, make some jobs obsolete, and even create new industries or jobs, not everyone is convinced that it will transform the world overnight. If the promised AI revolution doesn’t materialize, Nvidia’s spectacular rally could fizzle out. Right now, Nvidia’s stock price is factoring in nothing less than a total revolution that changes everything. If that revolution doesn’t happen, Nvidia’s stock chart could start to look like a horror movie.

Economist Daron Acemoglu suggests that the productivity gains from AI might be more modest than some predict. He argues that while AI can automate certain tasks, the idea that it will drive massive productivity growth is overstated. He estimates that AI could increase productivity by about 0.66% over ten years—perhaps not the revolution some are expecting.

Despite the debates, Nvidia's recent financial results are impressive, even though some analysts seem cautious. Here’s how they performed:

Revenue of $30.0 billion, up 122% from last year.
Data Center revenue of $26.3 billion, a 154% increase year-over-year.

The star of the show was Nvidia's data center business, which includes their AI processors. This segment saw a phenomenal 154% year-over-year growth, reaching $26.3 billion and accounting for 88% of Nvidia's total sales.

Simply put, data centers provide high-performance chips and systems for large-scale computing operations, like those run by major tech companies and cloud service providers. Think of it as the backbone of AI development and cloud computing.

But it’s not all smooth sailing; Nvidia has faced delays with their next-gen Blackwell chips, which promise to be a game-changer for AI models. The delay, caused by manufacturing issues, has pushed back shipments by a few months. This is significant because these chips are crucial for training the next generation of AI models. Companies like Google, Meta, and Microsoft are already lining up to get their hands on them. Nvidia is managing the transition, but with competition heating up, they can’t afford too many hiccups.

Nvidia isn’t just a chip company anymore; it’s a market mover with a lot riding on its shoulders. As long as AI continues to grow, Nvidia will likely keep its top spot, but the pressure is immense. Big tech is betting billions on this technology, but how it all plays out is still uncertain.

AI could change everything, or it could just be another overhyped promise. Only time will tell.

Will AI take my job or not?

Since we've touched on topic of AI, let's dive into its impact—specifically on BPO (Business Process Outsourcing) or call center jobs. The Indian call center market is currently valued at around $28 billion, but with the rapid advancements in AI, this industry could face significant disruption.

We can already see the potential impact in the Philippines, a popular destination for outsourced customer service. Avasant, an outsourcing advisory firm, predicts that around 300,000 BPO jobs could be lost due to AI integration in the Philippines alone.

For context, the Philippines has the second-largest BPO industry in the world, following India. What makes this even more alarming is that BPOs are the largest job creators in the Philippines, employing 1.7 million people in 2023. In comparison, India’s BPO sector employs between 4 to 5 million people.

Additionally, BPOs make a significant contribution to the GDP of the Philippines, generating $35.5 billion in revenue in 2023.

We’re starting to see large companies experiment with AI to automate customer support on a large scale. For example, Klarna, a leading global payments company, recently reduced its workforce from 5,000 to 3,800 in the past year. Projections suggest that Klarna could employ as few as 2,000 people in the coming years as it increasingly relies on AI for tasks such as customer service and marketing.

As a result of these cuts and the adoption of AI, Klarna has boosted its average annual revenue per employee from about $400,000 a year 12 months ago to $700,000 now.

Given the cost savings, it’s likely that more companies worldwide will start experimenting with AI technologies and may adopt them at scale.

Bringing it back home, here’s what the leadership of some major Indian IT companies has to say about AI and jobs:

TCS CEO K Krithivasan remarked:

In an ideal scenario, there should be minimal incoming call centers handling calls at all. We’re at a point where technology should be able to predict and proactively address customer issues before they even call.

On the other hand, Infosys CEO Salil Parekh has expressed a more optimistic view, stating:

We don't see any layoffs in Infosys with these new-age technologies, and in fact, we continue to increase our recruiting as the economic environment changes...

Meanwhile, former HCL CEO Vineet Nayar noted that due to automation, IT companies might need 70% fewer people for the same tasks as before. However, he strongly advised against mass layoffs in the Indian IT sector due to AI, arguing that it's both unethical and potentially harmful to the industry’s future. Instead, he recommends that companies focus on upskilling their existing workforce to adapt to AI-driven changes.

This might sound a bit dramatic, so it's worth taking with a grain of salt. While the impact of AI on BPO jobs is concerning, there’s no clear consensus on how it will unfold. Some leaders predict significant job losses, while others remain more optimistic about the industry's ability to adapt.

Only time will tell how it all plays out.

That’s it from us today, thank you for reading. Do share this with your friends and make them as smart as you are 😉

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