SolarX, a Mali-based solar company, raises Series A funding led by Aster’s early-stage African fund, Energy Access Ventures (EAV), which invests in and supports decentralized energy companies across sub-Saharan Africa.

SolarX focuses on West Africa, a region where electricity access remains expensive and unreliable for many commercial and industrial (C&I) businesses. This presents a significant opportunity for solar energy given the region’s vast solar radiation coverage. SolarX unlocks this opportunity by offering a one-stop shop solution for clean energy services – providing reliable and affordable energy which allows end-users to operate more efficiently in challenging environments. With this financing, SolarX will focus on developing and operating projects in Mali, Burkina Faso and Ivory Coast.

“

As energy generation in our target market comes from costly, difficult-to-get and volatile fossil fuels, most C&I clients are looking for cheaper, more reliable and cleaner energy. Despite the market demand, attracting financial partners had been a challenge before engaging with EAV. The EAV team has been instrumental in supporting us to set up the company, define the right business model, put together operational structures and develop connections with relevant partners prior to their investment. We are eager to lead the way in growing the renewable energy sector in West Africa.

“

Karim Ghammache

Founder & CEO of SolarX

“

We are proud to continue to foster the development of C&I solar, investing in experienced local teams and innovative business models across underserved, frontier markets in Sub-Saharan Africa. With decades of combined operating experience in Mali, the SolarX team has the right expertise and execution capabilities to create a leading regional franchise with an appropriate and comprehensive C&I offering.

“

Vladimir Dugin

Principal at EAV

“

As a champion of the UN’s Sustainable Development Goals, CDC is committed to supporting innovative companies that are working to increase access to affordable and clean energy in Africa. SolarX is providing a much-needed solution for C&I companies and is well-positioned to ignite the renewable energy sector, which remains a critical pillar for development on the continent. We are excited to see the EAV team enter frontier markets and we’re pleased by their support of SolarX as they grow in Mali, Ivory Coast, Burkina Faso and beyond.

“

Noorin Mawani

Investment Manager at CDC Group

About SolarX

SolarX is a renewable energy company focused on providing reliable, clean and affordable energy solutions to commercial and industrial clients in West Africa. By offering a one-stop shop for commercial clients, the company provides easy access to financing and energy efficiency services, while allowing the companies to focus on their core business and operate on environmentally friendly and cost-efficient energy sources.

The company was founded by Omnium Invest’s management team, who have been operational in Mali for the past 20 years and have experienced similar pain points given their nature of business. Their focus on the manufacturing sector opened their eyes to the need for cheaper, reliable and efficient energy sources.

About Energy Access Ventures

Energy Access Ventures (EAV) is a leading early-stage investment fund in Africa. With over 40 years of investment experience in Africa, EAV is uniquely positioned to take advantage of the emerging smart, distributed, cost-effective infrastructure market segment. EAV has established a reputation as a hands-on investor that works closely with its portfolio companies to capitalize on the significant opportunity in sub-Saharan Africa. EAV’s first fund (“EAV I”) was raised in February 2015 and is €75,000,000 in size with nine investment professionals. The fund is sponsored by the leading French multinational Schneider Electric and is managed by Aster Capital in Paris. Its investors are CDC Group (U.K.), managing funds for the U.K. Department for International Development (DFID), the European Investment Bank, the Fonds d’Investissement et de Soutien aux Entreprises en Afrique (FISEA) held by Agence Française de Développement (AFD) and managed by Proparco, the Fonds Français pour l’Environnement Mondial (FFEM), administered by AFD, Financierings-Maatschappij voor Ontwikkelingslanden (FMO), the Netherlands Development Finance Company, and OPEC.

About CDC Group

CDC Group is the U.K’s first impact investor with over 70 years of experience of successfully supporting the sustainable, long-term growth of businesses in South Asia and Africa. CDC is a leading player in the fight against climate change and a U.K. champion of the UN’s Sustainable Development Goals – the global blueprint to achieve a better and more sustainable future for us all. The company has investments in over 1,200 businesses in emerging economies and a total portfolio value of £5.8bn. This year CDC will invest over $1.5bn in companies in Africa and Asia with a focus on fighting climate change, empowering women and creating new jobs and opportunities for millions of people. CDC is funded by the U.K government and all proceeds from its investments are reinvested to improve the lives of millions of people in Africa and South Asia. CDC’s expertise makes it the perfect partner for private investors looking to devote capital to making a measurable environmental and social impact in countries most in need of investment.

To help our portfolio companies navigate through the current “fog of uncertainty”, we have decided to write a series of articles in which we’ll delve into the impact of the Covid-19 sanitary crisis on our areas of expertise: energy, mobility and industry 4.0.

In these articles, we will analyze the impact over three different periods identified in our first article:

Quarantine period — Fighting through the sanitary crisis (10–15 weeks in the UE)
Safe-mode period — Learning to co-exist with Covid-19 (after quarantine)
Period of recovery — Development and distribution of a vaccine at large scale (from 2021)

Urban mobility, like many industries, looks remarkably different today than it has in recent times. Traffic levels from March of this year were nearly the same as they were in March of 1999 in the US. In Europe’s five largest economies, traffic is slowly climbing as lockdown measures have been lifted, but as of mid-May it remained 40% below levels from January 13th.

Commuters have reduced or stopped moving, and as a result, public and private urban mobility players have been forced to adapt or halt business altogether. But how have different subsegments of urban mobility been impacted so far? What changes have we seen in public transit, ride-hailing and carpooling, and micromobility? How will Covid-19 reshape urban mobility?

Phase 1: Fighting through the sanitary crisis

Covid-19 has hit all forms of shared urban transportation hard. Now that many western economies are beginning to reopen and ease lockdown restrictions, let’s take a brief moment to review how the crisis unfolded for different subsegments of urban mobility:

1.1 Public transit experienced rapid ridership declines and growing safety costs

In the pre-Covid days, transit agencies were putting a strong emphasis on increasing ridership and improving traffic congestion. This focus quickly shifted in March and April, as operators instead rushed to ensure safety for commuters and staff. According to Jonathan Simkin, the CEO of Swiftly, a leading enterprise software provider for public transit agencies and an Aster portfolio company, “We immediately saw agencies encouraging people not to take transit unless the trip was essential, and the industry saw a ~75% decline in ridership [in the USA].”

Public transit demand declines across London, New York City, Paris and the San Francisco Bay Area. Source: Transit app

Transit agencies have been placed in a precarious position because of growing safety concerns and falling ridership, which has led to significant revenue cuts. In a matter of days, they rushed to modify and cut routes, secure personal protective equipment, and implement new cleaning policies, while simultaneously providing services for essential workers who depend on public transit.

1.2 Ride-hailing and carpooling players also saw ridership plummet

Ride-hailing giants were also hit particularly hard just as their paths to profitability were starting to clear. Lyft and Uber experienced year-over-year ridership falls of 75% and 80% in April, respectively, and Ola saw their revenue decline by 95% over two months. These dips in demand and revenue led to several large rounds of layoffs to reduce cash burn, and forced these players to focus on developing other revenue streams, such as delivery services for food and essential goods.

We also saw companies in the space launch free initiatives to help communities adapt to Covid-19. For instance, Karos, a European carpooling leader for short-distance rides and an Aster portfolio company, devoted 100k free rides to hospital workers in Paris to make their lives a little easier. BlaBlaCar launched BlaBlaHelp, an app with no service charges to support communities with grocery shopping during the crisis.

1.3 While shared micromobility was essentially shutdown, personal micromobility experienced rapid growth

Covid-19 came at a complicated time for shared micromobility. The industry was already struggling before the virus to establish positive unit economics with cash intensive business models, and it is crucial for shared micromobility operators to meet specific utilization thresholds to have a shot at profitability.

Source: Second Measure

Shared micromobility players were forced to suspend operations. “For micromobility in general, everything grinded to a halt…just as it did for most businesses,” noted Colin Roche, who is the CEO of Swiftmile, a smart charging platform for shared and private-owned micromobility vehicles. Industry leaders such as Lime, Bird, Voi and Tier quickly suspended operations across many markets, making the objective of reaching positive unit economics dramatically more difficult.

Personal micromobility, however, has had remarkable traction because of the crisis. Bike sales boomed in the UK as commuters tried avoiding risks associated with public transit or shared micromobility. Moving forward, the bike market is projected to get a huge boost from the virus, with several road-bike categories potentially increasing 35% this year, compared to 6.9% growth in the global bicycle market in 2019.

Phase 2: Safe-mode period — Learning to co-exist with Covid-19

2.1 Public transit must digitize and continue partnering with private mobility players

Many transit authorities are struggling with legacy tools to match service changes with fast changing commuting patterns, and Covid-19 has accelerated the need for agencies to adopt new tools to streamline workflows and enhance overall efficiency. “I think the biggest change is that the industry will need to undergo 5 years of digital transformation in just a few weeks,” shared Jonathan from Swiftly. “Updating schedules used to be a multi-month process that occurred 2–4 times per year. That’s now happening on a weekly and bi-weekly basis…Likewise, analyzing data to determine what network changes to make used to take months… it now needs to take days.”

Digital tools will also be critical for agencies to communicate to staff and riders. As Covid-19 continues to alter passenger demand patterns, agencies will need to revitalize the way they inform people about service changes and interruptions. Swiftly recently launched Rider Alerts free of cost to agencies to improve the way they communicate service interruptions to riders.

Rider Alerts is a tool that enables transit agencies to better communicate service interruptions to riders. Source: Swiftly

Providing real-time vehicle capacity information will be paramount for agencies. Commuters are increasingly aware that mass transit could pose higher virus transmission risks due to crowding compared to other forms of urban mobility. To regain trust from lost commuters, agencies will need to leverage tools to share real-time information with riders about whether a specific bus or tram has enough space to adhere to social distancing measures.

Partnerships with private mobility players will likely accelerate to fill service gaps and cut costs. The crisis has spurred transit agencies to partner with private players to quickly fill transit gaps and reduce costs. For instance, several agencies in the US including Miami-Dade began subsidizing ride hailing platforms to reduce the costs of running empty buses during off-peak hours. We expect additional partnerships to emerge between public and private mobility players to help support resource-strained transit agencies in the months ahead.

2.2 As ridership recovers, ride-hailing and ridesharing players will continue their hunt for new layers of safety and reassurance for riders

While the consumer shared ride business was hit hard in the quarantine phase, early signs show ridership recovery as economies begin to reopen. “We have a clearer view now that things are going in the right direction. We recently conducted a survey with 4.5 thousand respondents, 70% of which want to carpool at least at the same level or even more than before [Covid-19],” highlighted Olivier Binet, CEO of Karos. The industry is indeed seeing a gradual recovery in the early weeks of phase 2, with rides on Lyft increasing 26% in May compared to April. Uber also reported modest growth in terms of trip requests in May compared to April.

To improve ridership as economies reopen, ride-hailing and sharing players will need to provide extra layers of reassurance through new features, such as Karos’ “Favorite” (link in French), which lets riders create a list of their preferred carpoolers to make them feel more comfortable riding again as lockdowns ease.

2.3 Private micromobility emerges as an attractive alternative, while shared micromobility sees gradual usage rebounds and accelerating consolidation

Private micromobility will likely be the winner of urban mobility in phase 2, and will stand as a compelling alternative for commuters who have been encouraged to avoid public transit and carpooling. Major online retailers are sold out of many e-bike models, and e-bike manufacturers like VanMoof now have waiting lists lasting four or five weeks. Private micromobility is also supported at the government level in several European markets including France and Italy, where subsidy schemes have been implemented to help individuals repair or purchase their own micromobility vehicles.

Shared micromobility usage is rebounding from steep lows. Several operators have reportedly claimed usage rebounds as lockdowns have eased across the EU, such as Tier, which experienced usage levels similar to what they were seeing in October 2019, or Dott, which saw scooter usage climb above pre-Covid levels. “It makes sense given that people will avoid enclosed spaces like Subways, Trains, Ubers and want to preserve social distances and stay outside in the fresh air. As a result, cities are now looking at Micromobility as an essential mobility option for transit, as opposed to a “nice to have” option like they did prior to Covid-19,” added Colin from Swiftmile.

However, reaching “normal” usage levels will be a significant hurdle. Shared micromobility is a highly seasonal business, and the summer is the industry’s time to shine. With more people working from home and a very real probability of less commuting compared to pre-Covid times in the coming months, the industry could face significant challenges to reach new highs this summer while also paying for sunk hardware costs.

Scooter app downloads from Austria, Denmark, Finland, France, Germany, Norway, Sweden and Switzerland. Source: App Annie

Consolidation in the shared micromobility space was already well underway before Covid-19 with a growing list of M&A activity including Bird’s acquisitions of Scoot and Circ, and the creation of Grow Mobility from the merger of Grin, Ride and Yellow.

Covid-19 will likely accelerate consolidation for shared micromobility, and established ride-hailing and sharing companies have already begun strategically investing or partnering with leading micromobility companies. Just last month, Uber led a $170 million round in Lime, a round in which Lime also took control over Uber’s Jump business. BlaBlaCar announced its expansion into shared micromobility in France by partnering with Voi. In the months ahead, we expect operators with low cash reserves to join forces with their counterparts, raise new funding rounds with significant valuation haircuts or go out of business.

Phase 3: Period of recovery — Development and distribution of a vaccine at large-scale

3.1 Public policy could play a key role in shaping the new normal for urban mobility

Governments were already implementing sustainable urban mobility policies before Covid-19, but the virus will likely expedite these policies. Preceding the outbreak, France passed the Mobility Orientation Law to accelerate carbon neutrality for land transport. A piece of this law now makes it possible for companies to reimburse purchases of bikes and all other green means of transportation for their employees free of tax (fixed at €400 euros per year per employee). This law was initially set to be in effect on July 1st of this year but was expedited and became effective on May 11th to help limit the traffic congestion following the end of the lockdown.

3.2 Covid-19 has accelerated the ongoing need for digitalization in public transit

Public transit will be significantly impacted by the virus. Early estimates forecast €40bn in losses for European public transport in 2020 and $8.5bn in losses alone for New York’s Metropolitan Transportation Authority. That said, public transit is clearly an essential service, and despite the health concerns and growing financial constraints, it will continue to play an integral role in moving people.

But Covid-19 has undoubtedly exposed many of public transit’s pain points, such as frequent schedule changing, employee training, overall service efficiency and reliability. With a real probability of fewer riders and growing financial pressure lasting months or potentially years, it is now more important than ever for transit agencies to push harder in their digital transformation efforts and adopt new cost-efficient tools that provide more flexibility as commuting patterns continue evolving in the months and years ahead.

Moreover, public transit will need to become more interconnected to help complement fixed routes. This will require agencies to push away from legacy players that are incompatible with other applications that drive innovation forward. “On our end, we’re investing heavily in allowing transit agencies to shift away from legacy tools prone to vendor lock-in and data siloes. We’re pushing hard to create an open digital infrastructure with data standards and APIs,” added Jonathan from Swiftly. “By making transit data more open and accessible, we can start to foster unique and innovative connections between services, like better connecting mass transit with on-demand transit from another provider. Ideally these systems could talk to one another to drive overall efficiency across the network as a whole without looking at a single mode in isolation.”

3.3 Ride-hailing and ridesharing players will continue developing and testing new revenue streams outside of their core business in order to survive

With a cloudy crystal ball as to when exactly ridership levels will return to normal, ride-hailing and sharing companies will be pushed to make additional investments in new products, features or services providing different revenue streams to help navigate through the turbulence. If usage remains lower in the months to come, we can expect to see additional moves beyond the aforementioned investments in food and essential good delivery services, such as Uber’s Work Hub, a platform within the Uber app providing their network of drivers with work opportunities both in and outside of the company.

3.4 Micromobility 2.0 — market growth supported by new infrastructure and more sound pricing models

Micromobility will grow in the long term as public authorities begin creating the necessary policies and infrastructure. “The new ‘norm’ will be riding shared scooters, ebikes and walking much more than the pre-covid times,” added Colin from Swiftmile. Indeed, many cities have used Covid-19 as an opportunity to push micromobility as a viable alternative to adhere to social distancing as economies begin reopening. For instance, cities including London, New York, Paris, Rome and Seattle have either temporarily or permanently closed streets to cut through traffic, which has created more space for micromobility.

Shared micromobility operators will fine-tune their pricing models. In the years to come, micromobility players will experiment with pricing strategies beyond the per minute pricing industry standard. While building more robust hardware and software will undoubtedly play a key role in making shared micromobility profitable, we expect operators to upgrade their pricing models to better reflect the value that riders derive from their services. Some new ideas on this front are already being tested, including loyalty programs, unlimited use subscriptions and privatized rentals on a weekly or monthly basis.

Conclusion

While uncertainty remains with respect to length and long-term impact of the crisis, there is bound to be some enduring change to the urban mobility landscape precipitated by Covid-19:

For now, one of the big unknowns is how consumer demand will recover for urban mobility in the months and years to come. The unanswered question is how many trips will be replaced by virtual work and entertainment once this is all done?

PayGo Energy, an Energy Access Ventures (EAV) portfolio company, has secured a strategic investment from Saisan Company Ltd (Saisan), a leading Japanese energy company.

As part of the partnership, PayGo will launch its proprietary Cylinder Smart Meter across Saisan’s Gas One retail network to provide Asian households with access to pay-as-you-go liquefied petroleum gas (LPG) for the first time. PayGo will leverage Saisan’s investment capital to establish a foothold in the region.

For PayGo, the partnership provides a footprint in fast-growing emerging economies in South Asia, and a clear path to scale; leveraging Saisan’s extensive distribution and retail network, and the company’s deep expertise in downstream LPG.

“

At EAV, we are extremely proud of the PayGo Energy team who have collectively delivered on strategic milestones in East Africa with great skill. We believe Saisan’s investment and partnership mark the next phase of PayGo’s growth, and we are excited to help the team make their truly game-changing technologies a reality for customers across emerging markets

“

Paras Patel

Partner, Energy Access Ventures

“

EAV has been a true growth partner since day one, adding value far beyond its capital to support us all the way from piloting our proof of concept to reaching this critical milestone. In Saisan we have a partner with generations of LPG experience and a trusted retail brand. We’re excited to work with Saisan to bring our technology to households across the region

“

Nick Quintong

CEO & Co-Founder of PayGo Energy

For Saisan, PayGo’s technology enables the company to expand its LPG business and to strengthen its reputation as a driver of digital innovation in the LPG sector.

“

We’re thrilled to be pioneering PayGo’s innovative smart metering technology in Asia, and to provide our customers with the world’s best gas service.

“

Takehiko Kawamoto

President & CEO of Saisan

PayGo has also secured investment from the Japan-backed VC fund, Kepple Africa Ventures. Kepple helps blue-chip African startups raise funds from and form strategic partnerships with large Japanese corporates.

The deal sees PayGo continue to build momentum as the company gears up for its Series B raise in the coming months.

About PayGo Energy

PayGo Energy is a venture-backed technology company, founded in Nairobi, Kenya in 2015. PayGo’s vision is to ‘Unlock Clean Cooking for the Next Billion’. PayGo builds hardware and software solutions to help grow early-stage markets for LPG. PayGo’s patented Cylinder Smart Meter (CSM) is an IoT device that accurately measures the flow of gas from an LPG cylinder in the customer’s home, enabling households to pay for gas in small amounts using mobile money. The PayGo CSM is the only LPG smart meter on the market that is certified under ATEX directives.

About Saisan Company Ltd.

Saisan is a vertically integrated energy business, headquartered in Saitama, Japan and founded in 1945. Saisan’s vision is to become a premier company of general energy and living support businesses. in Japan and the Asia-Pacific region. Saisan is the eighth largest LPG distributor in Japan, and holds downstream investments in 9 other Asian markets (Mongolia, Vietnam, Indonesia, Cambodia, Bangladesh, Nepal, Thailand Laos and India) under its Gas One Group.

About Energy Access Ventures

Energy Access Ventures is a leading early-stage investment firm in Africa. With over 40 years of investment experience in Africa, EAV is uniquely positioned to take advantage of the emerging smart, distributed, low-carbon infrastructure market segment. EAV’s first fund was raised in February 2015 and is €75,000,000 in size with 9 investment professionals, and 13 portfolio companies to date. The fund is sponsored by the leading French multinational, Schneider Electric, and is managed by Aster Capital in Paris. Its investors are CDC, European Investment Bank, Proparco, Fonds Français pour l’Environnement Mondial, FMO, OFID and Schneider Electric.

Introduction

Recently, we delved into the impact of Covid-19 on manufacturing. We saw that key industrial players have been hit hard by the crisis and that they are digitizing at a forced march. But what about their involvement in green energy?

Until now, the renewables market was projected to grow rapidly; changing the way we fuel our cars, heat our homes and power our industries for decades to come. Yet today, the industry is facing headwinds as a result of the Covid-19 pandemic, the global economic downturn and the collapse in oil prices. The question is, will Covid-19 slow the global shift to renewable energy?

Quarantine period — Renewable energy has been the most resilient energy to Covid-19 lockdown measures so far

The International Energy Agency says energy demand is likely to fall by 6% in 2020 — seven times the scale of the drop suffered in the 2008 financial crisis. In other words, 2020 will be equivalent to losing India’s energy demand in absolute terms.

Despite it being the biggest shock since the Second World War, renewable energy has, so far, been the most resilient energy to lockdown restrictions, making up more of the energy mix. This is mainly due to the solar and wind projects that were completed in 2019 and to the priority dispatch of renewables over other energies, due to their low operating costs and favorable regulatory incentives.

But it goes without saying that the renewable energy industry was affected by supply chain disruptions and a slowdown in installation activity during quarantine.

Solar energy: as Chinese factories account for 70% of the world’s solar panel supply, global production of solar photovoltaic (PV) was reduced in February due to factory closures in China’s key manufacturing provinces. Despite some shipment delays, production is now ramping up again.
Wind energy: the wind supply chain however is very interconnected. As wind turbines require multiple parts across the world, Europe, which is a major manufacturing hub for wind turbines, suffered massively from China’s reduced production.
Liquid biofuels: the liquid biofuels industry directly suffered from the decline in road transport fuel. US ethanol production was down nearly 50% by early April, leading to growing biofuel stocks, decreasing biofuel prices, thus compromising profitability. Many ethanol plants in fact shifted towards manufacturing hand sanitizer.

For small renewable energy suppliers, the situation was particularly difficult. According to Julien Tchernia, CEO of ekWateur, France’s leading supplier of renewable energy, the contraction in demand forced them to sell the excess of energy that had been contractually purchased (electricity can’t be stocked) at extremely low prices, making them lose a lot of money.

A decline in renewable energy additions due to delayed constructions and supply chain disruptions

Although Chinese factories are starting up, we expect global supply chain disruptions and delayed constructions to cause a significant dip in renewable energy additions. The procurement, construction and commissioning of new power plants will be slowed by the unavailability of work crews and the restrictions being placed on international travel.

Solar energy: BloombergNEF has revised its global forecasts for 2020, saying that demand for photovoltaic solar panels will be in the range of 108 to 143 gigawatts, down from the range of 121 to 152 gigawatts that was forecasted less than a month ago.
Wind energy: with the blustery start of the year and widespread wind turbine installations last year, we expect an overall increase in wind energy consumption. In China, all wind projects need to be commissioned by the end of the year to qualify for Feed-In Tariff subsidies. The United States is also in a similar situation. The question is: to what extent will there be delays?
Liquid biofuels: we expect a decrease in liquid biofuels throughout 2020 despite a potential rebound of transport in S2 2020. Many biofuels blending mandates have been delayed especially with the decrease in low oil prices and the introduction of Brazil’s RenovaBio policy may also be disrupted.
Hydropower: hydropower energy accounts for almost 60% of renewable energy yet remains the largest uncertainty in 2020 as it is dependent on rainfall and temperature patterns.

Beyond supply chain disruptions that will ripple through construction, construction projects will also be slowed by the depreciation of many currencies against the US dollar. Australia, Brazil, Mexico and South Africa are currently experiencing a rapid depreciation, resulting in higher capital costs for projects under construction. According to Rystad Energy, increases could be as high as 36% for these countries, resulting in the potential shutdown of most projects not yet been commissioned.

While analysts from BloombergNEF, PV InfoLink, and IHS Markit say that overall a significant contraction of demand is likely this year, some companies are reporting record sales with consumers reportedly panic-buying solar and storage equipment to sure themselves up in uncertain times. This is particularly true for Smart Energy, which has said it has witnessed a 41% increase in sales and a 400% increase in battery inquiries over Q1 2020. According to Elliot Hayes, CEO of Smart Energy, “our growth is a by-product of economic uncertainty that is driving both residential consumers and businesses to look for ways to future-proof their savings, homes and businesses.”

Towards a greener future?

As all projects for 2021 are being planned today, not all construction projects will go ahead as planned when the recession hits.

1. Towards a decrease in investment because of pressure on public and private budgets?

The government and policy-makers’ reactions to such a pandemic are hard to forecast. Whilst some countries may show resistance to change and slow the shift towards renewable energies, other countries may demonstrate an aggressive approach to accelerate the transition. Ultimately, the pace of the recovery and shift will depend on how governments direct their economic recovery spending.

Some countries like Spain have announced that Feed-in-Tariffs (FiT) would be extended, others have created new ones to boost the demand for renewable energy (e.g. the United Kingdom has announced new FiTs to boost the solar industry), whilst in some countries like the United States FiTs are fading.

Many argue that including incentives for renewable projects (tax credits, investment grants, loan schemes, etc.) should be a top priority in upcoming stimulus packages. In the EU, the €1 trillion Green Deal climate package, crafted before the COVID-19 outbreak, is now being touted as a critical part of economic recovery. Yet, one wonders whether climate commitments will take a backseat in economic recovery plans with investments in clean technologies being either abandoned or scaled down.

One thing is for sure: climate change and other environmental, social and governance (ESG) issues are being increasingly recognized as key determinants of a company’s future value creation potential. And renewable energy is demonstrating higher ROI than fossil fuels. According to a recent study carried out by Imperial College London and the International Energy Agency clean power stocks generated higher returns over the past 10 years, five years and this year — in the UK clean power companies such as John Laing and Ceres Powers have outperformed peers such as BP and Tullow over the past five years.

2. Will the lower oil prices affect renewable energy penetration?

Government policies have been forcing utilities to retire coal-fired power plants — since 2010, the net loss of coal capacity in the US has fallen by 102,000 megawatts. Yet, the recent decline in oil prices could lead countries whose economies are built on fossil economies to see a transition to cleaner energy as unnecessary.

In fact, the UK-based think tank InfluencyMap recently carried out an analysis on the corporates lobbying in the face of the Covid-19. It found that, large oil and gas players have been the most active in seeking for direct and indirect support (stimulus funds, pollution regulations and the use of the strategic petroleum reserve to bolster prices). As reported by Emily Holden for the Guardian beginning of May, records show that fossil fuel companies have already obtained $50 million in loans.

But despite the stimulus money and the weaker pollution regulations, the oil and gas industry is more vulnerable than ever. “The pandemic exposes and exacerbates fundamental weaknesses throughout the sector that both predate the current crisis and will outlast it” stated the Center for International Environmental Law (CIEL). Long before the crash in prices, the oil and gas industry has been projected to peak as external pressure has surfed — not only from environmental activists and regulators, but also from central banks and hedge funds — for the oil industry to diversify into lower-carbon energies.

In short, fossil energy may be cheaper now, but fossil fuel projects are becoming even riskier. With the increasing carbon-conscious investing and the worries that many fossil projects may become unviable, the lower prices are not an immediate threat to renewable energy. An indication: despite an oil price crash in 2014–2015, the renewable energy investment had a historic run.

3. The rise of a new momentum?

As said previously, without government action, this crisis could considerably disrupt the momentum around renewable energy. Conversely, with government support and carbon-consciousness, it could well be the start of a new momentum.

In fact, in Australia experts advocate that renewable energy may well drive economic recovery. According to Kane Thornton, CEO of the Clean Energy Council in Australia, “there is still a strong pipeline of renewable energy and storage projects and enormous customer demand for rooftop solar and batteries. These will be critical in replacing Australia’s aging coal-fired power stations, meeting Australia’s climate change targets and ensuring affordable and reliable power supply.”

With Covid-19, renewable energy has also gained new momentum in some countries and sectors. The transition to renewable energy has been slow in the mining industry yet even the remotest mines in Africa are now starting to consider solar, wind and energy storage. According to Alastair Gerrard, CEO of Zest WEG Group Africa, which supplies a wide range of electric motors, “the last year or two has seen a significant uptake in interest and securement of renewable energy power projects in the mining industry — which on a positive note is occurring across the African continent and not only in first world territories.”

Finally, technologies may well emerge from this crisis such as floating offshore wind farms, marine technologies and low-carbon hydrogen production. Recently Australia set aside $300 million to jumpstart hydrogen projects, the Netherlands unveiled a hydrogen strategy in late March for 500 megawatts of green electrolyser capacity by 2025 and a German hydrogen strategy is expected soon.

According to Antoine Huart, President of France Territoire Solaire, solar energy would be the energy pillar of resilience in the post New World — “produced by automated, digitalized, decentralized and abundant installations located in areas as close as possible to needs, solar energy seems to have been invented to meet the challenge of resilience.” Just as Europe has relocated lithium-ion battery manufacturing, it is questionable whether Europe will relocate solar manufacturing, since China accounts for 70% the world’s solar supply.

Conclusion

Although the shift towards renewable energy may have been slowed down, the long-term trend towards the transition to low-carbon energy will remain unchanged.

The future of the renewable energy industry will be shaped by: incumbent lobbying; consumer demand; the speed, quantity and nature of government support and the divestments and investments made (in other words, will fossil fuel investments be divested to be invested in renewable energy?).

It is, therefore, essential that countries put renewable energy at the forefront of their recovery plans to build towards a more sustainable future — before the next climate-induced event triggers another global economic shock.

In these articles, we will analyze the impact over three different periods identified in our first article:

Quarantine period — Fighting through the sanitary crisis (10–15 weeks in the UE)
Safe-mode period — Learning to co-exist with Covid-19 (after quarantine)
Period of recovery — Development and distribution of a vaccine at large scale (from 2021)

Introduction

In February 2020, the global manufacturing sector suffered its sharpest contraction since May 2009, as the spread of Covid-19 disrupted global supply chains and exerted a downward pressure on demand, production, and revenues. The organization of the manufacturing sector into global value chains — which has created dependencies largely beyond the control of individual businesses — has exacerbated the impact of the crisis, leaving most companies in the sector in a vulnerable financial state.

Against this backdrop of turbulence, what can manufacturers do in the short term to safely resume operations and get back on track? Will the Covid-19 crisis usher in the Golden Age of digitization in modern manufacturing? Which startups are best positioned to thrive in such an environment? In this article, we will share our insights of our discussions with different stakeholders on how they are responding to the crisis.

Phase 1: Quarantine period — Fighting for survival

For players across the board, Phase 1 consisted in protecting themselves from the pandemic and the risk of a — potentially massive — health related downside.

For corporates and SMEs, the priority was to safeguard their employees and to ensure business continuity. Most manufacturers were in ‘survival mode’, fighting to survive, focusing on lean operations, adopting digital tools for basic business processes, and cutting costs. As demand fell — unevenly across consumer, intermediate and investment goods — industry dynamics played a huge role in how businesses were affected. Manufacturing companies that were directly involved in the management of the crisis (medical supplies, basic necessities, etc.) fared better than verticalized players on the fringes of the ‘firefighting’ process (e.g. the automotive industry). While other players shifted parts of their business to support the war economy when the demand and supply of their existing products collapsed — in the US, Ford, in collaboration with GE Healthcare, 3M and UAW, manufactured respirators and personal protective equipment (PPE) to help fight the crisis in March and April.

For startups in the Industry 4.0 space, the impact of the virus was clearly felt on the sales cycles, with decision- making in SMEs and corporates being put on hold. Some startups therefore addressed other more dynamic verticals, such as the food distribution industry. “Some of our large food and drink customers are considering building their own additive manufacturing capabilities, to cope with the disruption in their supply chain for spare parts, and keep their manufacturing line running with parts printed on-site”– Omer Blaier, Co-founder & CEO, Castor.

For blue collar workers in manufacturing, it was an ‘interesting’ time. In some countries, such as the US, cost-cutting initiatives negatively impacted the workforce as the disruption of supply chains and social distancing measures put millions of employees out of work. In European countries, however, governments stepped in to pay wages for a limited period of time. This was done to avoid mass layoffs and to circumvent the bureaucratic complications that accompany the dismissal and hiring of workers. As operations came to a standstill, many firms became aware of the indispensability of blue-collar workers in the manufacturing industry. In the near future, this realization could mean a shift in the way manufacturing workforces are structured, with an emphasis on the upliftment of blue-collar workers. We could also see the middle management lose their bargaining power as of result of short-term cost reductions and the long-term increasing task automation — numerous recent studies show that operating without the middle management has increased the productivity of some manufacturers. This crisis will undeniably lead to organizational changes in the long run.

Phase 2: Charting the path to recovery

As countries begin to lift lockdowns restrictions, manufacturing businesses will be among the first to go back to work.

To prevent a second wave of infections, businesses will need to prioritize health over speed — an outbreak of infections would not only have a direct impact on the production capacity and the bottom line, but also on worker morale. Therefore businesses, especially manufacturers, are going to be obliged to find ways of resuming operations while respecting the hygiene and social distancing best practices. In this respect, businesses can draw inspiration from the world’s largest automobile plant, the Volkswagen plant in Wolfsburg, Germany. After closing the plant for more than 5 weeks, the company implemented 100 safety measures, determined in collaboration with the frontline workforce, to ensure a sustainable return to work. These measures include reducing the workforce (8,000 production line workers per shift instead of 20,000), social distancing measures, and strict disinfection guidelines.

However, a greater emphasis on health and safety measures will seriously reduce business productivity in the short term. This, in addition to low demand, will likely incentivize businesses to invest in digitization. Digital tools will help businesses to ensure business continuity and maintain a sufficient level of operations to serve the customers they retain. In light of social distancing best practices, several corporates are choosing to have their non frontline workers work from home — PSA, for example, announced a switch to remote work for all its white-collar workers after the deconfinement in France on the 11th May. In the US, the share of employees working remotely full-time in the manufacturing industry has jumped to 61% (up from 2pp before the crisis).

In this new work environment, the swift adoption of digital tools for communication, teamwork and managing business processes can greatly accelerate the return to work. Keeping business continuity in mind, the following categories of tools are likely to see accelerated adoption during this phase:

Remote communication and teamwork tools: as frontline workers cannot work remotely, there is an urgent need to improve the effectiveness of internal communication (among blue-collar workers on the field and between blue-collar and white-collar workers). While tools and workarounds (such as SMS, telephone calls or WhatsApp) are not designed for operational excellence, we expect an increased adoption of dedicated tools — such as Beekeeper, Kraaft (for internal communications) and Yoho (to manage health concerns) — to ensure workforce productivity and seamless communication between remote teams.
Support function tools: the digitization of support functions in the industry space — which is generally not the focus of innovation projects — could help businesses manage workforce, cybersecurity, and finance risks. A shift to remote work could imply greater reliance on the cloud, therefore VPNs and enhanced infrastructure security. As businesses implement health insurance and government-mandated policies internally, functions such as HR and compliance could also experience increasing digitization in the near future. Financial management will also be crucial as companies explore new business models and take stock of the fiscal conditions of their suppliers and customers.
Tools supporting core internal business processes and analytics: when factories resume their productions, the monitoring of production KPIs will be greatly facilitated. However, businesses operating in globally distributed value chains will be more affected, as employees may not be physically present to monitor quality and performance metrics. “Monitoring and maintaining the ongoing production process has become impossible for many companies. Digitizing global monitoring over the entire manufacturing cycle has become a critical need to regain control and end-to-end transparency.” — Eyal Kaufman, CEO, QualityLine.
Contingency planning and scenario modelling tools: in the short term, shifts in the global social and geopolitical climate, disrupted supply chains and changing customer preferences will require manufacturers to be agile and have visibility across the entire value chain. Companies will have to anticipate disruptions both upstream (plan for more flexible sourcing, replace hard-to-get parts, produce hard-to-get part in-house, etc.) and downstream (customize their value offering to meet more local needs). They also need to adapt to potential changes in the customer journey, encompassing shifting demands and adapting to new customer engagement models. To better understand our perspective on supply chain disruptions, you can read Raphaëlle’s article.

Prior to the crisis, corporates’ priorities regarding digitization were operational efficiency, capturing competitors’ market share and impacting share price and dividends. During Phase 2, however, the focus is now on ensuring business continuity, capturing emerging market shares and offsetting debt from their balance sheets. As a result, the digitization projects that focus mainly on improvement (of processes/ products, etc.) could be relegated to the background in the medium term — the severe financial impact of the crisis is making companies reluctant to embark on non-core projects, especially where the ROI is not clear.

Phase 3: The Golden Age of digitization in manufacturing?

Once we enter the ‘new normal’, businesses will need to focus on protecting themselves against future uncertainties (brought on by bigger threats such as the impact of climate change). Our hypothesis is that, with continued strategic investment in digitization — and subsequently, automation — they could make themselves ‘antifragile’.

Traditionally, executives in the manufacturing industry have inched cautiously towards digitization, although they recognize the competitive edge that it brings. This is due to the complications of project conception, change management and deployment at scale. During the crisis, however, some companies have demonstrated impressive agility in adopting new ways of working to ensure business continuity. Microsoft, for example, reported at the end of April that they had seen two years of digital transformation unfold in two months.

When it comes to digitization in the factory, change management (not technology) is the bottleneck.

The need for flexibility and resilience (in addition to focusing on productivity and quality) could be the driving force behind digitization. The case for digitization in the manufacturing industry is reinforced by the way technological advancements (such as data access, computing power, machine connectivity, business intelligence and HMI technologies) can impact business metrics (productivity, downtime, quality, flexibility, time to market). In an uncertain post-pandemic world, businesses will need to be agile to thrive, and end-to-end visibility across the value chain will be at the heart of those efforts. Specifically, businesses will need to have better visibility into the availability of raw materials, inventory, WIP, people and assets. This visibility will then need to be translated into timely decision making: “As a direct result of the crisis, companies are facing demand uncertainty and have constrained supply chains. They are looking for ways to be resilient and flexible in how they manage operations — the goal is to increase transparency and collaboration with both customers and suppliers while reducing operating costs. Investing in digitization to improve the productivity and proactive decision-making capacity of the white-collar workforce (supply chain managers, production controllers, quality inspectors…) with advanced analytics will result in massive efficiency gains.” — Tarik Benabdallah, CEO & Founder, Pelico.

On the factory floor, automation will still consist of optimizing the interaction between man and machine, and not of deploying robots. Until now, automation in factories has been less about replacing machines and equipment than it has been about harnessing captured data and making machines and human workers smarter and more efficient. Today, in a typical factory, robots perform ca. 10% of tasks, a number that could reach a maximum of ca. 25% in 2025. That is not expected to change in the short term — human agility and judgement are indispensable on the factory floor, especially when it comes to non-standardized processes in unpredictable environments. Robots are suitable for high volume situations requiring accuracy and speed, but fail when time to market and customization are the KPIs of interest to the factory. In fact, in the mid-2010s, Toyota replaced robots with human workers because the robots did not meet their accuracy and process improvement expectations. In addition, there is a skill gap when it comes to designing, programming, running, deploying, and maintaining robots which indicates that we are unlikely to see large-scale robot-led automation in manufacturing anytime soon. Manufacturers should focus on deploying robots where it is cost-effective and frees up capacity for human workers. This does not mean that a wave of robot automation is totally out of the question in the mid to long term. Players such as ABB (in collaboration with AI startup Covariant) are working on tackling tasks that typically require human intervention (early adoption is in logistics, but they foresee adoption spilling over into manufacturing too soon).

The future of work in manufacturing centers around the augmented frontline worker.

Companies will probably need to invest in training workers for the ‘reimagined organization’. The crisis will highlight systemic HR inefficiencies and the accelerated adoption of digital tools will redefine many jobs. Historically, new technology and automation have played an instrumental role in the evolution of jobs and work. Industry leaders recognize the latter, and the reskilling and upskilling of the workforce has been a hot topic for businesses and governments in the face of Industry 4.0 for some time now. As companies scramble to digitize and automate to ensure business resumption, they also face the challenge of adapting their processes and reskilling/upskilling their workforce to prepare for the post-pandemic world. According to Jorim Rademaker, CEO of Manual.to, “In an Industry 4.0 setting, the frontline worker needs to become increasingly interoperable. Rising automation, IoT and big data analytics, put strain on the human operator, who is at risk of becoming a bottleneck. Facing increasing demands and complexity, the human operator needs easy, effective and engaging digital tools, encompassing training, performance support, and information tools. An aging workforce, and an influx of generation Z workers introduce additional challenges. It is in this rapidly changing world that operator-centric digital knowledge sharing tools like ours — Manual.to — offer groundbreaking and sustainable advantages.”.

Conclusion

The manufacturing sector is one of the hardest hit by the crisis, but it is also one of the best placed to leverage digital transformation to reinvent itself and emerge stronger in the post pandemic world. What the near future holds for manufacturing businesses will depend on the robustness of government intervention, the duration of the crisis, and their agility to bounce back.

The central role played by frontline workers has been highlighted during this crisis, and many corporates may now realize the urgent need to augment their workers in order to be better equipped for the road ahead. While increased digitization and automation will destroy some jobs (impact on middle management and gatekeepers such as IT), it will also reform others (jobs on the factory floor).

Advice to the manufacturing startups: if you can, offer services free of charge to help fight against Covid-19. It is harder to get budgets for software rather than hardware for safety but it is good to open positions. The startups that adapt their value proposition (according to the evolving needs of their customers) while having a quick ROI will come out of the crisis with a stronger foothold in the market. Startups whose value propositions are flexible enough to explore new market segments should also explore this option.

In these articles, we will analyze the impact over three different periods identified in our first article:

Quarantine period — Fighting through the sanitary crisis (10–15 weeks in the UE)
Safe-mode period — Learning to co-exist with Covid-19 (after quarantine)
Period of recovery — Development and distribution of a vaccine at large scale (from 2021)

Introduction

In just a few months, the coronavirus outbreak has triggered a global sanitary crisis and is expected to have a lasting impact on the entire organization of our societies.

But let’s rewind a bit: it is 2019, most of the world’s economies are still growing, the Dow Jones is reaching an all-time high and global VC activity is projected to reach $295bn (its second best year ever after the record $322bn for 2018). Digital transformation is one of the key macroeconomic trends that investors like us are watching, as we believe that corporates and individuals will increasingly benefit from digital productivity tools in the coming years.

Fast forward to today. Many organizations have either partially or completely closed their offices and have hastily reorganized to cope with the crisis. But what role have digital tools had in this reorganization? What impact will coronavirus have on organizations’ digital transformation efforts?

Phase 1: The forced march to run business operations remotely

The Covid-19 outbreak has put a large number of organizations in a state of shock, defined by:

Uncertainty: the inability to anticipate what will happen next — will customers stick around? Will there be enough cash at the end of the month? — which is the worst thing that can happen to a business
Inability to sell: a lower demand for both B2B and B2C companies due to the lockdown restrictions
Supply chain disruption: the inability to purchase materials/parts/inputs as before — especially for those dependent on China — leading to slowdowns and shutdowns.

Companies have therefore gone into ‘emergency mode’ to keep their operations afloat while managing their cash efficiently.

According to our discussions with our network, those who have best dealt with the situation are the most digitized players: startups and large players who had already migrated to the cloud, implemented remote work policies or could run business 100% remotely. Conversely, the most affected by the crisis are those for whom remote meetings are not really feasible, distribution channels are purely physical, change management is complicated or IT systems and processes are outdated and complex. Among the latter are mainly industrial players, who have been forced to shape digital transformation frameworks in a matter of weeks instead of years.

In short, Covid-19 has dramatically accelerated digitization for many companies — the number of daily Zoom sessions has skyrocketed from 10 million in December 2019 to 300 million in April 2020. It is estimated that before the pandemic, only 7% of US workers had access to a ‘flexible workspace’ benefit, or telework, according to Pew Research Center. Today, 42% of workers who did not work from home are doing so, according to CNBC’s All-America Economic Survey.

But don’t be misled by these figures, this forced transition has mainly consisted of (1) subscribing to video conferencing apps (2) massively deploying VPNs (3) moving to the cloud. In a word, this is more a matter of putting a digital band-aid on a wooden leg than a structural change in the way decisions are made. While these changes have had a huge impact on the way corporates organize themselves and the way they perceive remote work, they are only a trigger for a larger wave of digital transformation to come.

Phase 2: Avoiding the workplace as much as possible, unless there are no other options

Western economies are now looking at deconfinement and thinking carefully about how people are going to move around. For businesses, this phase will be long (at least 18 months), uncertain, and will have a lasting impact on corporate roadmaps and organizations. In concrete terms, it is likely that most corporates will face:

Uncertainty: the level of uncertainty as to what will happen next will remain high
Economic recession: consumer behavior (B2C & B2B) and purchasing power will change, causing a global economic recession
Remote work will be the new norm: for most organizations, remote work will become the norm as it is the simplest solution to ensure the daily well-being of employees

As a result, it is likely that enterprise roadmaps and digital customer experiences will be impacted in the next 18 months, with 2 main consequences:

1. The impending economic crisis will reduce overall corporate spending and the risk of adversity.

We expect managers and business leaders to have limited budgets and not be willing to engage in new/uncertain innovative projects that will not be considered essential for recovery in phase 2.

While ServiceNow’s CEO estimates that $7 trillion could be spent on digital transformation by 2023, it is likely that decision making will more than ever be driven by rapid and measurable ROIs. While this has always been seen as an implicit requirement, we believe it will become more explicit for decision makers: corporate digitization will have to focus on productivity gains and serve their economic recovery.

Overall, this means that startups and software vendors that are able to quickly demonstrate clear value will be strengthened while others, perceived as ‘nice to have’, will be weakened. For the ‘winners’, sales cycles and adoption may even be faster than before.

Concretely, this doctrine will have an impact on the type of digital tools adopted by corporates with:

The rise of new communication tools connecting frontline workers (blue collar workers, salespeople, etc.) to other stakeholders (managers, customers)
The rise of vertical solutions allowing obvious productivity gains for essential functions (e.g. robotics in industry/logistics)
The rise of horizontal software for organizational efficiency (RPA, AI tools replacing low added-value tasks)
The increase in capital and operating expenses for both IT infrastructures (move to the cloud) and physical infrastructures (local outsourcing, 3D printing, etc.).

2. The efforts made by organizations in Phase 1 to run remote operations will continue and remote work will become the new norm.

Now that many organizations have discovered that remote work actually works, Phase 2 will be more about ‘how to adapt the organization to operate remotely?’ than on ‘is it possible for my organization to work remotely?’. As a result, we can expect a perpetuation of the digital tools that enable remote work and digital communication for most of categories of workers.

Again, this will obviously be easier for companies where the physical presence of employees is not mandatory for business continuity. Specifically:

Red: for workers whose daily job involves non-substitutable equipment (industry, logistics, retail), physical presence will be mandatory and strict health and safety measures will have to be taken. These workers will continue to demonstrate that they are essential in many organizations and are likely be recognized as such.
Orange: for workers whose daily job involves interaction with people who either (1) are not equipped with digital tools (e.g white collar -> blue collar interactions on industrial sites) or (2) perceive face to face meetings as something mandatory (e.g b2b business developers), it will be more of a case-by-case situation. In general, we can expect a greater adoption of digital solutions to move from face to face to digital meetings.
Green: for workers whose daily job can be done 100% remotely (service industry, support functions…), there will be no clear incentive to return to the workplace — it would be more a question of resuming old habits than a necessity. Moreover, it is likely that a large majority will consider this to be unsafe or dangerous.

Phase 3: Increased agility & versatility towards running businesses 100% digitally

Hopefully in a few years a vaccine will have been found to protect the world’s population against Covid-19. By then, Phase 2 will have lasted months, if not years, and individuals and organizations will have learnt to work remotely and adapt quickly to sudden shocks.

Organizations will still have antibodies from the Covid-19 period and will not forget that resilience is an acquired trait rather than an innate one. They will have experienced digital changes at a fast pace and will be better able to assess the digital tools they need to become more agile and achieve real productivity gains quickly.

The benefits achieved in Phases 1 and 2 are expected to continue in Phase 3, mainly because digital transformation is mostly about UX, and UX is mostly about comfort for both users (ease of use, increased individual productivity) and organizations (increased collective productivity).

Conclusion

Digital transformation was already taking place at fast pace. Now, it seems to be a matter of life or death for organizations. The transition to digital and more fluid processes is accelerating for the greater good. It will more than ever make a difference between organizations that can anticipate and surf the waves of the future, and those that will drown under in the ocean of corporate rigidity. For startups, designing the most efficient surfboard and supporting customers will be a matter of survival. Let’s ride!

Let’s face it, times are tough. We are in the midst of a major health crisis that, depending on its outcome, could lead to the biggest economic crisis in our recent history.

In this fight against Covid-19, we all have a role to play. In our article on our advice to the startups wanting to define the Next Normal, we advise the startups that can to transition parts of their business to support the war economy.

At Aster, we are delighted to see that our founders are showing such a sense of solidarity. In this article, we have chosen to shed light on 4 initiatives carried out by our Aster family.

1. Karos — Donated 100,000 carpool rides

Karos has donated 100,000 comfortable carpool rides completely free of charge to the devoted people working in hospitals in Paris, to make their lives a little easier. This credit block hasn’t expired yet, so if you happen to know someone working in a hospital in Paris, feel free to let them know!

Karos offers short distance car sharing solutions for daily commutes from home to office.

Website ∣ Linkedin ∣ Twitter ∣ Facebook

2. Opendatasoft — Building Covid-19 dashboards for local communities, free of charge

Opendatasoft has decided to help local communities share their Covid-19 data, free of charge, to keep residents informed and to help data scientists fine-tune their predictive models.

A few inspiring examples:

Opendatasoft is the data sharing platform teams use to access, reuse and share data to grow their businesses.

Website ∣ Linkedin ∣ Twitter ∣ Facebook

3. Hadean — Creating massive scale simulations of Covid-19 with the Francis Crick Institute

https://www.youtube.com/watch?v=bM_QJOW2Vp0&feature=emb_title

Hadean has partnered with The Francis Crick Institute to accelerate the development of a single and massive scale simulation of how Covid-19 spreads. Predictive models are essential to lift lockdowns restrictions in a controlled manner.

Hadean is building the foundations of scalable distributed computing.

Website ∣ Linkedin ∣ Twitter ∣ Facebook

4. Atlantium UV — Carried out scientific research on the effectiveness of its UV tech to disinfect Covid-19 in water

Atlantium has carried out scientific research to review the effectiveness of its medium pressure Hydro-Optic™ (HOD) UV technology — validated to a 4-log virus inactivation per the U.S. EPA guidelines with adenovirus — to mitigate SARS-CoV-2 in water.

Atlantium offers an innovative water treatment solution that uses ultraviolet (UV) light.

Website ∣ Linkedin ∣ Twitter ∣ Facebook

Aster Capital

A leading Venture Capital firm with offices in Paris, London, Tel Aviv, San Francisco & Nairobi

For over 20 years, Aster has partnered with visionary founders driven by the ambition to transform the energy, mobility and industry 4.0 sectors.

We are a VC that fast-track our founders’ visions by giving them immediate access to mentorship. And, with access to a global network of corporates built on two decades of backing exceptional talent, we help build scalable and long-lasting businesses.

Aster has raised 6 funds over 20 years, totaling €520m.

In these articles, we will analyze the impact over three different periods identified in our first article:

Quarantine period — Fighting through the sanitary crisis (10–15 weeks in the UE)
Safe-mode period — Learning to co-exist with Covid-19 (after quarantine)
Period of recovery — Development and distribution of a vaccine at large scale (from 2021)

In our last article, we delved into the impact of Covid-19 on the transportation of people. In this article, we will analyze its impact on logistics and supply chains. From the other side of the world to your country, or from the warehouse to your home, logistics and supply chain players are adapting. Although, the sector is operating at a slower pace, it is perhaps the only market that is still fully operational — which makes it quite unique. That said, this crisis reveals how globalized our entire economy has become. The question is: how will Covid-19 reshape our global supply chains?

Phase 1: Quarantine period — Fighting through the sanitary crisis

1.1. Resilient urban logistics operations keep many retailers afloat

As a result of the crisis, food & grocery delivery has become the fastest growing segment of urban logistics. According to Nicolas Breuil, Head of Marketing, Brand & Communications at Stuart, “our business with small and local food marketplaces, such as Epicery, Ollca or Rapidle, grew tenfold in March, while our business with supermarkets only doubled.” Not only do people prefer to shop online because it is safer, but they are wanting to support local shops.

Giant marketplaces with their own logistics options are also experiencing an increase in activity, as well as a decrease in operational failures. For instance, JD.com, which is managing to operate 24/7 thanks to its own logistics circuits and drivers, has seen its stock peak at $46.15 on April 17th. While its competitors, Alibaba and Pinduoduo, are forecasting a significant negative impact from the crisis as they rely exclusively on third-party sellers and fragmented distribution channels.

Finally, the physical stores which had not yet ridden the e-commerce wave were forced to implement “quick and dirty” solutions. “Stuart has partnered with iZettle [a Swedish payment startup acquired by Paypal in 2018] to help small shops like butchers and chocolate shops to stay afloat. Orders are made by phone, iZettle allows them to pay by SMS and we take care of the last-mile delivery.” added Nicolas.

1.2. Long-haul logistics are chaotic but digitizing at a forced march

Global trade and supply chains are going through a massive shock which is striking from both the supply and demand sides. Companies, whether buyers or suppliers, are struggling to keep goods on the move at a time of global lockdown — especially with the contamination time lag between the US, Asia and Europe. “Most of our customers are overwhelmed. There is no flexible solution to absorb the peak of demand, other than the increase in workforce, which would cause additional sanitary risks.”, according to Vincent Jacquemart, CEO of iFollow.

Given that the situation changes daily, technology is playing a growing role in rebuilding the trade and supply chain and making it more shock-proof. We are seeing players digitizing at a forced march — even less digitized ones such as freight forwarders, which provide the essential link between exporters and shippers. According to Brieuc André, COO of Ovrsea, a French digital freight forwarder, “the freight veterans, who used to be digital sceptics, are now facing major issues as technology is a competitive advantage in this crisis. March has been the best month ever in terms of new customer acquisition”.

1.3. Opportunities for Supply Chain risk management solutions

According to Heiko Schwarz, CSO of Riskmethods, one of their prospects (a leading automotive supplier) had its 80 procurement employees spending their days reading newspapers to see if any of their suppliers were affected. Global supply chains are still quite opaque, and many companies do not have the means to assess the risk of business disruption.

For the first time, sales, marketing, logistics and procurement teams are having to work closely together to get a complete picture of the demand, manufacturing and supply to adapt and recover from the unanticipated supply chains disruptions that are occurring. “In four weeks, the subscription base for our Coronavirus daily updates grew from 0 to 1,000 supply chain professionals. People need this transparency as soon as possible. And it has paid off: our sales cycles have significantly sped up while the average basket has increased a lot! It’s the first time in my career that I’ve seen a marketing campaign that pays off before it’s even finished.” shared Heiko.

Phase 2: Safe-mode period — Learning to co-exist with Covid-19

2.1. With fiercer competition, versatile players will win

Deliveries will be in full swing at the end of the quarantine period. All pending deliveries will be secured, non-essential businesses will turn to online sales to recover as best they can, and in cities, restaurants and physical shops will likely turn into micro-fulfillment centers for last-mile deliveries in parallel with their operations. This expected growing demand for urban logistics, combined with the increasing number of urban fulfillment centers (enabling more stacking due to an increased density) will lead to increased revenues and margins, and in the end fiercer competition. Will it start a price war? Which players will achieve significant economies of scale and establish themselves as market leaders?

While they are currently affected by quarantine, the safe-mode period should also be a glorious time for food delivery platforms (Just Eat, Uber Eats, Deliveroo, etc.) with growth in both demand and supply — a large number of restaurants have been onboarded during quarantine. Some actors are even starting to deliver more than just food. This is the case of Meituan, the Chinese delivery giant, which delivers more than 10,000 products in addition to food, such as Huawei phones or even Sephora cosmetics. However, one may wonder whether food delivery platforms will start delivering parcels in Europe, given how the cost of European labour would significantly increase delivery prices.

In the long-haul segment, the plummeting of oil prices (oil prices were actually negative the second half of April) will probably revive road freight with very aggressive or even dumping strategies. Given the huge volumes of oil in storage, prices are likely to remain low for several months: rail freight may not be able to retain its new loaders onboarded during the quarantine.

2.2. Integrated players will get an edge

As JD.com proved during the quarantine phase, being more integrated ensures fewer operational failures. E-commerce enablers will be seen expanding horizontally or establishing new partnerships to provide a more integrated offering to the end customers. “We are currently talking with large e-commerce players such as Shopify, Magento and Prestashop — who also want to cover last-mile delivery “, Nicolas from Stuart.

Companies enhancing end-to-end visibility and transparency will also be flourishing. Byrd, for example, brings together fulfillment and delivery partners on one platform to provide a single logistics partner to retailers. “Over the last few weeks, we’ve seen a surge in entering leads, and for the first time requests from physical shops who now also want to go online and have even lesser capabilities to do the fulfillment in-house” shared Alexander, CEO of Byrd.

Public authorities have a role to play in the emergence of these alternative supply chains, allowing small retailers to remain independent of giant marketplaces. In France, Ma Ville Mon Shopping offers a viable alternative to Amazon for local shops, both in terms of marketplace and delivery service (operated by Stuart). The Loire-Atlantique Chamber of Commerce and Industry even deployed the solution free of charge in Nantes during quarantine.

2.3. A time of opportunity for warehouse automation solutions, but not for AVs all around

Given that volumes are not expected to decrease after quarantine and that managers will not be able to increase the density of workers within the warehouses, it is likely that there will be a wave of warehouse automation. Vincent, from iFollow, told us that they were currently working with a major parcel company operating in France to equip one of their hubs with robots by June. “They needed a short-term solution to keep their operations running with fewer people on site without having to freeze their entire supply chain.”

The question is whether other parts of the supply chain will become more autonomous. While JD.com deployed drones and autonomous robots in February and Neolix is currently using unmanned vehicles to supply hospitals in Wuhan with medical equipment, the use cases are mostly specific to hospitals. Even if AV players place a lot of hope in first and last mile delivery to become the growth engine of autonomous vehicles, one may wonder if logistics players will invest in such solutions in the midst of the economic crisis, especially since there is no necessary need outside of warehouses and it could be subject to regulatory controls.

2.4. Risk assessment as a new driver of supply chain decisions

For manufacturers with fast production cycles and lean supply chains — such as in the automotive sector, but also in electronics, semiconductors, chemicals, pharmaceuticals, consumer packaged goods, etc. — the penalty cost for not supplying even one hour can be huge. It therefore has become essential to be able to accurately forecast short-term evolutions so that operations can restart at the right time to meet demand. “It’s a question of choosing the right supplier, but also of managing the supply according to the forecasted demand and avoiding out-of-stocks situations. Increasing the buffers would be unbearable in terms of costs, which is why industrial companies will have to implement advanced optimization tools to have the right inventory on the right product” said Jean-Baptiste Clouard, CEO of Flowlity.

While the supply chain risk management market has entered its slope of enlightenment during quarantine, mainstream adoption is expected to take off when lockdown is lifted. Manufacturers will wonder how quickly recovery will occur and how reliable suppliers will be — which ones will fail unexpectedly? For weakened industrial players, choosing the right partners will become a matter of life and death. In addition to assessing the quality, price and availability of items, the risk of financial bottlenecks for suppliers will have to be assessed at an early stage in order to put appropriate countermeasures in place.

Phase 3: Period of recovery — Development and distribution of a vaccine at large-scale

3.1. The time to take stock of the damage for the least adaptable players

Today, the lagging large corporates are being hit hard by their reluctance to adopt ambitious transformation plans. “The freight forwarding market today is made up of 40% of medium and small players. Very few are digitized, and they probably had to face cash issues more quickly than the large players. We expect a strong concentration in the market in the coming years.” plans Brieuc, from Ovrsea.

In the manufacturing market, some upstream tier two and three suppliers — typically medium-sized companies operating with 2–3% margins and low cash reserves — will have to be acquired by their customers simply to keep the plants in operation. Many of them will also be at risk of bankruptcy, threatening the entire supply chain. In the retail market, the same is likely to happen for small and local shops.

This will contribute to the economic crisis that is already hitting the world. Cuts in R&D budgets will continue to be announced, while development roadmaps will probably focus on core products and geographical areas. Being able to scale back or adapt one’s business model will be a key skill to maintain profitability and even compete with less flexible players. “This period requires agile solutions that can provide fast returns on investment — and today, 95% of automation solutions are huge and customized automation systems, with ROI of up to 10 years. Business models will need to adapt, otherwise these large companies might see their pipe dry up in the next few years” explains Vincent from iFollow.

3.2. Supply chain diversification will be limited by the economic rationale

In the long term, manufacturers will be rethinking how they orchestrate their network of suppliers. The manufacturing of critical spare parts will either be relocated closer to the major manufacturing plants or manufactured in house (thanks to additive manufacturing for instance). “Our customers have experienced an accumulated risk due to a concentration of suppliers in China. In the long term they will try to diversify in different geographical areas. However, betting on a single supplier is sometimes motivated by economic reasons, and as we are now in a recession, I think that saving money will also be a priority,” expects Heiko from Riskmethods.

Amazon closing its warehouses to non-essential products during the quarantine phase triggered a wave of independence among its third-party sellers. Although many restaurants and retail shops are onboarded on giant marketplaces, these players may very well begin to question their dependence on intermediaries which capture a significant share of their margins after the crisis. “We are already seeing restaurants considering developing their own distribution channels. They are afraid of becoming too dependent on a single platform and losing not only their margin, but also the customer relationship and knowledge” shared Nicolas from Stuart.

For e-commerce, risk mitigation will involve not only sales channels and delivery partners, but also diversified warehousing sites to ensure continuous access to customers worldwide. “In recent weeks, we have been approached by major American consumer product brands that typically had only one warehouse in Europe. They are concerned that a resurgence of the virus in Autumn could deprive them of market access, so they are already looking to diversify their distribution network” shared Alexander from Byrd.

3.3. The period is full of opportunities for logistics startups to seize

Logistics and supply chain startups have been the most active during this crisis, especially during quarantine. If these players manage to adapt to the coming economic crisis, they could become key players in tomorrow’s value chain. But to do so, startups need to focus on cash management. As the gross margins of logistics startups are low compared to most industries, unpaid invoices could quickly turn into difficult liquidity positions. Building a healthy customer base and growing it more quickly (by offering freemium options or robot rental for instance) will be paramount to avoid bankruptcy. Value propositions might have to revolve around reducing costs rather than increasing revenue or quality of service. But with their easy “plug and play” solutions, which require little investment and change, logistics startups could well establish themselves in markets long dominated by traditional players. In short, crises are a good time for frugal innovation.

Above all, it is a time of opportunity to sustainably increase revenues while increasing margins. Already in recent years, players involved with the shipping and delivery of goods have been constantly raising their prices. With the increased pressure on logistics, this could further strengthen the trend. The diversification initiative by Meituan is a good example of how a vertical delivery player can increase both revenue and margin by expanding into more profitable market segments.

Conclusion

Supply chains are acting as a safety net for the entire economy. After lockdown is lifted, we expect the urban logistics players to retain the most customers, freight forwarders to strengthen their positions in the supply chain with the increase of freight rates, and risk management solutions to finally become mainstream, bringing the transparency and predictability needed for economic recovery.

In the long term, the exponential growth of e-commerce will increase the density of the world’s logistics network, which could be at the expense of the environment — international freight transport accounted for more than 7% of global emissions in 2010, not counting urban logistics.

Although awareness and behaviors have changed over the last 10 years, 2008 showed how damaging recovery plans can be. So, the question is: who will win? Consumer social and environmental consciousness or economic recovery at any cost?