Automotive CFOs: Tackling Regulation, Market Volatility & Innovation Capital

In an interaction with Industry Outlook, Jagdish Baheti, Finance Head & CFO India, DELFINGEN, shares his insights on the evolution of the role of a CFO in recent times, importance of cash in a single sentence, the importance of cost control and operational efficiency for today’s CFOs, what are key challenges and opportunities automotive industry CFOs are facing with transformations like electrification and autonomy and more. Jagdish is a highly accomplished Chartered Accountant and MBA graduate from IMT, boasting 14+ years of industry expertise. As Head of Finance & CFO at Delfingen India for over 7 years, his role has transformed into a strategic powerhouse. Prior to this, he contributed significantly to the Hirschvogel Group

Throw some light on the evolution of the role of a CFO in recent times.

There are a wide variety of functions that are critical for a CFO. Although traditional roles will continue to be the foremost responsibility, the three most important roles of every modern-day CFO are business partnering, customer connection, and risk management. A CFO is now expected to also be a strategist and actively get involved in taking important decisions for the company. An increasing number of functions, such as IT, enterprise risk, operations, and strategy, report to the CFO. As a result, he or she must be best placed to lead the transformation agenda of the company. CFOs used to shy away from connecting with customers in the past due to a lack of awareness about the importance of being customer-focused. Additionally, we are in a very volatile business environment today where there are several threats for every organization. Whenever there is something wrong in a company, it is the responsibility of the CFO to handle it, thus making risk management and governance among their areas of focus.

How do you define the importance of cash in a single sentence?

The top line is vanity, the bottom line is sanity, and cash is reality. Most often, companies focus so much on the top line and bottom line that they forget about cash. This is the main reason why I have seen many profitable companies fail due to improper cash flow management.

CFOs play a pivotal role in setting automotive companies’ financial health and future growth. By embracing technologies, fostering innovation, and building capable teams, CFOs can effectively navigate the complexities of the digital age and position their organization for long-term success in the dynamic automotive industry. While cost control and operational efficiency are indeed critical for any CFO today, they are even more important in the automotive industry, especially because it is a highly competitive market with very tight profit margins. By implementing cost control measures, CFOs can ensure the effective allocation of resources to maximize profitability. Similarly, operational efficiency can be achieved by enhancing productivity and reducing costs. CFOs can also help an organization streamline business processes, eliminate inefficiencies, and optimize resource utilization to drive overall operational effectiveness. Lastly, cost control and operational efficiency contribute significantly toward long-term financial sustainability, enabling companies to wither economic uncertainties and market fluctuations.

Tell us about a few key challenges and opportunities automotive industry CFOs are facing with transformations like electrification and autonomy.

The automotive sector is going to be a very interesting sector to operate in, and we are very excited about the diverse range of opportunities the industry holds. In this transformative era, customers demand digital experiences, urging automotive companies to embrace the future of software-defined vehicles and experiences. While the potential for profitability is immense, it is also accompanied by significant challenges. Firstly, the shift towards EVs requires significant investments in R&D. Secondly, meeting stricter emission and fuel economy regulations is another tough nut to crack for automotive industry CFOs. The third challenge is the need to adapt to changing customer preferences, such as the shift towards shared mobility services. Also, there is immense pressure on organizations to reduce the environmental impact in terms of manufacturing and disposing of batteries. Lastly, there is a dire need to improve cybersecurity and data privacy in connected and autonomous vehicles.

Digitizing sales, investing in new services, and establishing a strong technological foundation are now mandatory for an electric-driven future. Thus, CFOs need to reinforce their strategies with proper forecasting, scenario planning, examining their portfolios, and ensuring that the balance sheet is optimized to support the organization’s future strategies and objectives. These steps will not only enable CFOs to transform today’s uncertainties into opportunities but also help them develop more resilience to face future challenges.

Suggest ways in which automotive CFOs, industry groups, and the government can collaborate with each other to drive innovation and responsible investment.

We are witnessing a lot of FDI coming into our country in the automotive sector lately. The government, too, is very focused on producing skilled manpower to take the automotive manufacturing sector to the next level. From the payments perspective, UPI transactions are increasing with each passing day, and the regulators have also invested in creating world-class B2B payment platforms that allow real-time gross settlement and many other facilities. The transparency that exists in the Indian payments space has given a lot of confidence to multinational companies in terms of managing business in a vast country like ours.

What industry-best practices for cost control align with current capital allocation trends, especially for IT infrastructure and equipment?

In a highly competitive marketplace, low-cost producers are the ones who can earn the highest profits. Reducing costs is thus a key objective for most businesses because it increases both efficiency and profitability. Budget constraints for CAPEX in companies help CFOs make investments in a smarter way since they need to preserve cash and keep investments to the bare minimum. Shifting from the CAPEX to the OPEX model for IT can create a lot of opportunities internally, free up valuable resources that would otherwise be spent on managing on-site infrastructure, make future spending more predictable, and lower capital costs.