With more than 50 blenders in the U.A.E., competition is intense, and creating a viable business is not for the faint hearted. However, a newcomer has made significant progress since it was formed, Tesla Lubricants, located in Ras Al Khaimah.

Teslas Managing Director T.R. Kumar is the former technical manager at Dubai owned Enoc (Emirates National Oil Co.), a major blender of lubricants. He also spent part of his career with Petromin, Bharat and additive company Lubrizol. Tesla uses a toll blender and while volumes are modest at 3,000 tons, the company is recording double-digit growth, Kumar claimed.

In a short space of time, Tesla has built a reputation for quality and intends to keep its sights firmly on innovation and value for money. Our business model is similar to Dell computers, and our products are blended in the U.A.E., Italy and Indonesia, Kumar said. We specialize in quality products – synthetics and semisynthetics with API and original equipment manufacturer approvals. Our strength is to formulate products in a short time with proven quality credentials.

Tesla is focused on the export market and has already appointed dealers in Bahrain, Bangladesh, India, Indonesia, Kuwait, Nepal, Nigeria, Oman, Qatar, Taiwan, Thailand, Turkey and U.A.E. Kumar said the company will soon commence operations in India.

The domestic U.A.E. market presents a challenge, given the strong grip Adnoc, Enoc, Total and Shell have on the market. Together, they account for around 68 percent of all business, according to Sulaiman Bilaus, a base oils and lubricants consultant in Saudi Arabia.

Teslas Kumar said the company will play the long game when it comes to the local market. Technology is our strength – formulating products with appropriate raw materials. Our staffs have a record of formulating synthetic oils for the first time in the U.A.E. and for introducing fuel additives in India. Even so, Kumar said expanding in the U.A.E. will be done in a phased manner and may result in the company acquiring a dedicated plant in the country.

He is nevertheless bullish on the local market despite the obvious David and Goliath analogy. We do not see any challenges from competition. There is enough market for all oil companies as each company has its own goals and objectives. Even so, entering the U.A.E. market could take up to five years Kumar acknowledged.

Diverse Product Range

Tesla produces and markets lubricants, greases, brake fluids, coolants and specialty greases and has gained OEM approvals from API Energy, BMW, Cummins, Deutz, Man, Mercedes-Benz, Volkswagen and Volvo. Rather than relying on third-party additive packages, the company has adopted a do-it-yourself approach to formulations with an emphasis on customization. Gasoline engine oils are marketed under the Polaris brand and include nine lubricants ranging from Polaris 1060, conforming to API SF/CD performance levels, to Polaris FS 1120, a fully synthetic engine oil meeting API SN/CF, Mercedes MB 229.5 and VW 502.00/505.00 performance levels as well as BMW LL 01 and Porsche A 40.

In the diesel engine oil category, products are marketed under the Denebola brand and include ten formulations ranging from Denebola 1070, complying with API CF/SF, CAT TO2 and Allison C3 performance levels, to Denebola SS 1130, a top-tier oil suitable for Euro IV/V engines, using ultralow sulfur diesel fuels. Tesla has obtained approvals relating to API CJ4/SM, ACEA E9, MB 228.31, Renault RLD-3, Man 3575, Volvo VDS-4 and Cummins CES 20081. And it meets CAT ECF 3, Mack EO-O plus performance standards. Tesla also produces a universal super tractor oil, essentially one oil for engine, hydraulic, transmission, differential, wet brake and power take-off applications, that meets API CG-4/GL-4/JD 20 series/Ford specifications.

The company has formulated several gear oils under the Gatria brand name, from Gatria HD a heavy duty automotive gear oil conforming to API GL5/MIL-L-2105B/MIL-L- 2105D, suitable for use in MB 235.0/235.6, ZF TE-ML 01/05/, to Gatria SM automotive transmission gear oils meeting API GL 1 performance levels. In the grease category, Tesla offers both lithium- and organoclay-based greases under the Gadiva brand for high-temperature and extreme-pressure applications.

The range of automotive oils also includes Topaz, an automatic transmission fluid, brake fluids under the Beryl brand, coolants marketed under the Capella brand, motorcycle engine oils marketed under the Beta brand for four-stroke engines and Tabit for two-stroke engines and outboard engine oils.

Teslas range of industrial oils is deep, including hydraulic oils (Hydrobius and Haldus brand), industrial gear oil (Grafia), compressor oil (Corsa), turbine oil (Tania), circulating oil (Regulus, Situla and Heka), transformer oil (Spica), refrigeration oil (Rigel) and metalworking fluid (Solcut and Characut). Given the heavy concentration of infrastructure development in the Persian Gulf, Teslas range includes several specialty products such as mold release fluid (Mira), way oil (Wasa), rock-drill oils (Propos) and textile oils (Situla). Tesla also markets marine engine oils under the Merak brand and several power generator oils for diesel/black fuel engine oils under the same brand name. It also markets railroad oils under the Rasaulus brand.

Finally, the company has designed a number of lubricating oil additives, split into performance packages, pour point depressants, esters and other synthetic base fluids, viscosity modifiers and colorants.

Eye on Strategy

It is common knowledge in the lubricants industry that the global base oils market is flat with an expectation that API Group I plants will gradually be phased out. Although the Middle East is a predominately Group I market, industry analysts expect demand for higher quality lubricants to increase. Teslas strategy of focusing on technical innovation looks right, but the question is whether it will have the scale to compete with larger rivals.

Given its management expertise and depth of experience, the company could marry the accumulated experience to a company that complements its mission. Kumar is not about to answer that question but does not rule out the possibility. That is a tricky question to answer – and the answer is yes and no. For the right deal, we would welcome investors either into a JV or marketing deal with related, noncompeting product lines.

Kumar subscribes to the notion that competition is healthy and that markets in the region will gravitate to better quality products. Without competition, there is no thrill in doing business. Markets in our main area are growing at around 4.5 percent with quality going up and people becoming more brand conscious. We see a good future.

That, according to Kumar places Tesla in a strong position to benefit from qualitative changes in the market. Lube specifications in developed countries will be focusing mainly on fuel economy, low or no oil top up, extended drain period and oils that meet emission norms. These demanding specs will require Group II and III, polyalphaolefins, esters and gas-to-liquid base stocks.

There is no doubt that the proximity of the U.A.E. to other fast-developing markets is proving to be a boon to blenders, but differentiation will play a big role, said Stefan Mueller, senior principal analyst at IHS Chemical. Having finished lubes produced by others gives very little control over major aspects of the business like procurement of raw materials or quality control. Mueller added that there are few white spaces left when it comes to the global lubricants business. Teslas reach could also stretch its capabilities, according to Mueller. Geography of their activities is widespread, which leads to higher logistic costs and diverse customer demands.

The base oils market in the Middle East has seen something of a shake-up with a number of producers announcing expansion plans ahead of the world average, which is bound to exert further pressure on Group I supplies. In the short term, the most significant new supply will come ironically from the U.A.E. when Abu Dhabi Oil Refining Co., better known as Takreer, finally begins production after a string of delays. The plant is capable of producing 100,000 tons of Group II and 500,000 tons of Group III base oils per year. Together with new Group II production from Luberef in Saudi Arabia and Shells GTL base oils plant in Qatar, the Gulf is morphing into something of a global base oils hub.

For companies like Tesla, that is good news because close proximity to that base oil supply adds the benefit of vertical integration and keeps costs down. Whether the Persian Gulf market becomes distorted by production from Iran is unclear, but it already supplies markets in South Asia, Middle East and Africa. If sanctions are lifted, Iran is likely to see massive investment in its creaky oil infrastructure that could make the country a force in base oils and finished lubricants. At the moment though, that is a big if.

Oil Prices Weigh Heavily

Although blenders like Tesla operate in a relatively benign environment in the U.A.E., there is no question an extended period of low oil prices will impact refining economics. That, combined with adverse base oils prices, could spell trouble for the sustainability of an already saturated marketplace.

Oil prices are getting support around the U.S. $50 per barrel mark for Brent Crude, leading some analysts to call the bottom of the market. Yet, it is rare for any commodity to fall rapidly in price only to turnaround and climb all the way back up. And with global markets awash with supply, prices could fall again or, as is more likely, will see a period of choppy market conditions

The founders of Tesla have probably seen volatility in the lubricants business before, if not on multiple occasions. In that case, they will be hoping they are better placed than many of their counterparts in the crowded market on the basis that one companys loss is anothers gain. Yet, at a time of unprecedented geopolitical turmoil and uncertainty over the direction of the Chinese economy, the finished lubricants business is clearly feeling the strain.