Last week, we pondered why there is no Tesla-level success story in the electric two-wheeler space. There are popular brands in individual markets, but none of them has created a significant technology edge or a global distribution network.
InsightEV – Global Electric Mobility
What worked for Tesla in its early years was the edge it created through technology and user experience differentiation. From offering technology-rich yet relatively spartan interiors to company-owned experience centres, Tesla created differentials at every stage. Eventually, the large edge it enjoys today is the sum total of the small ones it created in every process.
However, Tesla’s biggest edge was stealth. It could disrupt things even before anyone noticed it. By the time the traditional industry could adjust its technology spending and car programs, Tesla had already raced away to a formidable lead.
However, electric two-wheeler startups don’t have that luxury.
We are in that perilous time when easy money is over, competition is high, and the incumbents won’t let you have your cake easily. Importantly, investors are smarter as they have been burned by the first wave of startups.
Arguably, things were better five years back when everyone was starry-eyed and high on something. Some of the big-name startups today raised generous money in that time and have had a comfortable going. This funding has been concentrated on a few startups, even as most of the others perished or pivoted. It’s the nature of the beast.
InsightEV – Global Electric Mobility
InsightEV – Global Electric Mobility
It has not helped the ecosystem that almost all of these well-funded startups have been making large losses – Ola, Ather, and Livewire. Even Zero Motorcycles, whose financials are not in the public domain, survives due to generous fundraising at the right time.
With everyone that was well-funded not making any money in the last five years, the investor ecosystem has become cautious with money moving to core tech and fleet deployment, instead of solely vehicle development for the retail market. This is a tough market, and money would favour startups that can create an edge in this environment.
But what would create an edge in a world experiencing democratisation and moving to eventual commoditization of technology and product attributes?
The shape of electric urban mobility is such that the above question cannot be answered universally.
Can Technology be the Edge?
In any manufacturing industry, technology is the natural edge. That’s what worked for Tesla till BYD and the other Chinese threw the playbook in the bin. Technology remains the edge in any cutting-edge industry, from semiconductors to aeroplanes and from satellites to rockets. However, mass-urban electric mobility is far from cutting-edge.
In the daily commuter scooter end of the market, it is extremely difficult to get a meaningful technology edge. Technology that can create a barrier to entry is expensive to develop and almost always leads to a higher BoM cost. The scooters sell for their TCO, and the customer expects reliability. They are not affected by how you energize the scooters – LFP, NMC, NA+, or fit a portable fission reactor under the seat. For anything to work, it has to adhere to the performance, specifications, and price band set by the incumbents, most of which are ICE.
At the performance motorcycle side of things, one can target a technology edge. Several lifestyle electric motorcycle startups have attempted that with innovative tech. Sadly, a large share of the tech and the products have been vaporware. From Damon and Fuell in North America to Arc in the UK, tech-leading startups have struggled to bring products to the market. Others, like Energica, have found it difficult to sustain after struggling for years.
The only name that is still playing a technology edge, successfully, is Verge Motorcycles with its Donut motor.
However, volumes are limited because of the segment and price point, and Verge is willing to license the tech through its sister concern, Donut Labs. We had interviewed them some time back.
InsightEV – Global Electric Mobility
With the creation of technology – batteries, cells, controllers, motors, displays – for the mass segment driven by suppliers, it is difficult to create a sustainable technology edge and maintain it.
However, there are still areas where OEMs can differentiate. A structural battery pack is one of them. It’s not unique, considering Livewire’s Arrow platform is that. So is the Savic from Australia, and many more, with notable ones like Damon never making it to production.
It’s a brilliant idea on paper and borrows heavily from the ICE industry. In small electric vehicles, the battery pack is to be supported by the frame, and that adds weight, considering the pack itself has significant weight. However, a large pack is a solid lump and could be engineered as a frame.
That’s what the ICE industry has been doing with multi-cylinder engines and many single-cylinder engines as well. Engines are lumps of hard metal, made extremely strong because they have to endure thousands of controlled explosions within them every minute. Making them structural is a no-brainer. So instead of a cradle structure, supporting the engine, the engine becomes the frame with the sub-frames, steering head, and even the stand, mounting directly to the engine. A good example is the Harley Pan America 1250.
In ICE motorcycles, a stressed engine saves weight and components as a large section of the main frame is replaced by the engine.
A battery-as-a-structure aims to replicate that, except that a pack is not a solid lump of cast and forged metal. Cells are thin metal-walled cylinders filled with mushy stuff. Batteries are heavy but not strong, and for any structural usage, the casing has to be worked on. As a result, it remains debatable if a structural pack in motorcycles would, on its own, save weight.
Tech: The Software Side
While hardware tech is nearly all supplier-driven, most prudent startups control the software side. There are exciting possibilities with what can be done with Software Defined Vehicles (SDVs), and the present E2W industry is only scratching the surface. This is an area where a good team can create an edge. On paper, a software edge should be as temporary, if not more, than a hardware edge. Good teams are pools of talent, and if you are onto something with your software, the competition would poach talent to try to create something better.
Obviously, this is an oversimplification, and teams need vision and cohesion, not just talent. Globally, startups have better software teams as a lot of them started from non-automotive backgrounds (software) and were more comfortable with keyboards than with torque wrenches.
Meanwhile, the ICE incumbents have to create teams in an area where they are not naturally comfortable. Everyone, from a Bajaj to a Honda, has had to create new teams and learn new things. It’s a work in progress at best and may need a few more years for the ICE incumbents to catch up with bright startups on the software side.
Yes, it’s illogical – ICE incumbents across geographies are established players with deep pockets. Creating functional software teams that can deliver should have been easy. But even today, we see most ICE incumbents grappling with the software side of the business. This remains an edge for startups and may stay so for a few more quarters.
Co-platforming to Check Costs
By co-platforming or component sharing, we mean creating multiple products on the same platform. It’s the default practice in the car industry because developing a car is about 100X costlier than developing an electric commuter scooter.
Even in the ICE motorcycle industry, component sharing is very common. Engines are frequently shared with just slight adjustments to the tune, a necessity because developing a new engine is a costly and time-consuming affair. Also shared are components like mainframes, suspension bits, and brakes, while manufacturers stay focused on maintaining the unique identity of each product.
Component sharing should be even easier in the E2W industry, with many product attributes being controlled through software. In that sense, component sharing is no longer an edge. It’s hygiene.
Scale: Lower BoM
What has worked for the mass-ICE industry is scale. They work with millions of units every month. This helps them drive up quality and dependability and drive down supplier costing as every tool, every fixture, gets used optimally. CAPEX is efficient and eventually improves margins.
In sharp contrast, E2W manufacturers lack scale. Outside China, the biggest pureplay E2W manufacturers are Ola Electric and Ather Energy, both India-based. Ola’s volumes over the last twelve months have been less than 300,000 units, and for Ather have been just above 155,000 units.
That’s not a large scale by any account and not the kind of volume where suppliers would actively offer volume discounts.
With even Ola and Ather nowhere close to the scale that ICE incumbents have been used to, it is highly improbable that any new entrant in the industry would ever have scale. The start-ups at the start had the best opportunity, having entered the industry before the complete fragmentation of the market, and scale didn’t work out for them.
Scale is a desirable edge, but no new entrant would be able to get it.
Deep Pockets and a Slow Burn
This may sound counterintuitive, but not being aggressive is also a strategy.
In the most important markets – India, Indonesia, Africa, Brazil – we are in various parts of the first stage of adaptation of electric vehicles. Electric two-wheelers have started gaining acceptance amidst a lot of skepticism. It is going to be a long time before mass adaptation kicks in.
Importantly, most electric two-wheeler startups are losing money in this stage. Even the most well-funded startups are losing money. It is unlikely any player with a positive net margin, except ICE incumbents, knows how to buffer the negative margins with their much larger, high-margin ICE portfolios. E2W startups have no such buffer.
As a result, big or small, every new entrant burns money. The art is in controlling that burn. Fast, and the burn will char the entire company. Slow, and it will make you irrelevant.
This is important as in most important geographies, we are entering a temporary EV winter and funding may not be so handy as it was till now.
Distribution
As we touched upon last week, what makes a Samsung/LG/Coke/Pepsi so big and successful is that they have a very wide, global distribution. They sell, not because they are the best, but because they are there, and consistently deliver on acceptable quality.
For any E2W manufacturer to be immensely successful, distribution is the biggest edge that they can create. However, the only companies working hard on distribution are the nouveau Chinese – Yadea, Niu, Vmoto, Sur Ron, and everyone who entered the market after them.
Everyone else across the world, including the mighty Indians, seems to be busy with their home markets. That makes Yadea, the biggest E2W manufacturer in the world by far, even more important. In the concluding part of this analysis next week, we look at what makes Yadea tick.
