Last updated: Feb 2020 by Narasimhan Santhanam
This pos
t is a part of EV Next’s EV Perspectives.
EV Next, a division of EAI, is a leading market intelligence & strategic consulting firm for the Indian e-mobility sector.
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This post is part of a series titled “Taking India’s E-mobility to the Next Orbit” from EV Next Perspectives. See all posts for this series from here. See previous post –Taking India’s E-mobility to the Next Orbit.
Introduction
Electric vehicles are all the rage, but you will be lucky to see any on the roads!
Except for rickshaws where electric vehicles have a clear penetration especially in select geographies such as Delhi and the National Capital Region, for most other segments, electric vehicles form an insignificant portion of vehicle sales and an even smaller portion of total vehicles on road.
While the challenges for poor adoption are fairly well-known – high cost of vehicles, low range on single battery charge, lack of charging infrastructure – there are no easy solutions. As a result, different stakeholders are exploring different avenues to accelerate EV adoption, with mixed results.
Among stakeholders, startups play an important role. Unhindered by baggage that established companies have, they bring fresh perspectives. With fire in their bellies, they dare to do risky things, fast. This combination of “new and daring” has already shaken up some established industries in India and taken them to the next orbit quickly. Can startups accomplish the same for India’s e-mobility industry too?
Our review and analyses of Indian e-mobility startups in this context have thrown up a mixed picture: On the positive side, Indian e-mobility startups comprise exceptionally talented youngsters and experts with a passion to achieve excellence and make a difference. On the flip side, these startups could do much better in delivering differentiated value to many end-user segments and enhance their e-mobility adoption.
The startups clearly have the requisite intellectual horsepower and skills – prominent startups such as Ather Energy (founded by IIT Madras alumni), Sun Mobility (founded by Chetan Maini, a veteran in India’s e-mobility sector) and Revolt Motors (founded by Rahul Sharma of Mixromax) are testimony to this. They also have significant and growing support from the government, industry and investors. What is needed for them to take off and achieve a high cruise-speed is an effective framework they can use to make crucial decisions on target markets and products. Deciding products and markets based on just intuition or past experience alone may not be good enough.
Framework for Accelerating E-mobility
We can’t direct the wind, but we can adjust the sails
The Indian e-mobility market promises to be one of the largest in the world, in future. The challenge is to make the future happen fairly quickly.
The keenness to invest in Indian e-mobility is palpable among many stakeholder segments. Some of them have already invested in it, and many others in the process of doing it. The country already counts over 150 e-mobility startups, and this number is increasing rapidly.
While businesses, startups and investors appreciate that they are investing for the long term, most of them would like to see good growth and momentum in the short and medium term as well. And this is where things are looking not so positive.
We highlight the following to show why
- Except in the case of e-rickshaws, penetration of electric vehicles is less than 1% of sales of any other vehicle segment
- Even annual two-wheeler (mainly e-scooter) sales amounted to about 1 lakh only in 2018 (0.5% of sales), and prior to that, it was only about 0.2%
- While there have been numerous tenders and MoUs for electric cars and buses from fleets, federal and state governments, the actual sales of these have been very low
- Recent news items suggest that FAME II, rather than revving up e-vehicle sales, is actually resulting in slower sales of electric scooters under the scheme. (Footnote – The main reason had to with the fact that incentives under the scheme, in the form of subsidies, were available only for high-end vehicles, making buyers shift to lower-end scooters which cost less even without these subsidies.[1]
Despite ambitious central and state government plans and industry aspirations, the above facts and data predict that it will be quite challenging for India to make quick gains in e-mobility.
For startups, making quick gains is important, far more than what it is for established businesses. Startups have a fairly short time window to prove that ideas will work in the market, and only a slightly longer timeframe to scale them to commercial success. What strategies can they follow that helps them start off the blocks quickly?
Our framework provides them a template to arrive at such a strategy.
We have built the framework for the 2020-2025 timeline. Why 2025? By this time, the three key disadvantages that EVs have compared to conventional vehicles – their high cost, their low range and long charging times – are likely to have been significantly mitigated or even overcome. A growth strategy past this date will hence need to be entirely different.
But the 2020-2025 period is crucial for India’s e-mobility sector. Efforts during this timeframe will lay the e-mobility foundation for India; significant growth during this period – in spite of challenges – could hence transform the growth chart and the country’s competitive positioning in the global EV ecosystem post 2025 too. A similar trajectory awaits Indian startups – those that are able to start with the right product-market fit could be in a position to achieve exceptional growth and market domination post 2025.
This series of blog posts is for all the stakeholders, especially startups, who wish to get that good start now in India’s e-mobility sector.
While acknowledging the tremendous efforts put in by planners and researchers from both government and industry towards analyzing the e-mobility sector, we feel that our approach to analyzing the Indian e-mobility sector and deriving a set of actionable insights for EV growth during 2020-2025 could provide useful decision-making tools to all stakeholders – industry, government, end users, startups and investors.
Our approach identifies EV products and solutions that can succeed in the short and medium-term with just moderate incentives and external support. Conceptually, the framework is centered around this principle: It is a lot easier to gain momentum when you get the wind in your sails compared to what it is when you sail against the wind. |
The Framework
Our approach and the resulting analysis framework comprise the following dimensions
- End-User Needs & Benefits – This represents need satisfaction & benefits to specific end-user sectors from electric vehicles.
- Different Types of Electric Vehicles – Electric vehicles comprise a wide range of transport – from a low-powered electric bicycle used for micro-mobility to a 40-ton truck that could travel inter-city. An appreciation of such a wide variety of vehicles used for a variety of purposes could lead to useful insights
- Drivers – Finally, there’s the tool-box. This comprises objects that can be used or acted upon by government (eg: policies and incentives), industry (eg: design, use of specific tech such as a hybrid or retrofit), support providers (eg: better testing and standards to enhance the perceived safety). It will be wise to select the tools such that they maximize benefits & minimize challenges for the end user through focus on an effective combination of user segment and product, and by leveraging the trends in transport and related ecosystems.
The key question that the framework answers is: What drivers should be used, and on what types of electric vehicles in order to deliver differentiated and valuable benefits to specific end user segments?
Answering this question will also require an understanding of the following
- EV Value Chain Components – From mining of raw materials in the form of Lithium or cobalt all the way to EV maintenance and operations, the value chain components for EVs comprise a number of stages. A deeper understanding of these stages, their impact on the overall user value proposition, and the degree of control entrepreneurs or startups have over them will enable startups to focus on the right value chain components.
- Trends in Transport, Energy & Technology – E-mobility is part of a much larger transport ecosystem that today – in a shared and connected world – thrives in the dynamic intersection of fast-changing transport habits, design, renewable energy, and digital technology. Investments, policies and entrepreneur efforts that leverage these trends have a much higher chance of success.
- EV Challenges – The main challenges to the faster adoption are well-known – high vehicle cost, low range and long charging times for batteries. But there are a few other challenges, mitigating which could lead to faster adoption. The drivers should be applied so that they are able to either mitigate or overcome these challenges.
The framework will be most valuable to startups who can use it to build more effective products and solutions, though investors (who can use it to evaluate businesses and startups) and policy makers (who can direct financial & non-financial incentives better) can also benefit from it.
Let’s start with an understanding of needs & benefits.
Needs & Benefits
Stop selling, start helping – a fairly insightful statement. If you provide a benefit that the customer really wants, sale is a certainty (without the need for large external incentives).
It hence is useful to first identity key market needs that e-mobility can satisfy.
| Environmental Needs | Non-Environmental Needs |
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Control of vehicular CO2 emissions and air pollution are the most recognized benefits from e-mobility. Economic benefits from lower running costs and showing one’s commitment to green are the other benefits that are also fairly appreciated. Energy security is a benefit that government stakeholders relate to better than any end user segment.
There are two benefits listed above that are rarely discussed or leveraged: Ease of use and health benefits. But these two benefits, and the needs they satisfy, present attractive opportunities for startups as we will see from details in subsequent sections.
User Segments
A large proportion of India’s population can use EVs in theory, but only a few sub-sets have the potential to become users in the 2020-2025 timeline, because these are the segments for whom clear need satisfaction exists even in the business as usual scenario. While a few other segments can be prospects during this period, penetrating those markets could require significantly more external drivers than these would.
The following are the segments that have strong potential for the 2020-2025 period.
| Domestic Sector | Commercial & Industrial Sectors | ||||
| Middle-class home-makers | Wealthy individuals with fitness needs | Private fleet for captive use | Private fleet for public transport | Light Commercial Vehicles | Government fleet for public transport |
- Middle class home-makers – Mainly home-makers who undertake many local errands
- Wealthy individuals with fitness focus – individuals from the upper middle class and high-income categories keen on fitness activities
- Private fleet for captive use – Includes both corporates (Eg: captively used buses for ferrying employees) and commercial enterprises (Eg: food delivery companies using e-scooters)
- Private fleet for public transport – Refers to both privately owned 4-wheeler or 3-wheeler fleets (large cab or auto rickshaw companies) and vehicle aggregators (Ola/Uber)
- LCVs – Refers mainly to light vehicles used for intra-city goods transport (Eg: Tata Ace)
- Government fleet for public transport – Refers mainly to intra-city government buses
The User – Benefit Matrix
Understanding benefits that matter for specific user segments enables one to drive EV adoption in a focused manner. But which benefits are relevant for which user segments? The matrix explains.
In the matrix, the terms High, Moderate etc., refer to the extent of relevance of the corresponding benefit for the user segment.
| Domestic | Business/Commercial | |||||
| Need/Benefit | Middle-class home-makers | Wealthy Individuals with a fitness focus | Private fleet for captive, commercial use | Private fleet for public transport | LCVs | Government fleets for public transport |
| CO2 emissions reduction | X | X | High | High | High | High |
| Air pollution control | X | X | Moderate | High | High | High |
| Green statement | X | Moderate | High | High | Moderate | High |
| Economic benefit | X | X | Moderate | Moderate | High | X |
| Ease of use | Moderate* | X | X | X | X | X |
| Safety | Moderate* | X | X | X | X | X |
| Health benefits | X | Moderate** | X | X | X | X |
Notes for select items from the table
*: Ease of use for this segment arises from the fact that slow electric vehicles (sub 25 Km/hour speed) need no motor license; in addition, their low speeds enhance the overall safety for seniors, and for women carrying children.
**: The health benefit could accrue from the use of pedelecs (pedal-assisted electric bicycles) that could be used for exercise bicycling by many in the upper strata of the society.
From among the segments, private fleets, LCVs, and government fleets present significant potential, as EVs can satisfy multiple needs for these segments. The potential of these segments is already well-known for most stakeholders. What is not clear is which drivers to use for these segments, and for what EV products, to offer maximum benefits to each.
The surprises from the above table come from the domestic user segments. There are two sub-segments that many OEMs do not focus on today – middle-class homemakers and fitness-focused individuals from higher-income groups. For the former, ease of use and safety are unique benefits that no other motorized vehicles provide. For the latter, pedelecs offer a “cool” way for fitness activities, a unique benefit not available from any other vehicle.
Apart from need satisfaction, here’s another important reason why the above segments have significant potential: for all of them, at least two of the three main challenges that electric vehicles have today (high cost, low range, long charging times) are minimal or non-existent with current technology and cost structures.[2] For both sub-segments under the domestic sector, none of the three challenges is significant[3]
For all the segments above, because EVs provide them clear benefits and EV adoption does not pose very difficult challenges, applying even moderate external drivers could significantly enhance EV market penetration. A startup targeting these segments could thus succeed even with a limited marketing budget and with only moderate help from the government.
| At a broader level, the key takeaway from the above matrix is that startups will do well to map the needs of user segments, and even sub-segments. Because, if segments, where EVs can satisfy clear needs, are identified, adoption for these can happen at a fairly rapid pace during the 2020-2025 timeline even with the current constraints and challenges, and with only moderate external incentives! |
EV Products
If there are end-user segments that can derive significant benefits from EVs even with their current constraints, what products could be ideal for each segment?
On paper, there is a wide range of electric vehicle possibilities. Many of these could succeed in the market if there are significant external incentives, or if there are some unanticipated technology breakthroughs, or if we simply wait long enough.
But, if we are keen to identify the products that have the potential for good market penetration under the business as usual scenario for the 2020-2025 period, they would be the following:
| 2w | 3w | 4w | Heavy Vehicles | Others |
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· Other micro-mobility vehicles, both for consumer and industrial segments |
Here’s a common thread that runs through most of the products in the list above: Many of these are “low-tech” and “low-feature” versions in their corresponding segments – low-powered scooters, e-rickshaws, small cars and mini-buses (the exception is e-bicycles which are targeted at the premium user).
These low-tech versions however provide clear benefits to user segments which are sizable; besides, their low-tech nature make them far more affordable than high-end EVs. Surely this a powerful combination to facilitate quick market penetration?
This dominance of “low-tech” and “low-feature” in our framework is contrary to what many startups and even many government stakeholders are aiming for – higher-end versions with higher power, high-end designs and premium markets.
Drivers
As the final dimension in our framework analysis, we explore external drivers that can accelerate EV adoption.
A range of drivers exist (and many of them are also being employed) to accelerate EV adoption. The prominent ones are listed under broad categories.
| Tech/Engineering/Design Drivers | Operational Drivers | Policy Drivers |
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* The Opex (operational expense) business model converts the upfront cost of purchasing an EV (a capital expense) into a recurring, operational cost (an operating expense). This is typically done by charging the user for using the vehicle, rather than for an outright purchase.
** Dynamic electricity prices, typically based on time of charge, could provide benefits both to EV owners (through lower rates) and power utilities (through a lower peak demand) by letting EV users charge their vehicles during off-peak times of electricity demand.
Except for a few drivers (government subsidies, testing etc.) that are not in the hands of private firms, the rest can be employed by any stakeholder, either directly or through partnerships.
The drivers listed above are well-known. What is challenging is to determine which of these drivers are to be used for which user segments and what EV products.
| Startups that combine their products with the drivers most appropriate for specific end-user segments can achieve significant momentum in market penetration even in the short run. |
The User-Product-Driver Matrix
We now know user segments that derive focus need satisfaction from EVs; we also know the various EV products with the potential to do well in the short and medium-term. Putting these together with the drivers, we arrive at the following matrix that shows the combinations that can have maximum impact on EV penetration.
| Domestic sector | Business/commercial sector | |||||
| Middle class home-makers | Wealthy Individuals | Private fleet for captive use | Private fleet for public transport | Private goods carriers | Government fleets for public transport | |
| Key benefits targeted | · Safety· Ease of use | · Green statement· Health benefits | · Economic benefits· Green statement· CO2 emissions reduction· Air pollution control | · Economic benefits· Green statement· Air pollution control· CO2 emissions reduction | · Economic benefits· Green statement· CO2 emissions reduction· Air pollution control | · Green statement· CO2 emissions reduction· Air pollution control |
| Product & details | E-scooters | E-bicycles | 3-wheelers, e-scooters | E-rickshaws, small electric cars | 3-wheelers | Mini buses |
| · Low powered e-scooters | · Pedelecs that can be used for micro-mobility and as exercise aid | · 3-wheelers for closed spaces – malls, airports, colleges· E-scooters for food ecomm companies· 3-wheelers for ecomm companies for local transport of goods | · Low-feature versions of rickshaws and cars | · Custom designed for space and ruggedness | · Smaller buses that travel short distances on each trip | |
| Drivers | · Design for utility· Low interest loans | · Design for aesthetics· Vehicle intelligence & analytics | · Battery swapping· Low interest loans· Dynamic electricity prices for charging· Opex model | · Fast charging for small cars· Battery swapping for rickshaws· Low interest loans· Dynamic electricity prices for charging· Powered by renewable energy | · Design for utility· Battery swapping· Retrofitting· Low interest loans· Opex model | · Fast charging· Battery swapping |
One driver we have not included explicitly in the above matrix is financial incentives in the form of subsidies or tax breaks. This is because financial incentive as a driver is relevant for all the above combinations, though its effectiveness will differ for each. Between the two main categories – domestic & business – financial incentives as drivers will be far more effective for the business/commercial sector than for the domestic sector.
Insights from the Framework
The above matrix is a key resource for startups and investors, as it lays out the pathways through which e-mobility adoption can be enhanced significantly in the short and medium term.
An analysis of the matrix raises some interesting questions
- Is low-tech the low hanging fruit? Sometimes, market disruptions can happen by using “low-tech” or “low-feature” products to cater to underserved segments (think low-cost airlines). In this context, our analysis brings up the opportunity in low-powered electric scooters that could provide unique benefits to home makers, especially women home makers from the middle class. Another example is low-speed e-rickshaws which, when combined with a battery swap model that takes away the battery cost, could convert the traditional manual rickshaw pullers into the e-rickshaw market (this is already happening in Delhi-National Capital Region).
- Electric vehicles for health? The forgotten niche of electric bicycles could have a far higher potential than acknowledged if only it is thought of differently. Electric bicycles, in the form of pedal-assisted versions that can be both pedaled and motor driven (pedelecs), can be specifically designed and targeted at high-income individuals, more as a product for their health & fitness than for mobility.
- Why not retrofitting? Our analyses also bring out the potential for retrofitting as a transition technology to quickly convert a sizable portion of commercial fleets into electric. Interestingly, quite a few e-mobility startups in India have recently started focusing on retrofits.
- Mini-buses instead of buses? While bus electrification could make a big difference to reduction of both air pollution and CO2, could mini-buses be the ideal starting point for this sector rather than large electric buses that are very expensive and will take a long time to charge? With services such as office commute service provider Shuttl becoming more popular, electric mini buses could have attractive growth markets.
- Sub-optimal incentives? If low-tech and low-feature products are the ones that can drive the market over the next five years, the current incentive structures from central and many other state government policies targeting premium versions appear misplaced. Incentives targeted at low-powered 2-wheelers and 3-wheelers, targeted at middle class home-makers and low-end passenger and goods carriers, might have been a more effective strategy to accelerate sales. FAME II actually did the inverse for the electric two-wheeler market, by making incentives applicable only to expensive vehicles that are more powerful with larger Lithium-ion batteries.
Takeaways from the matrix for the government & startups
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This post is part of a series titled “Taking India’s E-mobility to the Next Orbit” from EV Next Perspectives. See all posts for this series from here. See next post – International E-mobility Startup Trends.
The complete list of blogs in the series –
- Taking India’s E-mobility to Next Orbit – The Framework
- International E-mobility Startup Trends
- Indian E-mobility Startup Trends
- Take-aways for Indian e-mobility startups & investors
Know more on how EV Next can assist your business in your strategy for the e-mobility and electric vehicles sectors, Here
Wish to know everything about India’s EV market from one place? Check out the India EV Expert Guide, an 800 page comprehensive guide to the Indian EV market. Here
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