We have to develop the basics even as we embrace trends which will catapult our mobility services beyond developed countries.
Mobility transformation has been underway for the last century and will continue in perpetuity – and India has an opportunity to lead the way for the world. After all, our country is known for jumping ahead of the technology curve, skipping landlines for mobile phones and jumping over 3G to move directly from 2G to 4G connectivity.
However, mobility cannot follow a similar path. We have to develop the basics even as we embrace trends which will catapult our mobility services beyond developed countries. This will have a positive effect on the economy, on the affordability of real estate and the quality of life of our citizens. Allow me to reiterate: we have the opportunity to become a path breaker in mobility.
Mobility transformation is a perpetual phenomenon. We have evolved the art of mobility – from walking to wheels from ocean travel to air travel – over centuries, leading to the spread of ideas, culture and technology. This evolution came to define and shape the 20th Century.
Automobiles enabled the growth of modern urban centres and way of life, specially in countries like the US, where owning a white picket fence home with a car in the garage became symbolic of the “American Dream”. Aviation, accompanied by the internet and shipping, powered globalisation, global supply chains, and offshoring. These technology and business model innovations have unlocked economic opportunities and led to new cultural phenomena which continue to shape and redefine the world that we know.
As India stands on the cusp of the mobility revolution, it would behove us to remember that transformation occurs in waves. At the beginning of any new wave, a technology or business model innovation is accompanied by a flurry of activity. Activities peak before a brief lull as the “innovation” becomes commonplace and a natural part of the way of life for a larger number of people. Today, we are at the beginning of not one but multiple innovations in mobility. India has the opportunity to play a starring role in this transformation and become a major global leader as innovations move to commercialization.
Before we jump ahead to the latest wave of innovations that are transforming mobility, it is important to note that we still have a long way to go in terms of the basic infrastructure that enables mobility. Our road penetration is 7.7 lane kilometres per 100,000 people. In comparison, the US has 114 lane kilometres per 100,000 people while Japan – which has around one-tenth of India’s landmass – has 49 lane kilometres.
Similarly, our rail and urban mass transit systems leave a lot to be desired. As we look at new forms of mobility, its important to note that we will still need to build our basic infrastructure powered by rail, urban transport systems, and roads to sufficiently service the explosive growth in our cities. We may not need our systems to compete with the abundant freeways that service Los Angeles or the sophisticated metro systems in Singapore or New York, but we cannot fool ourselves by thinking that a city like Mumbai can be serviced with the current infrastructure in place. Thus, as we transform mobility, we will have to invest our time, money and patience (for construction-related traffic and detours) with constant upgrades to our road and intracity rail systems.
Now, let’s talk about the game-changing stuff that’s happening. Businesses, powered by the internet, are changing personal mobility. The growth in adoption for players like Uber and Ola accompanies the decline in car sales worldwide this year, including India; the country’s auto industry declined by more than 25% in September 2019.
These statistics indicate that ride-sharing is accepted as a replacement for ownership. The latest chapter in this story is the change from 4-wheels to 2-wheels, with new models emerging globally from Los Angeles to Pune. Consumers are swapping Uber rides for Bird scooter rides in Los Angeles, for Bounce bike shares in Bengaluru, or Rapido bike taxi rides in New Delhi.
Apart from this change in usage powered by mobile phones and the internet, we are witnessing another exciting change that is currently underway. Mobility is becoming electrified. As a result of increasing motor efficiency, improving battery technology, and falling battery costs, a carbon-based internal combustion powertrain can now be replaced with an electric power train.
Some countries have embraced this change by amending their own regulations. China, using a combination of laws and incentives, has electrified virtually its entire 2-wheeler fleet. It is now the industry leader that has created a rich ecosystem of auto component suppliers for EVs. As a result of this, China is arguably the leader in the 4-wheeler EV space and undoubtedly the leader in EV buses. EV grants in the US spurred the investment in supply and now all the top car companies in the world have announced plans to go electric with their entire fleet in the next 5 years.
Why is it that when companies like VW, BMW, and Geely (which owns Volvo) publicly announced that their entire production in the coming decade will switch to electric or hybrid, we have no such announcements from domestic car companies? Electric cars in the US are cheaper and higher quality than the electric cars in India. Electric scooters in China and even Europe are better than the ones in our country.
I believe we are falling behind due to a lack of capital, business models, ecosystem, and regulations.
As a result of numerous factors, Indian entrepreneurs do not have access to the same billions that Elon Musk was able to raise to fund Tesla, building a successful company in an industry with which he had absolutely no experience. Companies in the EV space find it is a near-impossible task to raise initial capital. Thus, most Indian EV startups are bootstrapped or have raised capital from incumbent auto companies.
An incumbent, whose core technology a startup is planning to upend, will defend their markets by investing in such startups and slowing the coming revolution. This is why VCs have existed. After all, no railway company has ever created an airline.
EV entrepreneurs, thus, have had to shape business models within the constraints of very limited capital. Companies have had limited flexibility to pivot and learn from their mistakes. One of the common gripes with EV 2W was the availability of parts and service. However, it makes sense when you put yourself in the shoes of an EV 2W startup which has focused all resources on growth and didn’t foresee the need – or have the ability – to set aside any reserves for service as it learns more about the business model. Having learned the lesson, the entrepreneur is unable to do anything about it.
An auto OEM needs a vast ecosystem to thrive. Our domestic EV ecosystem of parts and service providers, such as financiers and insurance underwriters, is very nascent. This means that OEMs selling EV products have to set up expensive international supply chains. They have to work across a host of complications such as language barriers, import duties, logistics and a larger working capital to get the parts they need to make their products. Eventually, when the product is ready, they find themselves unable to readily provide the financing that is critical to making the cash outflow palatable to the customer.
This has been further exacerbated by regulations. Financial incentives are a large part of it and were provided to consumers in FAME 1. As demand picked up and stabilised, we would have seen a rich ecosystem develop in India to support EV brands. In fact, as FAME 1 was starting to take effect, the demand was decimated by the change of focus in FAME 2 to support local ecosystem development. Ecosystem entrepreneurs find it hard to justify the investment when they see that volumes have dropped off from one year to the next as a result of the change in subsidies.
To spur EVs, we need to make risk capital mandatorily available to entrepreneurs through a government-backed, mobility-focused VC fund. Top calibre, experienced tech investors need to be made comfortable with high-risk technology investments and employed with the mandate to spur EV startups. The fund could operate in all ways as any other VC fund and would generate return for the government. This would also enable OEMs to craft business models where capital is not the limiting factor and would also enable ecosystem investors such as battery and motor companies to invest into developing technologies in anticipation of future demand.
In order to spur the demand for EVs, the government needs to adopt a focused approach. Rather than grants or subsidies for local manufacturing, focus on subsidies on the purchase of EVs. As the mobility-focused VC fund spurs local manufacturing, the subsidies would spur demand. In order to augment this, the government could also mandate banks to dedicate portions of their loan books to the EV industry – both for producers in the form of term loans and working capital, and for consumers in the form of consumer loans.
Non-financial incentives such as designated free parking spaces for EV 2W, like those found in many boroughs of London, will encourage use of these vehicles. Space is already a valuable commodity, so why waste it on something that pollutes our air and runs on imported fuels?
Entrepreneurs will have to do their part in order to channel investments appropriately and form business strategies that provide returns to their investors. For this, they would have to work together while they compete, in the spirit of building their own companies but at the same time building an industry from scratch. We would also have to explore new ways of working with our peers in ride-share and fleet companies to build products that satisfy their needs. With the change already afoot in moving from ownership to mobility-as-a-service, we would have to be flexible in our approach and nimble in our action. In doing so, we will support the change in customer behaviour from ownership to mobility-as-a-service.
Mobility-as-a-service is a popular term used to describe what Uber started. We all see it as the future but, in order for this to happen, we have to crack a profitable business model. The leaders in this space, from Uber to Ola, are losing money. EVs can help them get on the path to profitability, reducing their operational spends by significantly minimising their running and maintenance costs. In order to thrive, MAAS companies need EVs and EV companies.
Imagine waking up to the sound of nothing. An occasional horn maybe, but no engines. Imagine looking out and, instead of dozens of parked cars and bikes, we see bikes and cars silently zipping past on empty streets. Imagine looking at the paper that morning and seeing the list of top ten most polluted cities and not seeing a single Indian city on that list. Imagine seeing India at #1 on the list of countries making EVs.
Author: Atulya Mittal is the founder of Nexzu Mobility, one of India’s fastest-growing electric vehicle manufacturers that builds products with an aim to reinvent the urban electric mobility space.
Disclaimer: The views and opinions expressed in this article are solely those of the original author. These views and opinions do not represent those of The Indian Express Group or any employees.
Source: The Financial Express