According to Tarun Mehta, lack of awareness and talent are the two key challenges faced by electric vehicle makers in India
Ather Energy Co-founder and CEO Tarun Mehta
When Reva Motors, arguably the first company to launch an electric car in India in 1994, rolled out its first model, the founder Chetan Maini was hoping to make a killing. However, the Bangalore-based company could not scale as expected and had to sell the business to leading automotive firm Mahindra Motors in 2011 before vending nearly 4,000 units across 26 countries.
Reva later realised that the timing of its entry into the Indian market was not right, leading to a staggering growth, as India was not ready for electric vehicles (EVs) yet and the benefits of market liberalisation were yet to reach the common man.
Things have changed for the better now. The mindset of people have changed, and the consumer has become more quality-conscious. More importance is being given to the environment and eco-friendly vehicles are getting huge acceptance.
Bangalore-based Ather Energy is leveraging this change. While a couple of electric two-wheeler startups like Emflux Motors and Twenty Two Motors have cropped up in the recent past, Ather has already attracted considerable eyeballs from the market and got the backing of Hero MotoCorp before its first model hit the market.
e27 recently met Ather Energy‘s Co-founder and CEO Tarun Mehta at its office to understand the business, market dynamics, and future prospects.
Reva Motors was the first to introduce electric vehicles (EV) back in 1995. However, it was forced to sell to Mahindra due to non-scaling. Has the situation changed now?
Reva was a pioneer and in many ways was much ahead of itself. It would have been pretty hard to make a viable EV a decade back. Battery prices were too high and electronics were not too cheap. At that point, there wasn’t really any supply chain. Though the supply chain hasn’t improved in the recent past, the prices of battery and electronics have come down and there is a huge positive push towards EVs, which wasn’t the case 10 years ago.
Building an EV company needs several hundreds of millions of dollars in capital, and raising such an amount seven to eight years back was difficult in India. Times have changed in past seven to eight years. Although raising capital is not an easy task, it’s definitely doable. It takes a lot of time. Reva had to sell itself because of the fact that the time wasn’t right as the market was still evolving.
The situation has changed drastically with battery prices dropping by one-third. There is an active government subsidy for this. In general, on the vendors’ side, there are many vendors who are open to the idea of working with EV manufacturers. Consumer mindset has also changed. Originally the thought-process was to convince the customers about the cost while selling an EV. This is a challenge because of the fact that it is not easy to sell an EV at a lower cost.
What has changed in the past 10 years is that customers have become far more open to the idea of buying an EV because it’s an EV, and not because it will save their money. Because of companies like Tesla and products like BMW i3, people have started seeing EVs as technologically more advanced vehicles as these vehicles are being launched with newer features.
This has become an advantage for EV manufacturers. A company like Ather, when we put out a smart vehicle first which also happens to be an EV, there is a far wider net that we are putting out. There is a larger customer base that is suddenly interested. Today, it’s most interesting time to build an EV company, as the government support is there, customers are excited and are willing to pay for an electric vehicle. Also, you are being able to produce an EV at the right cost.
While the Indian consumer has changed from being price conscious to quality-conscious, the per cent of consumers adopting EVs is still small…
That’s how every market works. No market starts by attacking 100 per cent of the addressable market, unless the entire point of the product is that it’s a cheap product.
Any new technology first targets itself towards a small niche market who would be the early adopters for that company, who will engage with the brand, the technology and will help spread the word. These early adopters will be okay paying a higher premium. One needs to start with that because if one tries to build a mass market product on day one, it would be competing with price with other established companies.
With a new product, new technology and new platform, one cannot be the cheapest as it’s too many things to come at a cheap price. It’s sensible for new companies to focus on a small niche customer as long as it’s an enough number to get started and get something out for customers to buy the product, and hence, helps one to establish a company/brand.
People who see these guys, who are generally the influencers, will start noticing them and that’s when people start imitating these early adopters. And when these guys imitate the early adopters is when the graph starts to grow.
Eventually, when one sees ‘n’ number of products in the market, a wider chunk of the market who is price-conscious will also be open to the idea of buying that product. And at that point because of the fact that one would have existed in the market as a brand for a couple of years, one would have been able to work out a lower cost of ownership and maybe acquisition, thus providing a far more viable product for a larger portion of the market.
That’s how every new technology breaks through. It’s difficult to find technology that comes out in the market and attacks 100 per cent of the target population or even the majority of them.
Lithium battery is the single-most component that adds to the cost of an EV. Why has there not been much innovation in it? How is Ather addressing this key challenge?
There have been quite a number of phenomenal improvements in the lithium ion battery sector. As I said, the price of lithium ion batteries has fallen drastically from about US$1,200 per KWH to about sub US$200 per KWH in the past 15 years. Energy densities have shot up by four to five times in the same time span. Power capacity of the cells has also improved. The lifecycle of these cells has increased by two to three times.
In the next couple of years, lithium ion cells will be competing with lead acid batteries in terms of pricing, while lithium ion batteries being three times lighter and smaller with much longer life and as the same price as lead acid batteries.
Lithium ion batteries have evolved drastically over the past few years. Are they enough to kill lead acid batteries? No, not yet, due to various factors including cost of capital.
Are they enough to make EVs viable and cost competitive with petrol or fossil fuel vehicles? The answer to that question is how you do the math. If you say, put the cost of the battery in the cost of the vehicle, and then can you build an EV which is exactly of the same performance and range as that of a petrol vehicle and sold at the same cost, that is impossible.
Because effectively when you package the cost of the battery with the cost of the vehicle, that means that you have you have provided six to eight years of fuel cost together. Because running cost of an EV is six to eight times lower than that of petrol vehicles.
You have to look at the total cost of ownership. One needs to find different ways of financing this, which is kind of financial innovation which is not too far away. If one is trying to eroticise the cost of the battery over the ownership, to a similar electric and a similar petrol vehicle, there is no price difference today. And as we go further, this difference will start to increase.
Which means, in EVs, if you remove the cost of batteries, it will turn out to be cheaper than that of petrol vehicles. This math is not noticed today because of the fact that there are few companies selling EVs.
India is a very complex market. What are the key challenges faced by EV firms?
As far as marketing goes, at this point, education is a pretty big challenge. The current electric vehicles available in the market have created a negative perception about EVs in general, because these are really poor-performing and low-speed vehicles. People just assume that everything that will come out will be of poor quality.
So to convince the consumers to pay a premium is going to be difficult. Every new EV company that is coming out in today’s market needs to fight this perception battle and convince customers that EVs are fundamentally better, and can deliver much better quality and much lower maintenance cost.
We, at Ather, do spend quality time on this. We did a couple of ‘open houses’ last year. Open houses are where we invite around 50-100 people and a good quality of time is spent interacting with them, giving them insights about EVs.
Another important challenge is lack of talent. It is not easy to find the right kind of talent in the EV ecosystem in India, especially engineering talent. Since we are fundamentally a product company today, talent for marketing, finance, product people, engineering folks, system architects, supply chain guys, and sourcing are all so different from what typical automotive companies have, it is not easy to build such a team. Just pouring money and hiring someone will not solve the problem. The talent doesn’t always necessarily exist. One needs to create it.
You have been in the market for more three years and are still a year away from rolling out the product. Why the delay?
It’s been 3.5 years that we have been in the market, building an automobile is typically a five to seven years’ job, especially when you are building a new platform. And if it’s technology, it would take even longer. We have been aware of a lot of OEMs who have been building EVs since 2005, and there are a handful that have launched in the market. Building a new platform comes at a very steep cost in time investment. Ather is no different. The reason we have been out there and are more visible is because we recognise that we do not have a brand, we are not known as a brand.
Establishing the brand prior to the actual launch of the vehicle would be like a brand recall. Thus, it is necessary for us to gradually spread information about the brand. Gaps need to be bridged by educating customers. And educating people cannot be done over a period of 3-4 months, it takes years and that is the reason why we started early.
You recently received US$27 million from Hero MotoCorp. What kind of a partnership do you have with it? Is it a strategic partnership?
It is definitely strategic partnership for Hero. It’s a pretty good deal for us because firstly we raise a good deal in terms of capital, and secondly, it gives us an investor who understands what building a vehicle is all about. Companies like Hero can actually understand the value of testing, engineering, the operations that is happening in the background and support their investee through those stages. We are however not sharing marketing, distribution, facilities, vendors, drawings, patents, technology, etc. Hero does advise us whenever we reach out.
How is Hero going to benefit from this investment?
At the root, it’s financial investment. Hero will not invest in any other startups because they will not understand those sectors. Hero will understand Ather as they are in the space. On the other hand, Hero is not building EVs. As the sector builds up, and key players like Ather lead the segment, no company would like to sit on the sidelines and miss the complete game. Even if you take your time to build your own facilities and get your product out, this will be a great way for Hero to get a foot in the door and have a stake in the success in the new sector that is coming out. So you have effectively invested in a sector that can potentially disrupt what you are today. That’s a phenomenally great investment you make.
Will you accept an acquisition deal from Hero?
It would be futile for them to come and acquire Ather. If Hero wants to acquire us and run the company themselves, they don’t need to acquire us. Because it’s their money and now they are acquiring Ather, then they can put the money in their own efforts and do it themselves. The reason they invested in us is because they recognised at some level this company has to be built in a different way, it has to have different incentives, has to have different people, culture, processes, approach towards marketing. Now, if Hero acquires Ather, there is no point.
From the market perspective when will India become a totally EV market?
Over the next decade, in the two-wheeler space, electric should become the majority of the market. However, as for completely EV, on all vehicle segments, it’s hard to make a prediction as India is a very complex market.
What are the technological innovations that you are bringing into the market via your scooter?
Some of the major differences in this vehicle are the fact that we have a lithium-ion battery pack. S340 (the first model) has a very high performance motor, and the battery life is significantly higher compared to anything in the market today. S340 has a touchscreen dashboard and a whole lot of software. Stuff that is not available in any two-wheeler today. That has an integrated experience, as it sinks with the riders’ smart phone. All the parts of the scooter speaks back to the dashboard and there is a constant communication between the parts of the vehicle. Data is collected onto the cloud.
In India you need to create a market. If you look at markets like Norway, China or the US, the market already exists. Then why don’t you tap into that markets?
It is important to sell in a market which you understand first and not go running after a market which you hardly understand just because theoretically that market accepts EVs. If a company has got its entire team in India, of Indians, who only understand the Indian mindset and the psyche and if you suddenly expect them to go and sell in China, the company will have a hard time. Just because you have put together a product that technically meets all specs doesn’t mean that the product can sell in a market.
Selling is a complete different ballgame altogether. Factors like how people respond to a product, what is that catches people’s attention, what is the right pricing, and what are the right features. It is important to launch from here and make this the home base and as the company matures, it then makes sense to look at other markets. There are interesting markets in Southeast Asia itself. But not jump out just because the market is right now seemed to be exciting.
Is there any possibility for self-driving two wheelers in future?
There are companies who have put together to put off those concepts many years back. Honda recently demoed a concept of a partially self-balanced bike in this year’s Consumer Enterprises Show. The challenge is that the original concept which is a truly self-balancing autonomous scooter is a very expensive proposition with the kind of technology we have today. It is very energy consuming so it would probably not come at a low cost. It might become an interesting feature in the next few years. Things like those will require ridiculously large number of testing and pagination. If someone built that today, it might roll out in the year 2019 or 2020.
What is the biggest learning that you have made in the past 3.5 years of you being present in the market?
One shouldn’t change the vision. There are a lot of pulls and pushes to change the founding vision of a company. If you look at it from a consumer’s point, if you realise that the vision was wrong, then it needs a correction. The vision needs to be built on something that I would call it as the fundamental truth. If we argue that in the next 10 years people are not going to need private transportation, that’s an important vision change. If 10 years later we end up concluding that people would only travel in public transport, then what we are building today will have to undergo a significant change.
The vision of the company will have to significantly mould itself for the new reality. But if I say in the next 10 years, people are not going to stop buying vehicles, people are actually going to buy personal vehicles that can be more personalised, understands them better, and allows more customisation. People are going to prefer a vehicle with a lower running cost, are comfortable to ride and needs lesser maintenance.
What is your advice to budding talents who are looking to plunge into hardware entrepreneurship?
If you are building a hardware company, raising an appropriate amount of capital and creating a prototype are very important, because the only thing that you can show as a hardware company is a prototype. Orders are not going to cut it. If you go out and sell stuff even before you have it, show the demand and come back and figure out that you will build it, it’s going to come back and bite you, because building a vehicle can take much more time than it’s anticipated. So it’s important to start building the product and one should find investors who will invest based on those prototypes and on the improvements on those prototypes. In my opinion, prototypes should be the highest priority in the early stages.
Image Credit: Reva Motors
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