In 1994, the world saw the launch of the first smartphone by IBM. This triggered a relentless march of technology with more than 30 companies, new and old, producing smartphones in 2005. Over time, only a handful of companies rose to the top to control the smartphone market, and today only five hold more than 70% market share. These companies, Samsung, Apple, XIaomi, Oppo, Vivo, squashed giants like Nokia, Motorola, Sony by developing a competitive advantage in a completely new technology driven market.

A similar story is going to unfold in the electric vehicle manufacturing industry in India. Today, India has more than 90 electric two wheeler manufacturers, 250 electric three wheeler manufacturers and the list goes on for battery suppliers and other players. More than 80% market share in electric two wheelers is dominated by start-ups. Over time, as is the nature of any market, there is going to be consolidation of brands, and a few will emerge as market leaders. The legacy players aren’t going anywhere and only a handful of startups will manage to squeeze into this competitive automotive market.

How, then, does one develop and maintain a strong competitive advantage or moat? Key to this is achieving the right combination of uniqueness and product differentiation as well as brand credibility and recognition. Given that e-mobility is itself in its early stages in India, any new player entering this space must contribute to building the overall EV ecosystem for consumers, such as creating charging and battery swapping stations, after sales services, and various other support needed to build and retain a customer base.

Let’s look at the different ways that a startup can create a niche for itself.

Product Differentiation

This is perhaps the most important way of building a competitive edge for startups. In a fairly new market, startups have the agility to experiment and design products that are unique and much better than the competition. For example, companies like Exponent, Log9 and The Energy Co. have developed batteries that function 4-8 times faster than the average available in the market, with twice the battery life. This product differentiation has placed these companies ahead of the curve in the energy storage space.

Fig 1 - Log9 chargers are 4x8 times faster than the market average, giving the company a strategic advantage through product differentiation

Product differentiation can be achieved in two ways. One is to vertically integrate the product by controlling multiple technical and design layers internally. This allows a higher degree of freedom to experiment with, but a longer time to market. Ather is a prime example of following this strategy. The company spent almost five years designing, testing and launching its first product - Ather 450. It focused on building engineering departments, testing facilities, a strong supply chain, and multiple processes before coming into the market. As a result, Ather is today one of the market leaders in e-two wheelers, and a recognised and credible brand. This approach, however, requires strong vendor relationships to achieve profit margins.

Fig 2 - Ather spent close to 5 years in designing, testing and launching their first product Ather 450, which positioned the company as a market leader.

Another approach is to become a component integrator and rely on strategic partnerships for batteries, motor, chassis, and other vehicle components. This reduces one’s degree of freedom, but ensures faster time to market. Bounce adopted this strategy with partnerships for battery and swap stations. As a result, the company could launch its product - Bounce Infinity - within a year, and achieve sales of 4,725 units.

Economies of scale

Economies of scale create cost advantages over competitors and can help achieve market leadership by launching cost competitive products. With mass production, companies can achieve a significant reduction in per unit costs. Most legacy companies in the automotive space such as Hero, Bajaj, and Tata, with well established R&D divisions and manufacturing plants, can reap the benefits of a strong brand, distributor channels and service networks to enter the e-mobility space.

However, given that the overall EV ecosystem in India, particularly charging infrastructure, is in its early stages, cost competitiveness may not be the best approach for differentiation. For a consumer to buy an electric vehicle over an ICE even if it is priced lower, the surrounding services required for operation are critical.

Switching cost or Customer stickiness

To understand this approach, let’s take the example of Gmail, which is the world’s leading email service. Existing email service providers or new ones would find it extremely difficult to eat into Gmail’s market share because its users are highly loyal to it. This is not just because of Gmail’s services, but the whole Google Suite created around it, which has its user hooked to the product and services. The cost of switching from Gmail to anything else is too high for a user.

Charge point operators like Kazam and Statiq who provide services to parking lots, RWAs, house owners, hotels etc are developing this kind of moat. Kazam, for example, offers to set up a charging point for the consumer, which is enabled to monitor power consumption, battery usage consumption, surge protection and many other parameters. All this information can be viewed by the customer through the Kazam app, which also provides information on all publicly available charge points installed by Kazam across India. This additional service through the app helps retain customers. In future, charge point operators can offer personalised and optimised charging experiences.

Fig 3 - The company Kazam installs “smart” charge points, which can be controlled through Kazam’s app, which also provided important data on battery usage, power consumption, and location of publicly available Kazam charge points.

Another example of successfully achieving customer stickiness is Battery Smart, which operates the Battery As A Service model. They offer batteries that are compatible with any model of an e-rickshaw, thereby being a more attractive option for the owners. Other swapping operators could also develop this advantage as their model revolves around customers getting hooked to their battery swap service.

Network effects

Perhaps the strongest of them all is network effects. Take the example of facebook. Given the number of users this platform enjoys, it opens opportunities for advertisements, operating marketplaces, and high business potential.

In the automotive space, BluSmart - India’s first all electric cab service - is somewhat creating this effect. With a current fleet of around 3,000 cabs, they are expected to turn profitable by the end of 2023. They are quickly gaining ground on acquiring users in a competitive cab aggregator market, which gives them the confidence to expand their EV fleets and drivers. With more cars and drivers available, they can reduce wait time and increase cab availability, thereby ensuring better customer satisfaction. This, coupled with a strong marketing and branding effort over Linkedin, their immediate target user base, puts them in a strong position to create this kind of effect.

Business models or pricing strategies.

Mobility is a hardware dominant industry. Until now, revenue was generated by the one-time sale of a vehicle/component and service (yearly). With electric vehicles becoming smarter, users expecting premium features, and technology pushing towards high data gathering, a company should adopt a user-centric approach in order to create high customer value, and create a situation of high switching costs for users.

Ather has achieved this by adopting a “box plus Subscription As A Service” business model, with its Ather One subscription. Here, customers purchase an Ather product once, but keep getting multiple software features using Ather One subscription.

Partnerships

Given the user needs are vast, it is nearly impossible for a single company to address all of them. Partnerships between companies can help create user experiences and fulfil consumer needs better and faster than as a single company. Some partnerships include,

• OEMs and Battery Manufacturer: Battery determines charging time and range of the vehicle along with its cost. An OEM can create a strong product differentiation compared to others by building a partnership such that exists between Altigreen and Exponent. They successfully launched the world’s fastest charging EV that gets charged from 0 to 100 in 15 mins. This creates a lucrative option for fleet clients.
• OEMs and CPO/Swap Operator: Charging infrastructure is a prerequisite for the growth of electric vehicles, and manufacturers are finding ways of providing a smooth hassle free experience to its customers. Partnerships like Piaggio and SUN Mobility, where the latter is providing swapping stations for Piaggio’s electric vehicles, is helping them create easy, cost effective last mile delivery solutions.

Human Capital:

Perhaps the least talked about strategic advantage is the need for an excellent tech and R&D team that can develop products faster, a business team that generates new orders and a service team that can resolve issues faster. Building human capital is perhaps tougher than it looks and can make or break a company’s future. Ather will always have that advantage where the culture to build and break things is encouraged.

Just like any other sunrise industry, electric mobility is going to see technological innovations, unique business models and partnerships. We are at the very initial leg of a logistic growth phase and this is the time to experiment and learn. The winners would be the ones who address customer's needs while developing strong competitive advantages along the way.

Prashant Rathee is the Co-Founder of The Energy Co., a start up offering fast charging solutions for electric mobility.