E-Mobility, CleanTech, FinTech & Digital: Nexus in India

Disclaimer: The views expressed here and other social media are personal and meant for information/education purposes only and not representative of his employer directly or indirectly and not investment advice. Any mention of company names are for illustrative examples only.

This is part of a series of public articles on e-mobility: Electric Vehicles & Ride Sharing Economics, Commercial Fleet EVs - Stealth Revolution, Towards Ubiquitous, Affordable, Ultrafast Charging, Electric & Autonomous: Synergies for a TaaS future, Towards Scalable EV Charging Infrastructure (Think Outside the Gas Station Box), Towards Scalable EV Charging: Hidden Costs of Level 2 Charging at Scale.

I update / build upon ideas on e-Mobility in India and beyond in older articles: "Shared EV Transportation in India", "Solar + Ola! = Sola! ... The Coming Energy-Transportation Nexus in India", "Ola! e-Rickshaws: the dawn of electric mobility in India", "How Electric Scooters,... can spur adoption of Distributed Solar in India", "Meet Olli: Fusion of Autonomous Electric Transport, Watson IoT and 3D Printing", "Tesla Model 3: More than Yet-Another-Car: Ushering in the Energy-Transportation Nexus".

Remember solar used to be VERY EXPENSIVE, and now it is an affordable wholesale service (more precisely a long-term subscription or power purchase agreement/PPA), and increasingly a retail / subscription offering even in a distributed energy context. Circa 2016, I also heard statements that electric vehicles and EV charging infrastructure in the context of transformation transformation is VERY VERY EXPENSIVE, especially in India. But nowadays the comments are downgraded to just "VERY EXPENSIVE" or just "EXPENSIVE" or doubts about "Who will invest in charging infrastructure" ?

As I have outlined in prior articles, the folks making these statements are both RIGHT (in the very short term at the time) and WRONG (they underestimate the power of innovation, learning & business models compounded over time): what is very very expensive can become affordable if backed by a combination of inexorable technology forces and a fast-learning & expanding supply chain, and as-a-service business models that distribute the fruits of these innovations to consumers & businesses quickly (think of the super-computer in your pocket called the smartphone, supported by an affordable 4G wireless data service, and a range of digital software services offered by the ecosystem!). They also under-estimate the rate at which the urban ecosystem in India will adopt such solutions once TCO breakeven happens (and hint: it just has happened!)

E-Mobility in emerging markets like India is similarly at a total-cost-of-ownership (TCO) breakeven threshold (with a 3 year payback / NPV period), and will see rapid adoption over the coming years, especially spurred by fleets and by an ecosystem of "as-a-service" providers who blend in the benefits of digital, fintech, cleantech and e-Mobility ("NEXUS") and unleash the cumulative power of these different forces. In prior articles I have separately explored the impact of digital, mobile, IOT, AI/ML (on sustainability, agriculture, living products (industry 4.0) to drive rapid orchestration & learning), fintech (cashless/digital finance (UPI/wallets), blockchain to drive finance into the whole economic pyramid of India and in specific sectors), cleantech (solar, wind, storage and how it interplays w/ coal, electricity grids via economic, policy linkages), and e-Mobility (ubiquitous affordable ultra-fast charging, adoption of EVs in ride sharing fleets (Uber, Lyft, Ola etc), the stealth emergence of commercial EV fleets in major & emerging markets). This article is a quick (detailed, but non-comprehensive) update of technological status, economic and market drives, & market players.

Outline of Article:

• Indian economy is fast growing but at lower purchasing power, higher cost of capital is a deep market well suited for scalable / affordable services, especially transportation which is fundamental for economic productivity.
• Urbanization is a secular trend in India, but throws up externalities of pollution, traffic, poor infrastructure, and real-estate costs. The electricity grid operated by DISCOMs is also weak (technical/non-technical losses, power cuts) but e-Mobility complemented with some distributed solar/storage capacity is a net positive.
• Tech Trends & Supply Chains are driving sustained 15-18% learning rates, and spillover benefits from policies and advances in other markets (China, Europe, US).
• Digital infrastructure is growing faster than physical infrastructure and is far cheaper. This is driving the growth of digital financial services, and digitization (IOT etc) to transform / enable new innovative fintech-driven business models to broaden asset financing, asset insurance and lower operational risks/costs.
• Urban mobility entrepreneurs are poised to distribute and deploy tech-driven services to the mass markets in tier 1-4 cities and towns with a range of exciting offerings, and mobilizing an army of driver partners and asset financiers.
• Personal e-Mobility and micro e-mobility will transition from a pure ownership model to also include flexible subscription (eg: "Monthly pass") & point/point transactional models (eg: Yulu (review), Bounce, Vogo, ZoomCar). Communities and Franchise Partners could be new locus for a "zoned e-Mobility network" model. There will also be growth in e-Mobility based flexible pooling especially for repetitive use (eg: office commutes) attached to flexible, granular, multi-modal transportation subscription models with transactional add-ons for heavy usage. Local digital marketing will add more monetization opportunities for transport fleets that have have an engaged digital customer base.
• Cloud Moment coming in the B2B Logistics sector via E-Mobility: E-Commerce (Amazon, Flipkart), Logistics & Food / Groceries (Delhivery, BigBasket, Grofers, Swiggy, Zomato), Local Chores-as-a-service (Dunzo) and Local Services (UrbanClap etc) will be early adopters of e-Mobility, and Commercial EV fleets will experience cloud-like growth since the high fixed cost / low variable cost characteristics will drive up adoption once TCO breakeven is cross (Hint: it just has!).

Economic / Market Fundamentals: India

The Indian economy is fast growing fifth largest economy (~$3 Trillion ($10.5T in PPP terms) and modulo short term bumps will remain fast growing for decades (7-8% real growth; and 10-12+% nominal growth rates). Faster relative growth of manufacturing and services (compared to agriculture) is driving urbanization (34% of 1.3 billion or over 442MM in 2018) and likely to increase 41% by 2030. The largest cities will be comparable by 2030 to middle income countries (see McKinsey graphic below).

Finance Costs, Risk Premiums, Payback Horizons: Due to relatively higher levels of inflation (and interest rates) compared to developed nations and risk premiums, the cost of capital is higher {eg: average of 13-15% for good companies, and 8-10% for homes & long term infrastructure}. Due to a reliance on banking (which was historically nationalized & structural budget deficits at the centre and state levels), the long-term finance capital markets (bond markets etc) are in earlier stages of development.

This means that investors demand shorter payback periods and higher interest rates. The moral hazards, legal and policy framework for finance, bankruptcy, asset recovery is also work-in-progress and the historic unreliable nature of counter-parties has resulted in non-performing assets (NPAs), and increased risk premiums. This has led to huge growth of services businesses (eg: pre-paid affordable voice / data top ups instead of credit / post-paid; and very small ticket transactions, short-duration subscriptions (eg: daily / weekly / monthly). These service businesses specialize in raising capital, accumulating assets directly or via franchise/partnerships (eg: spectrum, towers, cars, hotels etc), build a great distribution to hundreds of millions of customers and amortize the asset costs over a very large customer base that is starved for substitutes and is very demand-elastic (low / value pricing will drive immense scale).

Urban Infrastructure in India: Urbanization poses a number of infrastructure challenges in India which has traditionally had trouble scaling up physical infrastructure in a socialist governance framework. Roads are riddled with potholes, the road capacity is not commensurate with the growth in 4-wheelers, Public transportation / metro lines are slowly being deployed (but face land acquisition and other execution & financing challenges). Political aspects of land ownership, black money nexus also play a role in real-estate costs. Finally congestion & traffic not only sap productivity, but combine with pollution (and increased human exposure) to have a direct impact on health and quality of life.

E-Mobility Opportunity for Urban Infrastructure: The need for clean, flexible, affordable, sustainable transportation has to be solved simultaneously with handling the externalities of traffic, congestion and pollution in the context of slowly provisioned public infrastructure relative to the growth of urban India. E-Mobility offers zero tailpipe emissions (both for health and climate change/sustainability), and 2019/2020 was the year of TCO (total cost of ownership) breakeven; with a balance of higher upfront capital cost (CAPEX) and very low OPEX (~80% lower fuel and maintenance costs). With an 18% learning rate (i.e. reduction in costs per doubling), the capex of vehicles is coming down fast (since 50-60%+ of the cost of the vehicle is the battery pack).

In higher finance cost markets, like India, it therefore makes more sense to have a modular architecture with either the battery pack being either sold separately as a service / lease or as a swappable construct and a network of affordable swap stations, which also feature some local solar / storage captive generation to offset grid issues (see below). As battery pack sizes reach critical mass of capacity, and lower unit costs, the swapping could done less frequently, and complemented with home charging. A couple of operators successfully doing this at scale are Yulu (review) and Sun Mobility. Ultimately this could transition to ubiquitous ultrafast affordable charging as will happen in western economies (see earlier article in E-Mobility series which details this trend).

To think of an analogy: consider your smart phone and battery: originally it started briefly with battery swapping; but pivoted over to fast charging. To get more juice, there is a complementary set of products such as car charging sockets; power banks etc.

While the concept of battery swapping is interesting and could make economic sense overall to the customer; it is not totally obvious if the supply chain participants can cooperate to make it happen. More specifically the value will be accrued to the party offering battery swapping as a service; however the OEM is not necessarily incented to participate in that value and they would not voluntarily want to do it, unless they integrate vertically/downstream. We are seeing examples of where the battery swapping operator is spec'ing vehicles made to their design specs (I.e. ODM style commodity manufacture); or OEMs doing limited ventures or deep partnerships emerging in a few niches. The long term stability of such business arrangements (especially where one party doesnt fully integrate / control the supply chain) is an open question.

E-Mobility Tech Trends, Supply Chains, Players: E-Mobility is being driven worldwide by a sustained lowering of costs of energy storage, power electronics and energy conversion (motors, AC/DC & DC/DC power conversion, drive trains), combined with deep IOT instrumentation that allows continuous, granular observability, dynamic re-configurability from the cloud (i.e. remote operational control/ OTA upgrades), local autonomous learning/control, and remote fleet-level learning & AI/ML (software-driven learning curves in operations). Deep instrumentation with IOT delivers the data, AI/ML learns from data, autonomous systems convert this into feedback control/upgrade loops. This dynamic cycle and combination of IOT, AI/ML and Autonomous control allows products to fundamentally become "living" products that become BETTER over time in terms of values delivered to the user, and potentially monetizable in partnership with the technology provider. This is one of the end-states of Industry 4.0.

As a result of these advances and investment in scalable "Gigafactories", the costs of battery packs and drive trains in the industry are coming down at the learning rate of 15-18%, i.e. for every doubling of production (aka Wright's law). The learning cost benefits accrue to the companies like Tesla who invest in this production, integration and constant learning, and more broadly in the battery manufacturing ecosystem of players (eg: CATL, Samsung, LG Chem). BNEF (Bloomberg) estimates a 18% learning rate (see picture below, credit BNEF): "Battery prices, which were above $1,100 per kilowatt-hour in 2010, have fallen 87% in real terms to $156/kWh in 2019. By 2023, average prices will be close to $100/kWh." EMobility in India will be a beneficiary of these economic spillovers, however it is important to jump start unique business models and battery pack packaging and as-a-service models to suit our unique technical and economic conditions.

The global EV trends, drivers (technology, learning curves/supply chains, government policy push, and relentless well-financed disruptors) and the virtuous cycle in growth of electric vehicle miles traveled (VMT) are outlined below. As Tony Seba has famously asserted, once the TCO cross-over happens, commercial fleet economics takes over and there will be a large growth / inflection in the adoption of commercial EV fleets.

Energy Use Fundamentals for Transportation: Before we get into details of vehicle economics, it is useful for the reader to consider delving into the technology trend fundamentals. An evergreen resource for this is (late) David MacKay's "Sustainability without the Hot Air" online book which has chapters on transportation, cars etc and a brilliantly simple analysis of how much kWh (energy) is needed to move a person for 1 km or 100 km for either personal mobility, shared mobility or public transportation mobility options. For example a car requires 160-200 Wh to carry a single occupancy passenger for 1 km (i.e 1 kWh gives 4-5 km or 20-80 kWh for 100 km). Matt Joyce has estimated a normalized "core efficiency" metric kWh/Range/Weight for different cars and reproduced below.

In comparison a 2-wheeler scooter requires 50 Wh for 1 km (i.e. 1 kWh gives 20-30 km) (5-6X more "transportation productivity" for the same unit capital invested in kWh of battery). Here is an extract from David MacKay's book:

1. In short-distance (urban) travel with lots of starting and stopping, the energy mainly goes into speeding up the vehicle and its contents. Key strategies for consuming less in this sort of transportation are therefore to weigh less, and to go further between stops. Regenerative braking, which captures energy when slowing down, may help too. In addition, it helps to move slower, and to move less. (Note: resonates with urban India patterns!):
2. In long-distance travel at steady speed, by train or automobile, most of the energy goes into making air swirl around, because you only have to accelerate the vehicle once. The key strategies for consuming less in this sort of transportation are therefore to move slower, and to move less, and to use long, thin vehicles.

Therefore in a higher cost-of-capital country like India (with shorter payback periods) and a lot of urban commutes, 75% of market in 2-wheelers (which requires lesser capital per vehicle), electrifying two-wheelers and shared / public transportation {three-wheelers, office vans, ride-sharing, point-to-point scooter sharing, buses etc) makes a lot of sense, with a preference to decouple the battery economics from the "shell" of the vehicle (eg: battery swap / lease models).

E-Scooter Fundamentals & Economics: A typical scooter (2 wheeler) in India has a battery pack of 2-3kWh for a range of 75 km city driving (note this is much smaller than 50-60 kWh common in 200-300 mile range electric cars launched in US). At a $200 / kWh, the pack ALONE will cost Rs. 42000 (almost the price of a new scooter); and at $100 / kWh it will cost Rs. 21000. The expected calendar life is 5 years in Indian conditions, and cycling is about 800-1000 full (deep discharge cycle) which gives an aggregate range of 75000-10000 km (and probably 1.5-2X that if you do shallow discharges of 50% or less). Energy density is of the order of 200 Wh/kg. Leading companies like Tesla are seeing an even faster improvement in costs. As there is progress on all these metrics (beyond the price), it will lead to a compounding effect: smaller batteries, longer range (or smaller pack / less cost / higher margin for a given range), longer life (calendar & cycles).

In addition to the battery pack, the simpler drive train (much fewer moving parts) increases reliability and lowers operational service costs by 70-80%. Electricity is more efficiently converted to kms-travelled. For example, diesel / petrol costs ~Rs. 70 / litre (roughly $1/litre), and can deliver about 40 km of real-world range in a heavily used scooter. This implies cost/km of Rs. 1.75 / km (just for raw fuel costs). Adding on other operations costs leads to about Rs. 2.5-3 / km at the low end, and likely closer to Rs. 5 / km in practice.

In contrast even at Rs. 10 / kwh (high end of electricity prices), 1 kWh will give 25 km and a 3 kWh pack gives ~75 km in eco mode (source: Ather Energy & private communications). This implies a cost/km of Rs. 0.4 / km. Even at a "raw" comparison, this cost of Rs. 0.4/km is 77% lower than the Rs. 1.75/km for diesel. In addition it is easy to pilfer / steal diesel in real-world operations.

An easy-to-swap architecture will allow pilfer-proof, quick swap and assets that remain in service with a modestly large battery pack that can run for a day or more: which forms the basis for a e-Mobility-as-a-service play. For instance at an average speed of 20 km / hour, to exhaust a 75 km rated battery pack will require 3.5 hours + of continuous running. In practice Bounce is seeing usage of about 50 km / vehicle / day (which is well within the range of commercially available battery packs today).

The cumulative compounding effect of both declining unit capital costs, better performance on each key metric, and lower operations costs along with flexible integration into drive trains, battery swap architectures will lower total cost of ownership (TCO) in multiple ways. This can either be packaged as customer valued features, and/or used by an asset-owner to deliver / broaden e-Mobility services. Sun Mobility is a pioneer in battery swap models whose services are being used in partnership with Indian Oil (swapping at gas stations), Uber, Smart-E and Ashok Leyland (bus pilot in Ahmedabad); and auto OEMs like Piaggio. The idea of battery swapping is also used in business models by Yulu, Bounce, Ampere (Greaves Cotton) and others.

The opex savings (eg: 70%) will have to pay for the differential in capex, net of any subsidies and incentives. At this point, due to the immature battery manufacturing / integration ecosystem, and low economies of scale (lower unit volumes), the capex costs are higher (eg: Rs. 60K - Rs. 1.5L for a fully capable scooter) post subsidies. The Revolt RV400 has a Rs. 4k/month subscription plan which works out over 3 years to Rs. 1.45 lakhs (and about Rs. 1.1-1.2 lakhs in present value terms after subsidies for the lessor). If costs to build the vehicle is Rs. 1 lakh initial, it still is a 21% Internal Rate of Return (IRR) even w/o subsidies capture or residual value capture considerations. Over time as the brand sticks and the Average Selling Price (ASP) or Avg Recurring Revenue (ARR) does not fall significantly, but costs fall, then IRRs will shoot up (eg: at Rs. 80,000 cost, IRR goes up to 36%). It is better to build a premium product and sell it as a recurring revenue service with premium positioning if you can pull it off.

In comparison ICE scooters cost Rs. 40-60K. This represents a capex differential today of between Rs. 50-75K. At Rs. 1.35 / km opex (fuel savings differential) and perhaps a Rs. 2/ km (all-in OPEX differential), this implies a simple break even of 25000 - 38000 km from a TCO basis. Remember that 100 km / day for 300 days / year = 30,000 km; but who does 100km? Its usually the B2B logistics sector or shared passenger sector. Notice earlier I mentioned that the battery itself in the first generation lasts for about 100-150K km and 5-7 years depending upon the depth of discharge of battery cycling. As there is more action in the market, there will be a combination of improved operational experience and more ruggedized products at lower costs which will make economics even better especially for the premium priced segments.

Currently such a differential (and 5-7 year life) makes economic sense for high number of km driven; and/or premium branded positioning for personal mobility. However the capex differential is dropping significantly YoY since the battery costs (which account for 60%+ of costs) are dropping by 10-15% per year and the combination of values and battery attributes will result in a 5-10% annual drop in overall costs of a electric vehicle (not accounting for economies of scale). The calendar life and cycle life are also improving at about 3-5% / year.

The value-priced scooters also have tradeoffs in terms of performance and/or reliability. Another model is where the manufacturer is partnering with the end user (consumer) or B2B user in an as-a-service model (eg: bundled subscription service) and overcomes the cost deficiency via cost reductions in incremental units of production while retaining the subscription price. The time to build up brand, distribution, and attack premium personal use, and niche shared use markets is now.

In India we are hence seeing a rapid growth of players like:

• OEMs (scooters, cars, autos): Ather Energy (premium branded experience e-scooters & charging network (Ather Grid) in key metros), Revolt, Okinawa, Hero Electric, Bajaj Chetak Electric, Ultraviollette, Ampere (acquired by Greaves Cotton). Besides product differences, they also are a study in interesting business models (eg: Upfront + premium service bundle model in Ather, Subscription-only model by Revolt). They also have different distribution models - flagship hubs/show rooms, online booking / purchase (and pre-reservation), and direct-to-customer relationship etc. A subscription model also helps the user by bundling in a bunch of services, and simplifying the ownership experience without a long term lockin to a lease. In the car segment, Mahindra Electric has been a leader with products like the e20 and eVerito used by Lithium Urban (based upon their Reva acquisition). Mahindra is actively promoting their Treo product for auto-rickshaw segment (see below). Recently Tata Motors has launched the Nexon at a 14L price point (~$20K which will start opening up the high end customers and B2B fleet market); and MG has launched a higher end product. Hyundai Kona has also entered the country.
• Infrastructure-as-a-Service: SunMobility (battery swap architecture and interchange station services), Ola Electric. They typically try to combine local energy generation, with battery swapping for a class of partner vehicles. One big challenge in battery swapping was to get cooperation of the OEMs making the vehicles (this was one big reason for failure in addition to inconvenience and capex concerns in Western markets); however in India the focus on reducing overall TCO (total cost of ownership) to launch the overall e-Mobility ecosystem has allowed the infrastructure service providers and OEMs to partner in a win-win manner. Time will tell how stable the partnerships will be.
• e-Mobility Transportation Service Providers: Yulu (review), Ola Electric, Bounce, Vogo, Zoom Car, Lithium Urban Mobility (review), Blu Smart Mobility. Many of these companies have carved out niches (eg: Yulu in electric bikes/small form factor; Bounce and Vogo in point-to-point services; ZoomCar in self-drive cars; Lithium in managed office transportation etc). As some of them venture to integrate niches into mass markets, it will likely lead to some tie-ups and combinations. For example, Uber India is pursuing a partnership strategy where they are focussed on the digital platform, user experience and distribution and have SunMobility and Yulu as operational partners for pieces of the e-Mobility puzzle. Blu is distinguishing itself with a simplified pricing (Rs. 149 anywhere within Gurugram); and premium customer experience promise (no cancellations by drivers, who care for your safety etc); and they raised a funding round from a well known Bollywood family office (Deepika Padukone). Quickride (though not an EV company) is pioneering pooling in customer vehicles at a low / affordable price: UberPool and Ola Share are also popular: these will become more interesting with "shared transportation" modes with EVs.
• Form Factor Cambrian Explosion Coming!: In many northern India cities there is a rapid growth of electric rickshaws (perhaps in part fueled by cheaper / free power ?!). A number of e-Rickshaw operators (individuals). Yulu has pioneered a smaller form e-Bike factor very successfully in cities like Bangalore. Yulu's miracle e-bike has a 25 km/hr top speed limit; and probably has a ~2 kWh battery pack that is swappable giving a range of about ~50km perhaps. Mahindra has introduced the Treo and Bajaj has introduced Bajaj RE Electric (ranges 120-130 km). Both use 48V battery packs and swappable batteries. Both claim running of 50 paise / km (similar to our computation for scooters, but the assumption must be average slower speed despite the weight); maintenance cost expected at 10paise / km {3X improvement or 65-70% opex cost reduction}. Initial pricing is around Rs. 2-2.2 Lakhs compared to around Rs. 1.5L median price of regular ICE auto rickshaws. Given opex gains and smaller cost differentials, and heavy usage, we should expect rapid growth and adoption in the e-rickshaw, auto-rickshaw and last mile LCV / delivery segments which don't carry heavy loads (see below). Smart-E is an organized operator of such a 3-wheeler public service starting in the Delhi/NCR market (especially for the last mile connectivity to metro services and short distance trips).
• E-Buses: Electric buses have been the fastest adoption driven by public policy in China. In India, they have been slower to take off, with the government waiting for costs to drop, and the road infrastructure/urban traffic conditions limiting the number of kilometers driven (a key factor for per-km cost economics). In Ahmedabad, the combination of BRT (bus rapid transit) which allows more km to be driven, and new buses and business models trialed by Ashok Leyland, a number of lessons have been learnt. Further the government's FAME-II incentives has a sizable allocation for buses, but only for contracting with public sector bus operations (source: RMI & Niti Aayog). Going forward the ability to leverage second-life of battery packs from larger vehicles like cars and buses to lower depreciation costs (and hence leasing), and innovative ways of lowering charging costs (eg: via sharing charging infrastructure, or battery swapping), and even sharing buses for alternate use cases (eg: to amortize capex over large number of km) is important (especially for private bus markets which cannot access the incentives). Covid 19 has put a dampener into shared / public transportation modalities which hopefully will lift over the next year as vaccines are found or herd immunity allows us to move on from the pandemic.

• Cloud Moment for (Last-Mile) Logistics: The last mile delivery sector involves several well-financed new-age companies, and these would drive a transition to E-Mobility and the ecosystem is gearing up for a massive replacement cycle. For example Amazon India has made an announcement of 10K electric vehicles in its fleet and Jeff Bezos showed up in a short youtube video. We should expect similar moves from other e-commerce players (Amazon, Flipkart, Snapdeal), Logistics/Couriers (Delhivery, DTDC ), Food, Grocery (BigBasket, Grofers, Swiggy, Zomato), Local Chores (Dunzo) and Local Services (UrbanClap) etc. In all these cases, the platform companies partner with individual entrepreneurs who often bring their own vehicles. There needs to be an initiative to have company leased vehicles etc and the economics / operational support for battery swapping & services / backup vehicles needs to be in place to ensure a seamless transition. However these would drive a meaningful change in overall urban carbon emissions and pollution and set an example, and pave the scale/scope economics for more broader personal emobility adoption. Logistics TaaS (transportation-as-a-service) displays a lot of unit economics similarities to cloud but in a "mobile" and "distributed" context (granular/modular building blocks (EV, charging infra), capex heavy with huge scale economics, low opex, network effects in distribution and adoption, declining cost curve for next decade or more (driven by battery cost learning curves))
• EMobility SaaS players: As the ecosystem is fast moving, there are also pure software / middleware companies emerging to help intermediate / enable this complexity of business models. For example Numocity offers intelligent cloud based middleware stack (SaaS offering) for Electric vehicle charging / energy infrastructure. The middleware platform provides IOT enablement of existing equipment and cloud based analytics, business policies and workflows for accelerating adoption of E-Mobility.

Potential Opportunities / Challenges with Adjacent Markets/Technologies

Digital: Most of the vehicles have simple to use apps and keyless entry / QR code user interfaces (see examples of Yulu, Bounce interfaces below). There are additional modalities like "Scan-to-Book" using QR codes or Vehicle Registration (Number) Plate. Another possibility is an OTP (one time password) based keyless entry where you get an OTP when you book the vehicle on your mobile phone and you punch it in to unlock the vehicle and punch out once your finish your trip.

There is more innovation happening around digital at the intersection of maps, location, traffic information, commerce to enable new business models. Given users are comfortable with smart phones, touch screens, there is an opportunity to have docks for user phones (and chargers), and also embed maps and rich location-based digital services that allows a flexible combination of business models / monetization options (eg: marketing/advertising, transaction charge, subscription).

For example Ather Energy scooters have an excellent, connected 7" smart dashboard (and mobile app) that includes Maps and navigation (see original 2016 article making a case). It not only gives you navigation information, super-responsive, but also stores documents (eg: digital vehicle registration / insurance information), calls, music (!), charger network (AtherGrid) locations, safety remote support, trip level information -- pretty much a mini smart phone integrated into the scooter (has a Qualcomm Snapdragon chip as well!).

More importantly, Ather has also blended it nicely into post-sales as-a-service / subscription models. Ather has a base subscription fee for basic connectivity and services such as maps; and a premium subscription service based upon a bundle that also includes access to charging (including home charging).

Ather is focussed on personal mobility and individually owned vehicles. There are other possibilities to enable subscription business models for personal mobility (provided by Ather itself), or Bounce (month-by-month rental/lease). Beyond subscription bundles, the platform can enable other business models that blend transactions, marketing (advertising etc). For example, a Uber / Ola / Bounce ride could include real-time coupons based upon user routes and pickup on route. Pricing could be a function of distance and time, or just based upon time. The ability to flexibly adapt prices based upon availability / surge characteristics can allow yield maximization; and flexible business models. Beyond this, there is also opportunity for real-time gamification where users can be incented or engaged actively to take longer / less congested routes to also deliver societal benefits; and/or take routes which are "healthier" in terms of real-time air quality.

Multi-modal transportation bundles and promotions (eg: Bounce scooter ride to metro station and a discount on the metro ride), and incentives for repeat use (either via subscriptions, cash backs etc), and loyalty programs/partnerships can be easily integrated on a digital platform / super-app / core app structure.

Docked / Zoned vs Dockless Models: One of the attractiveness of point to point transportation is the flexibility to park / leave the vehicle literally anywhere (legal parking). However, this raises the complexity for operators to recover the vehicles and reposition them or refuel them. There are also many cases of vandalism, aggressive driving and pilferage of fuel (or inaccurate monitoring of fuel levels leading to user dissatisfaction). User incentives for fueling (and subsequent verification/credit) also require robust IOT sensing (ideally real time).

Some operators like Yulu (and Vogo I hear?) are pivoting towards a more zoned or "docked" model where the vehicles have to be picked up / delivered to specific zones or "docks". This raises user inconvenience issues, but significantly lowers operations costs. Operators are experimenting with the right balance / hybrid models where in key hot spots / parking challenged (eg: office parks etc) a parking zone is created for specific operators. Another potential model is to partner with franchisees who will operate / aggregate vehicles within a zone (eg: refuel it). An option for real-time streaming or even image capture at regular intervals could help with vandalism and security / safety. In the context of e-Mobility, these "docking" / "parking" / zones can also be locations where battery swap can be done intermediated by secure remote monitoring and local franchisee operators. Communities and apartment complexes are another potential locus for docked models - however the tradeoff is lower utilization of vehicles and radical decentralization beyond simple hubs / zones / docks.

Fintech

Digital/Mobile payments is an area India has made incredible strides. Nearly half of all digital payments today in India is occuring over the Unified Payment Interface (UPI) introduced in 2016 by NPCI. UPI is indeed revolutionizing cashless finance, even beyond the optimistic forecasts of cheer leaders including myself! Payments and micropayments are now a commodity service; money remains in trusted bank accounts (helping CASA of bankers) complemented by digital wallets (which are rediscovering niches as value stores for coupons, loyalty, marketing & cashbacks). We already saw how the reservation / keyless access to vehicles is facilitated via QR codes and/or Scan-and-Book methods.

Multi-modal Bundle Ticket /"Transportation Pass", Credit & Financial Reputation: The power of cashless payments on the long run is tremendous in several ways. First UPI can be seamlessly integrated to create a multi-modal transportation journey (eg: pt-pt ride share + scooter-share + public transportation), or used to claim coupon discounts (and performance marketing payments). The trail of payments allows credit evaluation for flow-based finance and building a "financial reputation". For example a person regularly commuting between a pick up point and a technology park; or from a tech park to an apartment complex can be mapped into a social economic strata, regularity of income. The time of commute (eg: leave early, come back early) correlates to value/discipline, which in turn correlates with credit behaviors.

Insurance / Safe User Credits: The usage patterns of your rides (figured out via IOT - rapid braking, asset wear/tear, start/stop behaviors not explained by average traffic flow - can also be used to come up with a risk score for insurance quotations or packaged into pricing via differential "good user" or "safe user" credits. On the personal e-Mobility side, Digit is partnering with Ather Energy on interesting insurance products, and leasing products.

Real-Time / Streaming Asset Finance Using Cashless/UPI/Digital Flows: Furthermore the asset itself can be financed or securitized in real-time via a "flow-based" or "real-time streaming finance" model. Today, assets are financed statically (eg: via a loan tied to a specific asset for a specific user, collateralized by the asset) with periodic refinancing. The asset could be owned by a fleet partner, driver partner or franchisee, but associated with a platform like Uber / Ola / Bounce / Yulu / Vogo / ZoomCar etc; and the revenues associated with the asset can be shared. However a key difference between a ride share and vehicle share (scooter share) is the higher risks associated with users driving / degrading any individual asset. The companies therefore finance these assets on their balance sheet ("asset heavy model").

Asset Securitization / Pooling: In securitized asset finance, rather than financing a single risky asset; you could finance a pool of assets, or more specifically the cash flow from the assets. More specifically, you can have the pool of cash flows (with any synthetic enhancements) validated and rated by an agency like ICRA and get those assets off your balance sheets, and bring in cash/equity which can be used to deploy more assets.

Such a securitization process is heavyweight but is not uncommon as a method used by NBFCs (non-bank financial companies) securitizing pools of loans (home loans), receivables and other subscriptions. However this model is not proven in the context of securitizing a pool of risky, depreciating assets with a transactional revenue base (point-to-point per-use rentals). If the risk characteristics are higher, then only a small (safer) subset of these cash flows could be securitizable; or you may need to sell these as "securitized equity" cash flows (at a higher cost of capital) instead of as "securitized fixed income" cash flows. In the commercial real-estate world, it is common for developers to partner with HNIs (high net worth individuals) and sell them part equity ownership of a commercial real estate (eg: a given # of Sq ft or an entire floor); and then have a share of lease/ subscription revenues and take on occupancy risk etc. An operating fee or value-share can be associated with the securitized assets (or a subset of the asset cash flows can be securitized). In general, this is a very heavy weight process, and requires third parties due to the lack of transparency between the parties.

However, UPI / digital / cashless payments can make cash flows fully transparent, and real-time between a permissioned set of parties; and the trails of cash flows can also be easily audited/cross validated (and if necessary on a trusted multi-party platform like hyperledger / blockchain). This allows a lot of flexibility in raising capital against those flows of cash and pricing the securities or standardized digital cash-flow tokens dynamically which can be traded. In general this allows real-time flexible franchising, real-time securitizing (repackaging), and secondary markets.

This will allow the emergence of new asset-lite models where the company capital can be rotated into scaling the core franchise; and the dynamic securitization yields revenue shares and covers operational costs with an excellent gross/operating margin. Also the role of the platform company could either be limited to the digital platform only (with partnerships, operational standards/ real-time oversight on the physical aspects), or it could also involve physical asset operations (with franchise partners or securitized capital providers).

The specific model is a business decision of the operator consistent with their larger regulatory and risk/liability context (eg: Uber / Ola are very careful to declare themselves as NOT a transportation company, but only a digital platform company). It offers a new tool to balance operational control, asset risks/operational risks, user experience, pricing / go-to-market, monetization model (subscription, transactions, marketing) while having optionality on the asset finance, third party franchisees and creating interesting financial vehicles for private/wealth management clients of banks/financial partners.

Electricity Grid Challenges in Indian DISCOMS: As we consider e-Mobility, we should also note that the Indian electricity grid also has a number of challenges. The Indian electricity distribution infrastructure is a state-owned & state-run enterprise called "DISCOMS" (DIS-tribution COM-panieS). Local state politics considerations lead to offering free electricity to farmers, free or very low-cost (below cost) electricity to lower echelons of society, and ineffective metering collection of dues from the rest of the segments (that results in large "non-technical" losses). The combination lead to DISCOMs who are financially unviable (and repeatedly being bailed out by central govt programs like UDAY which are moving the liabilities onto the state government balance sheet & incenting changes) and who tend to under-invest in local distribution grids (leading to additional technical losses) and delay payments to suppliers (eg: equipment companies and/or independent power producers (IPPs). The unreliable grid has led to significant local / distributed investment in backup generation (typically diesel gensets), battery based uninterrupted power supplies (UPS) (a.k.a. "inverters" ) by businesses and communities (flats etc).

Distributed Solar/Storage & E-Mobility in an Unreliable Grid: Distributed solar is very attractive in theory (due to lower capital / installation costs (lowest in the world and a variety of business models emerging!). But the distributed solar rollout also has been hampered by policies changes that delay interconnection or economic payment for feed-in energy units (kWh) from the solar installations. However, there has been a relatively freer market for "captive" power using local generation including solar, batteries (not unlike the growth of distributed diesel gen sets). So, to first order, it is important for the forseeable future to consider local grids as an important, but likely intermittent resource and balance out overall reliability and blended costs using modular local generation resource, that can be upsized over time.

Modular Scaling of Distributed Energy for E-Mobility: The lower costs of solar & batteries allow a modular asset architecture where solar and battery capacity can be added over time, and ideally the battery swapping / re-charging infrastructure itself can be partly used to minimize additional dedicated storage costs. The investment costs of these assets can in specific cases be shared with local businesses or communities (not unlike how cell phone towers provide some value to local owners); and it could be owned a network of partners and paid via a markup of the energy costs or long term service agreements. The technical architecture of distributed renewable energy (RE: solar / storage) has to be designed for modular upgrades, to handle dynamic site soiling & shadowing constraints, and with IOT monitoring and AI/ML to orchestrate maintenance at low costs to maximize total value and minimize total costs and risks. A range of technology/product options are available for this already at ever lower prices!

E-Mobility is also an opportunity for DISCOMs since they get honest paying businesses on time via digital means which helps its finances at the margin. The provision of charging infrastructure (essentially power conversion) combined with local generation and storage allows the DISCOMS to gain more incremental revenue without a proportional provision of grid assets. But his means that e-Mobility players will have to have partners who invest in the charging infrastructure (including part-local generation), i.e. the equivalent of gas stations for electrons. On the flip side, this is also an opportunity because it is easy to pilfer and steal diesel but not easy to steal electrons from batteries if packaged/designed right. Also on the medium/long term, the availability of distributed energy resources can be harnessed for grid stability and lower capex/costs via bidirectional (or even unidirectional) software-defined management.

In the context of highways and rural settings, solar on the side of highways (or cheap self-cleaning solar canopies if land is a constraint) combined with batteries / swap stations can allow modular "power banks" that can be used for both EV and non-EV purposes by local communities and offset any local grid challenges. More broadly solar in India has not just benefited from the global ecosystem and learning curves / supply chains, but also in the growth of the Indian wholesale solar market and drop in PPA prices from Rs. 10+/kWh to Rs. 2.5/kWh (even though it caused severe dislocations and stresses in conjunction with payment / cash flow issues with public entities). Similarly there is an emerging hybrid solar/wind + storage growth happening on the wholesale (utility-scale) market front which in combination with global trends will provide a tailwind to the e-Mobility / energy storage market.

Summary:

The e-Mobility ecosystem in India is at the cusp of a launch / scale. Several "product-market fit (PMF)" experiments by different companies are discovering large addressable niches, and that the total cost of ownership (TCO) breakeven economics work out or is near at hand. There is a strong VC community to back scalable ventures. India may be a first market where the cooperation between OEMs and Infrastructure operators necessary for the success of battery swapping may occur at scale. The rapidly growing cities, challenges in infrastructure, traffic and pollution/health issues will provide a secular backdrop. India has many cities in the top

LinkedIn: Shivkumar Kalyanaraman 

Disclaimer: The views expressed here and other social media are personal and meant for information/education purposes only and not representative of his employer directly or indirectly and not investment advice. Any mention of company names are for illustrative examples only.

Twitter: @shivkuma_k

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If you like this article, please check out these articles: Towards Scalable EV Charging: Hidden Costs of Level 2 Charging at Scale, "Towards Scalable EV Charging Infrastructure (Think Outside the Gas Station Box)", "Commercial Electric Vehicles (EV) Fleets: The Stealth Growth", "Towards Affordable, Ubiquitous, Ultra-Fast EV Charging: Part 1: Need & Battery Issues", "EV Taxi Fleets & Ride Sharing: Poised for Huge Growth", "Shared EV Transportation in India", "Understanding the Rs. 3/kWh bids in India in 2017", "Distributed / Rooftop Solar in India: A Gentle Introduction: Part 1","Rooftop Solar in India: Part 2 {Shadowing, Soiling, Diesel Offset}", "Rooftop Solar in India: Part 3: Policy Tools... Net Metering etc..." "Solar Economics 101: Introduction to LCOE and Grid Parity" , "Solar will get cheaper than coal power much faster than you think..", "Understanding Recent Solar Tariffs in India", "How Electric Scooters,... can spur adoption of Distributed Solar in India," "Solar + Ola! = Sola! ... The Coming Energy-Transportation Nexus in India", "UDAY: Quietly Disentangling India's Power Distribution Sector", "Understanding Solar Finance in India: Part 1", "Back to the Future: The Coming Internet of Energy Networks...", "Tesla Model 3: More than Yet-Another-Car: Ushering in the Energy-Transportation Nexus", "Understanding Solar Finance in India: Part 2 (Project Finance)", "Ola! e-Rickshaws: the dawn of electric mobility in India", "Understanding Solar Finance in India: Part 3 (Solar Business Models)" , "Meet Olli: Fusion of Autonomous Electric Transport, Watson IoT and 3D Printing".