Understanding Why Electric Vehicle Startups Fail: A Product Marketing Perspective

Full disclosure: I own two electric vehicles (EV). I love them both. But I am an early adopter of a lot of technology. So I don't mind the early issues of products like these, but they can test your patience. Second, this is not a political post---this is a business post. So please, I ask you to refrain from 'The government is pushing these cars down our throats' or 'I am going to save the planet with my EV'. Thank you.

Here we go.

As a product marketing professional, I am often asked about the key reasons behind startup failures, particularly in the electric vehicle (EV) sector. Recently, a good friend posed an insightful question: Is the (failure of so many EV companies and cars) lack of market need, an inferior product, pricing issues, or high barriers to market entry the primary culprit?

Great question

Some background: According to CB Insights, the number one reason startups fail is a lack of market need, accounting for 42% of failures. This insight is especially relevant to EV startups, which face unique challenges in a rapidly evolving industry.

Why Market Need is Crucial for EV Startups

This aligns with my belief that the market demand for many new EVs isn't there yet, or may never arrive. Here’s why:

1. Habit and Satisfaction with Existing Solutions: Many consumers are content with their current internal combustion engine (ICE) vehicles. This is not a political stance on EVs but a business perspective based on market observations. Despite owning two EVs myself and recognizing their benefits, I understand why many consumers hesitate to switch. Their current ICE vehicles meet their needs effectively, and the perceived disadvantages of EVs, such as range anxiety and limited charging infrastructure, outweigh the potential benefits for many. Let's face it, your current ICE car is just fine and the MPG is getting better every year despite rising gasoline prices. You know how to drive it, maintain it, and it does the job. In short, there isn't alot of pain to switch to anything. And EVs today don't offer 10X the benefits.
2. Range and Infrastructure: While EVs are innovative, they are plagued by range anxiety and immature infrastructure. Many potential buyers worry about the availability and reliability of charging stations. According to a recent survey by the International Energy Agency (IEA), over 60% of potential EV buyers cited inadequate charging infrastructure as a significant barrier to adoption. The infrastructure is growing, but slowly, and this slow growth rate is a substantial hurdle for mass adoption.
3. Missed Ideal Customer Profile (ICP): Many EV startups fail to accurately identify their ICP. For example, automakers initially targeted luxury car buyers with EVs, or more recently pickup trucks and large SUVs, while the real demand was for affordable, small commuter cars—akin to the 'first second car' many of us grew up with in the 1970s or 1980s. This misalignment can severely hinder market penetration. As I highlight in my book Start Your Startup Right, understanding and targeting the correct market segment is essential for success. I emphasize that “everything to everyone means nothing to no one” and stress the importance of identifying and catering to a specific customer segment.

Other Common Reasons for EV Startup Failure

Beyond market need, several other factors contribute to the failure of EV startups:

• Running Out of Cash (29%): Many EV startups underestimate the amount of capital required to sustain their operations until they become profitable. They often face unexpected expenses or overestimate their revenue potential. As Coticchia states, "The ability to say 'No' to certain prospects or potential customers is important--maybe even essential--to deliver long-term sustainable value and profits". This highlights the need for disciplined financial management and strategic decision-making. Fisker went out of business yesterday. The others on that list include companies such as Proterra, Lordstown Motors and Electric Last Mile Solutions. Others such as Nikola and Faraday Future remain in business but trade for under $1 per share amid operational challenges and missed targets.
• Not the Right Team (23%): Building a cohesive and capable team is critical. EV startups need a blend of skills and personalities that can work together effectively under pressure. Disharmony among team members or a lack of essential skills can derail even the most promising ventures.
• Getting Outcompeted (19%): EV startups often face intense competition from established companies and other startups. A superior product alone isn't enough; startups need effective marketing, strategic partnerships, and continuous innovation to stay ahead.
• Pricing/Cost Issues (18%): Incorrect pricing strategies can alienate customers and lead to unsustainable profit margins. EV startups must find a balance between pricing their vehicles competitively and covering their costs. Yes, the government offers rebates and incentives. And prices have fallen recently. But these simply mask the issues of adoption.
• Poor Product (17%): Even with a great market need, a poorly designed or low-quality EV will fail to gain traction. Continuous testing, feedback, and improvement are necessary to ensure product-market fit. Some EVs have run into real quality issues. My Ioniq 5 has a known 12V battery issue and my Bolt had a main battery recall due to possible overheating and fire. That doesn't add to the reputation.

The Road Ahead

Despite the challenges, the future for EV startups is not bleak. With increasing environmental awareness and governmental incentives, the market is slowly shifting in favor of electric vehicles. But EVs today are not a replacement for your ICE car. They may look the same, but they are inherently different. Unless you are prepared for those differences, you shouldn't buy one. You should also understand the use case and the job to be done for your car and match that to your purchase. You may find an EV is a good fit.

However, understanding and addressing the primary reasons for failure is crucial for these vehicles and this market is a good business lesson. By focusing on genuine market needs, developing robust infrastructure, and accurately identifying the ideal customer profile, EV startups can improve their chances of success.

References:

• "Start Your Startup Right" by Gregory M. Coticchia
• CB Insights Report on Startup Failures