My twenty year itch struck a tiny bit late. After 22 years of working on the dark side of management consulting, I finally decided to take the plunge and cross over to the corporate world. Starting May this year, I will be joining a vehicle manufacturer in a dual role: President, Corporate Development at Switch Mobility Automotive Ltd and CEO of OHM Global Mobility, both Hinduja Group organizations. But this article isn’t really about my move from consultancy to corporation, it’s about my mandate to fast-track the adoption of Zero carbon mobility in commercial applications. I have always advised that exciting opportunities await electric mobility in the commercial space and the key to unlocking them will be new innovative business models. It’s time for this advice to be put to action.
The Numbers Are Electrifying
In my new role, I have been tasked with accelerating the development of products and solutions for freight and public mobility with a key focus on electric buses (eBuses) and electric light commercial vehicles (eLCVs). Not only do I believe that the opportunity here is massive but that with a disruptive business model, it can also be immensely lucrative.
Consider the market’s potential in numbers. According to Frost & Sullivan research, the global bus market registered around 250,000 in vehicle sales over 2019, contracting to 163,000 unit sales in 2020. China is the biggest market for buses, making up roughly 50% of the total industry in 2019.
Interestingly, the eBus market is already on the growth curve; an estimated 57,000 eBuses were sold in 2020 with trends indicating that 1 in 2 buses sold could be electric by 2030. The prospects for eLCVs are even more tantalizing. In 2020, eLCVs had a penetration rate of only 1.4% in the global LCV market that recorded 11.41 million unit sales.
India’s miniscule bus market, its similar population size to China, and lack of public transport infrastructure highlight that the growth potential for buses and eBuses in India is far greater than it is in China. My optimism is not misplaced; trend projections highlight that the market for both eLCvs and eBuses in India will swell to 49 times their current levels by 2030.
New Business Models Address TCO Challenges, Pave Way For Disruptive Growth
In the commercial mobility market, the key challenge boils down to economics and the total cost of ownership (TCO). With the prices of eBuses being three to five times that of conventional buses, the test is to create a business model that makes commercial sense for the fleet operator.
This is where pay-per-mile models or innovative models that decouple the battery from the bus can make eBuses more competitive with their diesel counterparts. Here, sales are linked to an OPEX-based model over a 10-12 year period, where the eBus or eLCV is bundled with a connected vehicle package and charging infrastructure, with renewables and battery second life added to make it fully carbon neutral.
The concept of TCO is widely used in the world of fleets to compare the cost competitiveness of transport operators who work on wafer thin net margins of 2 to 4%. What is becoming increasingly clear is that declining battery prices and the rising cost of compliance for diesel engines, including in major markets like India, will help electric commercial vehicles start reaching parity around 2024. So for a bus sold on a 10 year package, the economics will become much more attractive for an eBus than for a diesel equivalent.
These pay-per-mile contracts for eBuses, termed Gross Cost Contracts (GCC), a type of PPP model, are becoming very popular. India has taken the lead, with over 30 cities having rolled out such tenders. These GCC contracts bundle everything from vehicles, drivers, charging infrastructure to annual maintenance.
- Proterra, which was recently valued at $1.6 billion in a SPAC filing in January 2021, is already leveraging these new business models. It has two key businesses: Proterra Transit that sells electric buses and Proterra Energy that focuses on ‘turnkey energy delivery’ for electric fleets. Proterra Transit currently generates 80% of the company’s revenues but will only make up 31% of revenues in 2025 due to the explosive growth – estimated at a staggering CAGR of 114% – of its powered and energy activities. In other words, scale and competitiveness will rely not so much on the eBus business as on the more lucrative energy and connected vehicles business.
As per Andy Palmer, Vice Chairman of Switch Mobility, “OHM Global Mobility aims to manage a portfolio of over 120,000 units of eBuses and eLCVs by 2030 in India alone, translating to an annual savings of over one million tons in CO2 emissions. With over two million electric kilometers under its belt in Ahmedabad in India, the organization is well on its way to accelerating the roll out of eBuses and eLCVs to the Indian and global market”.
Another Tesla
TSLA
When I told David Frigstad, the Chairman of Frost & Sullivan, that I was leaving, he had some encouraging (and somewhat daunting, truth be told) words for me. He said, “I expect you to become the Elon Musk of commercial vehicles.” Needless to say, I was humbled and thrilled, in equal parts, to be mentioned in the same sentence as the trailblazing Tesla tycoon. For now, my focus is simply to make Switch and OHM Global mobility the disruptive innovator to emulate or the Tesla, if you will, of the commercial vehicle world.
