EV adoption: moving customers along the funnel

Most conversations on sustainability echo the urgency for a global transition towards a zero-carbon future, and the adoption of electric vehicles (EVs) is an important checkpoint along this journey. Momentum in markets like India and China, has already demonstrated product-market fit, beyond the luxury segment. 

However, with less than 15,000 EVs on our roads today, the enthusiasm in Pakistan is quite restrained. This indicates that a structural shift in consumer preference towards electric vehicles is still a few years away. Market research on purchase intent for the two-wheeler (E2W) and four-wheeler (E4W) segments in fleet and retail markets turns up mixed results too. 

Clearly, many young Pakistanis acknowledge our vulnerability to climate change, have first-hand experience with poor air quality, and are increasingly eco-conscious. Yet, even amongst the most ardent supporters of climate action, EV ownership levels are dismal. What then is needed to move customers along the adoption funnel?

Within any economic stratum, buying a vehicle constitutes a substantial investment. The decision-making process involves considerations such as affordability, the presumed value for money, trust in the brand’s reliability, the perceived quality and durability of the vehicle, and its potential resale value. Peer influence, recommendations and anecdotal accounts are known to sway people too. For those in the high-income bracket, additional factors such as safety, comfort, features and automation, also assume relevance in screening their purchases.

While the upfront cost of an EV is higher than internal combustion engine (ICE) vehicles of comparable specifications, the fuel savings and maintenance costs are substantially lower over the life of the vehicle and are correlated with the mileage accumulated by the vehicle. Simply put, the more it’s driven, the cheaper it ends up in the long run. 

A recent UNDP study, evaluating vehicle options available in Pakistan, presents an analysis of the initial and then ongoing vehicle expenditures over a five-year period. It estimates that the total cost of ownership is 30-50% lower for electric motorcycles and rickshaws than comparable ICE models. 

Since the tipping point for cars is not yet reached, our exploration of dynamics in this article will feature mainly two-wheelers, as this space has the greatest potential for electrification. In this sector, while the entry price disparity is a hump, when we segment the target market by income levels, groups above the median can potentially stretch their budgets if value for money is established and the price-quality schema is leveraged. 

Aside from higher price tags, a lack of widely available public charging infrastructure is often cited as an impediment to adoption, contributing to range anxiety. This is definitely a consideration for commercial vehicles and fleets. For the average urban commuter, though, who uses their vehicle for daily activities, a full charge with a range of 50-100 km for E2W, and 250-450 km for E4W is more than enough to last a typical day and then some. 

Given this context, the primary barrier to adoption appears to be rooted in the intertwined concepts of brand credibility and consumer confidence in the technology. For a durable good with a lifespan of hundreds of thousands of kilometers over perhaps a decade, the purchase of which requires a substantial tap into savings or even a loan, the consumers would understandably want to buy from a business that is expected to outlast the vehicles they sell and be assured that their vehicle would be supported throughout its lifecycle. While the scheduled opex for EVs is low under optimal conditions, real life situations such as damages resulting from road accidents, overheating, accelerated wear and tear from subpar road infrastructure, or simply poor driving habits and inadequate maintenance routines, will necessitate access to reliable and trained technicians and availability of spares or replacement options. 

Presently, the supply side for E2W, is speckled with tens of fledgling startups, who rely heavily on imports for core components. Many of them source white-label drivetrains, motors and battery cells, giving rise to skepticism about product quality and after-sales user experience over the medium to long term. While luxury vehicle buyers can navigate the supply chain limitations, restricted choices, and the financial implications of maintaining cars imported through dealers and distributors, the larger demographic in the lower-end market, may face substantial disruptions to daily activities from potential incompatibility or delayed or expensive availability of key parts. Looming over this complex terrain, is also the sentiment of mistrust that the local consumers tend to harbour towards locally-engineered goods, mainly because our market lacks robust consumer protection, regulatory oversight, or industry standards, thus making brand building a challenging endeavor.

To assess the impact of brand credibility on customer purchase decisions, we can look over the fence, towards our neighbour where the adoption of EVs is on an exponential trajectory with over a hundred thousand vehicles sold monthly. Leading the charge in the E2W segment is Ola, a homegrown startup that has evolved into the world’s largest ride-hailing company. Ola’s decade-long history in India prior to entering the electric two-wheeler market has played a pivotal role in inspiring trust. In the passenger car segment, Tata Motors commands dominance, leveraging its well-established reputation. Fortunately for Pakistan, the E3W space is marked by the presence of Sazgar Engineering, as the market pace-setter in driving the adoption of electric rickshaws. In contrast, the market development in the two-wheeler segment is more chaotic, with the leading names still cautiously on the sidelines. 

 The EV value chain has several stakeholders with distinct offerings. Broadly, on the manufacturing side, there are vehicle manufacturers, battery or cell manufacturers and charging equipment providers. Service-oriented offerings include software solutions, charging stations, vehicle and battery leasing and subscription models, and battery swap services. Overwhelmed by these possibilities, many electric motorcycle startups try to become end-to-end solution providers, revealing a lack of clear focus and effective market positioning. While this approach may seem comprehensive at first, it demands substantial financial resources, a commitment to robust R&D, and execution excellence. In their early stages, these companies often rely on third-party funding which is hard to access, and typically do not have a significant runway. Attempting to add offerings along multiple points in the EV value chain, from manufacturing to charging to swaps, ultimately leads to a thin spread of resources with diluted and generic products or services, under-developed domain expertise, and a missed opportunity to create a distinctive ‘Purple Cow’ that could help them survive a shakeout.

Amongst the various offerings, the battery swap service appears to be the fan-favorite cash guzzler. The typical vehicle-to-battery ratio for this business model is 1:1.5, necessitating substantial investment in inventory. However, the service appeal is limited primarily to commercial or fleet users, making the overall economics unfavorable for investors when viewed over a five to seven year horizon. EV pioneer Tesla’s strategic choice to prioritize super-chargers over swap stations underscores the cost-effectiveness and efficiency of the former. Meanwhile, Nio, which owns and operates the world’s largest battery swap network, has accumulated a $1bn loss in the five years since it rolled out this service. As super-fast charging technologies, capable of achieving 80% charge in 10-15 min, become affordable and widespread, it is foreseeable that the demand for battery swapping services might even decline. Therefore, before substantial capital is allocated to a segment with a delayed return profile, it is prudent to explore more efficient and cost-effective charging solutions. 

Collaboration and standardization across products and services are also essential in delivering a user-friendly experience and minimizing redundancies in the value chain. Various components within the ecosystem like charging stations, battery packs, and software systems must be interoperable. This means that vehicle owners of diverse makes are able to conveniently use the same charging infrastructure without compatibility issues. Likewise, interoperability in battery packs would enable competing models or brands to use interchangeable batteries. 

We can draw parallels with the evolution of the telecom sector here, which moved from owned to shared infrastructure. Likewise, phone and device manufacturers adopted the USB-C standard for the same purpose, highlighting the long-term effectiveness of standardization. The end goal is to enhance flexibility, scalability, and optimal resource allocation within the industry to build customer confidence in the products and services, thereby boosting demand. 

Guiding consumers through the adoption funnel from awareness to advocacy demands prioritizing the user experience, by offering a thoughtful selection of products and efficient charging solutions as well as establishing brand trust. Collaborative efforts amongst the industry players would be the key to accelerating this journey towards sustainable transportation.