The government launched its much-awaited ‘Startup India’ campaign amidst a lot of fanfare on January 16. The campaign is being hailed as one of the boldest initiatives to date by any country. Specific action plans have been laid out on various aspects including ease of setting up and doing business, funding support, tax incentives, etc to spur entrepreneurship and make India as a country of ‘job creators’ rather than ‘job seekers’ as envisioned by Prime Minister Narendra Modi.
One of the interesting aspects to delve into is the role of technology, innovation and e-commerce in disrupting the traditional,capital-intensive and asset-heavy business like automotive. Of course, the taxi hailing apps like Uber, Ola and their Chinese counterparts have changed the taxi business forever, but let’s look into the broader automotive space encompassing manufacturing, distribution and servicing. It’s also relevant to see whether these disruptions are being caused by ‘startups’ as are generally understood in the consumer internet space or does the concept of a startup in the context of automotive business (at least in certain cases) would need a different set of entrepreneurs and innovators.
The business of core automotive manufacturing has always been characterised by high capital investments, profitability under pressure, low ROIs and long payback periods on investment—such businesses have been valued moderately by pubic markets and VC/ PE investors have had limited interest. However, that changed in the US when ‘startups’ like Tesla, Google and Apple started investing heavily in electric cars and driverless cars. Old economy (Detroit) automotive players have already recognised the threat as well as partnership potential being thrown up by such new economy (Silicon Valley) players – there is little doubt that these ‘startups’ would change the face of automotive industry in a manner that has not been seen in the last 50 years. Of course, naysayers would argue that these technologies would have limited applicability in India due to high cost, as well as traffic and driving conditions etc. However, India has always been a quick adapter of new technologies and if electric car costs come down in the same was as solar panel prices have fallen due to technological innovations, we could see these innovations in India sooner than we fathom today. The recent electric scooter launch by Athena (an Indian start up funded by Tiger Global) could be an interesting instance for the Indian market if can serve the needs of the consumer and scale up. Unfortunately the earlier electric vehicle to come out of India has not been very successful—Reva is now under the M&M fold and yet to find its mojo.
A significant challenge faced by India’s cities today is last mile transport. Amongst the prevalent modes today are unreliable and polluting autorickshaws, unsafe e- rickshaws, upcoming two-wheeler taxi apps, etc. An interesting product to address this could be the new quadricycle (Qute) from Bajaj, which has been launched with a vision of providing low-cost, last-mile public transportation across the world by optimising size, weight, cost and speed. While the sales have not started in India due to regulatory issues and public interest litigation, it seems to be getting traction in the export markets with needs similar as India. One sincerely hopes that this new vehicle from India gets its much-deserved success and kudos for Indian automotive designers and engineers unlike the Tata Nano which is still marred by multiple issues—technical and otherwise.
The ubiquitous bicycle could be an important cog in the wheel for city traveling and last mile transportation as prevalent in most of the major cities globally. Often considered a poor man’s vehicle in India, the bicycle has come a long way with innovations such electric bikes, aluminum and carbon frame bikes, which would transform it into a transportation, lifestyle and recreational product all blended into one. India, however, needs to address critical challenges such as building supporting infrastructure to allow cyclists to integrate into city’s transportation pyramid. While this would require government policy framework and spending support to begin with, technology and innovation would play an equally important role to build sustainable business models around bicycles.
The automotive dealership business has historically been a brick and mortar play, both in India as well as globally. In India, the business is pretty much family run, unorganised to a large extent and fragmented with profitability remaining under pressure on core automotive sales, although a lot of these businesses have become valuable due to prime real estate which they are sitting on. Globally the space has seen a lot of consolidation with large businesses running multiple dealerships of various OEMs and hence, a certain size and scale has been achieved. The space in India is already on the disruption path with OEMs starting online sales, large marketplaces like Snapdeal providing platform for automotive sales, and specialist players such as CarTrade/CarDekho acting as aggregators providing comparative prices/features and assisting in generating leads to dealers who support with test drives, booking etc. Some are also acting like a marketplace facilitating the sale. This trend is presently more in the two-wheeler space and for Tier 2 cities where the brick and mortar network isn’t as strong – it needs to be seen if the core automotive dealership business ends up with the same fate as brick and mortar consumer retail which has been significantly impacted by consumer internet players.
The core automotive dealership business could face another challenge from innovators – presently, many such businesses make money on aftermarket part sales and service activities while the car sales business is not highly remunerative. Despite the CCI order against OEM’s alleging anti-competitive practices through control on supply and pricing of aftermarket part sales, the market structure remains pretty much the same. As a consumer, one is at the mercy of what some would call ‘monopolistic pricing’ adopted by OEMs and car dealerships on aftermarket part sales and services and there are not too many choices available since the other end of aftermarket (independent dealers, retailers, workshops) is highly organised, marred by spurious products and tax evasion, though highly profitable and controlling a significant part of the value chain. Attempts by players like Carnation to disrupt these businesses have not been very successful.
These industry structures are ripe for disruption through a technology driven business model, bringing relevant market participants on to a common platform thereby spurring competition, and serve the genuine needs of customers in a fair and transparent manner to create value for all participants. Given the present structure of the aftermarket business, this would of course require significant investments and the buildup would be a slow and gradual process and perhaps may require regulatory or policy intervention.
As automobile companies are facing multiple pressures—from regulators to bring fuel efficient products earlier than planned, from consumers to bring new and better products as are available globally, from courts imposing ad hoc bans on sales as happened with diesel cars in NCR and most importantly, stiff competition amongst themselves to maintain their market share—new business models driven by technology, innovation and e-commerce have the opportunity unlike ever before to disrupt the existing industry structures. Indian automotive industry would be served well by businesses and entrepreneurs developing India specific solutions and there is a lot of value to be created in the sector which is the single-largest contributor to the GDP in India and also the barometer of health of the economy.