In this article, I want to bring a different perspective on a very interesting topic – the shift from internal combustion to electric engines. As we shift away from the petrol/diesel/CNG powered cars, the manufacturers must also change their business model to remain competitive. But first, let us understand how an internal combustion engine-based vehicle works.
In an internal combustion engine, fuel and air are mixed to produce a beautiful sound and speed. Each engine has a number of cylindrical structures with one movable end attached with a spring like system to keep it in a compressed position. Fuel and air are first injected into the cylinder and then a controlled explosion takes place inside the cylinder. Explosion causes the pressure inside to increase which in turn moves the mobile end of the cylinder to an uncompressed position. As the cylinder cools off and pressure reduces with time, the spring system moves the aforementioned end of the cylinder back to the compressed state. The process is repeated thousands of times per minute. This harmonic motion is then converted into the circular motion of wheels through transmission systems and drive shafts. This assembly is essentially an oversimplified version of an internal combustion engine. In real life, many more components such as air and fuel filters, hydraulic fluids, sensors, exhaust, onboard computers, etc are needed to keep the system running. There are literally hundreds of moving and non-moving parts in our cars that are prone to wear and tear and need to replace periodically. Also, the moving parts need to be oiled and lubricated regularly to ensure proper functioning.
This is where the after-sales service offered by the manufacturers comes in the picture. Manufacturing and selling of cars is an inherently competitive and low-margin business but servicing cars isn't. Servicing vehicles is an integral and significant part of car manufacturers’ revenues and profits. Most of the customers tend to get their vehicles serviced from the original manufacturers and avoid third-party service providers for as long as possible. Manufacturers respond in kind by extending their service network and making it more and more customer-centric to make the whole process more convenient and accessible for the customer. A happy customer is also a repeat customer. The profitability associated with each customer increases with the number of service visits. Thus, servicing forms an essential aspect of business strategy. But this is all set to change as the electric vehicles become the norm.
The most complicated part of an electric vehicle is the battery itself and once a battery is installed, it requires next to negligible maintenance. In the olden days, car batteries, very similar to inverter batteries, used to be filled with a liquid electrolyte solution for the conduction of electricity. The only maintenance work required was the replacement of electrolyte. But nowadays, even that is also not required as the modern batteries have solid-state electrolytes, similar to the batteries in our phones and laptops. From the customer’s point of view, they are essentially ‘install and forget’. The motors running the car have more in common with the motor found in kid’s electronics play kit than with the motor function of the internal combustion engine car. The electric motors found in cars work on the principle of interaction between electromagnetic fields. When an electric current is passed through a coil placed in a magnetic field (produced by a magnet), the coil starts rotating with the speed of rotation being proportional to the amount of electric current flowing through the coil. This rotation then moves the wheels of the car. The whole assembly does not require many supporting components to keep it running. Systems such as transmission, clutch, air/fuel filters, hydraulic fluids are not required at all. In some cars, there are no moving parts except the motor. By now, you must have guessed where I am going with this. Electric vehicles do not need regular servicing and Tesla has proved that to us. This represents a major issue for manufacturers as they are set to lose a part of their revenues. Manufacturers are dealing with this potential issue with their unique strategies. There are manufacturers like Mercedes and Hyundai who are making investments in capabilities and partnerships for manufacturing batteries at a lower cost and hence improve margins on that front. While others like Tata Motors are simply charging more upfront from the customer, case in point is the electric version of Nexon. And then there are Japanese manufacturers – Toyota and Honda who are developing capabilities to compete with a differentiated product – which uses hydrogen as a fuel for making electricity and then using that electricity to run the vehicle.
Manufacturers still have a lot of time to update their business processes and be ready for the changes that will come with the wide-scale adoption of electric vehicles which is still many years away as there are many challenges to overcome first. Two of the biggest challenges are – range and environmental concerns. Although battery technology has improved a lot over the years, it is still not at par with conventional fuels. There are fast charge points that can fully charge a vehicle in less than an hour but that is still a very long time. Imagine being on a road trip and having to wait for hours at a charging point. It will take a long time and some innovative thinking to set up the supporting infrastructure for electric vehicles. One such innovative idea was presented by the Government of India. They are pushing companies to provide standardized batteries mounted at a point from where it is easy to install and uninstall the batteries. The customers will just need to drive to replacement points where the drained battery would be swapped with a charged battery just like the process of filling petrol in tanks.
Electric vehicles were conceived to solve the problem of air pollution and reduce dependence on ever-depleting reserves of fossil fuels. But as of 31st March 2020, only 35% of the total electricity is generated by the use of renewable resources. So, until we source the majority of our electricity requirement from non-polluting renewable resources, the incentives for adopting electric vehicles are low.
Hopefully, we will be able to overcome these challenges soon and manufacturers will be able to make innovative changes in their business model.
Until then, keep coming back for more!