This podcast is a recorded version of Avaana Climate Corner's fireside chat with Tarun Mehta on Electrifying India's Mobility Ecosystem. The podcast will cover the growth of the electric 2 wheeler ecosystem in India, the potential for expansion of new companies into a market dominated by incumbents, and problems relating to supply chain resilience. It will also touch upon challenges faced by the EV ecosystem in general, including financing, prohibitive upfront costs, and range anxiety. The transcript of the episode can be accessed here:- https://avaana.simplecast.com/episodes/electrifying-indias-mobility-ecosystem
Fireside Chat with Tarun Mehta
[00:00:00] Shruti Srivastava: Thanks everybody for tuning in with us. Today we have Tarun Mehta from Ather Energy. Ather today has become a well loved and recognized brand for the electric scooters in the country. Tarun, thanks for being with us here.
[00:00:21] Shruti Srivastava:Why don't we start at the beginning? You and Swapnil began building Ather back in 2013-14, if I remember correctly. Long before the spotlight started shining on the space. There was no dearth of problems to solve for in India back then. And what drove, no pun intended, choosing this space to build for back then?
[00:00:39] Tarun Mehta: We wanted to be in the energy space for a very long time. Second year of college, we've been calling ourselves Ather Energy, the two of us. It was never a company, not, at least not back at that point. It was it was just the two of us trying to build something known as a Stirling engine back then, but a few years of working on a pretty hard tech and we quickly realized that we couldn't move that to production. We couldn't move that to commercialization. So we went our different ways, but he stayed back in engineering. Then I was working on this idea in my pastime on lithium and batteries. It was the outcome of a college project, a side project almost.
[00:01:19] Tarun Mehta: So funny story is I had a lot of time in my job; the first job that I had, I had a lot of time. So I used that time to just read up about batteries, became pretty fascinated by them, became convinced that there is a big opportunity to build batteries for electric scooters in India and convinced Swapnil to leave his job, come join me in Chennai in building these batteries. Because we're talking about building batteries we figured, you know what, we are still an energy company so we'll call ourselves Ather Energy and we genuinely thought for the first few months that we're going to be a battery manufacturing company, a supplier to other folks.
[00:01:55] Tarun Mehta: It was just a happenstance that, to prove that battery out, we were building a vehicle. And he started liking that vehicle and customers that he met started liking that vehicle. So we decided to also build a vehicle and that's how things began. But, it began in a very almost romantic way. It began like a proper garage thing. We graduated just six months back and we were working out of this department of engineering design under professor RKK and Dr. Sandeepan. We would sleep in the lab. We spent eight, nine months just doing fairly hardcore building before we even registered recovery.
[00:02:29] Shruti Srivastava: And building hardware always comes with its challenges and complications, right? There is the readiness of the enabling ecosystem, or lack of it, whether it is manufacturers, whether it is talent, whether it is capital. How did you guys navigate all of this in the initial journey?
[00:02:48] Tarun Mehta: I would not say what we did was a playbook at all. Yeah, ours was not a playbook and we never actually thought through fundraising very well, to be honest. We were just winging it. Because if you think about it, two undergrad students with no money saying, we'll build electric vehicles in a market that has never built electric vehicles, in a market that does not support or like hardware companies, it's not a good idea. While now there are a lot of young folks building hardware, back in 2013 there was nobody building hardware and building an automotive company, with no auto experience, was not an insane idea, it was just a very sad idea. It was like somebody help these guys out, okay. And I met a lot of those folks. We also do a fairly unconventional way by saying we will put, we'll be very front loaded as far as capital deployment goes. So we're going to basically put in the largest R and D for electric two-wheelers in the world before you will see any vehicle.
[00:03:47] Tarun Mehta: And you're not talking about one year of R and D and then revenue. We're talking about four years of R& D and then some token revenue, and then another three years of intense R& D before interesting revenue. So six, seven years before you see any outcome. So India VC ecosystem does not have a lot of exposure to this.
[00:04:07] Tarun Mehta: Actually, arguably, even globally, VCs are not very good at understanding electric vehicles. So a lot of non conventional stuff. I would. I can spin a lot of romantic stories, but I'll just be honest. I think we just got lucky because we just took a lot of shots at this. So mid 2013, I started pitching to folks, not even investors, like individuals, just random individuals. Late 2013 onwards, I was pitching very seriously. And by early 2014, I had only raised 25 lakhs. And we already had a team of 10 people building a vehicle. So money was going to run out pretty quickly. We would have closed by March 2014. But we did not close because we managed to convince IIT to give us a bit of a loan. I think about 25, 30 lakhs. So we took that loan and ran with it. We would have closed by August or September 2014, but convinced our parents to give a bit more loan. And then we ran with it. We also used a consumer customer deposits, which was a bad idea because if you had shut down, we were liable for it and we would have had to pay it back from our pockets.
[00:05:17] Tarun Mehta: So I had met 30, 40 people and all disastrous pitches, not even 25 lakhs out of those. And I read this Quora post by some entrepreneur, who said that it took him 80 pitches to find his investor. And I don't remember, was it him or Paul Graham who said 'you only have to be right once', right? Like you don't have to be right with every investor. You don't have to get lucky with every investor.
[00:05:39] Tarun Mehta: I think it was somewhere in the eighties that I found my first large angel investor. It was my 80th, somewhere in the 80 number pitch. So I definitely feel that we got lucky because we just pitched to enough people and somebody bought the story, luckily. So that kickstarted some sort of traction for us in the ecosystem.
[00:06:01] Tarun Mehta: Tiger came calling pretty quickly after that and put in 12 million and that sort of saved the company; not save, that sort of put the company in the right direction. And eventually we just raised strategic and then went the B route later.
[00:06:15] Shruti Srivastava: That's on the capital side. What about the support on manufacturing? You needed to build your own manufacturing. Was that because the ecosystem itself was not ready and there was no quality supply or was that a conscious decision to control quality?
[00:06:30] Tarun Mehta: So there's more nuance to this. It would be technically not correct to say that we build out our own manufacturing. Automotive companies in India really build what is technically manufacturing. Automotive companies, even the best companies, are generally assemblers -a hero or a Bajaj also largely only does vehicle assembly, the manufacturing happens with their suppliers.
[00:06:50] Tarun Mehta: So what is correct is that unlike the traditional auto model, which is called supplier driven innovation, where basically suppliers have roadmaps, technology roadmaps, and product roadmaps for the next 5 to 10 years. And automotive companies have product planners who choose, out of that roadmap. So it's a careful balance of picking up a stable technology when the cost becomes low enough, but before it becomes very old, right?
[00:07:16] Tarun Mehta: It's that balance that most automotive planners have to do. We flipped that model pretty immensely by saying that almost everything that our suppliers will do will be built to print, which means these will be custom designs. These will be Ather's IP that our suppliers will run manufacturing shops for. Not to say it never happens, but Indian auto is fairly evolved where most of the suppliers themselves have these designs themselves.
[00:07:40] Tarun Mehta: So automotive companies don't have to invest in genuine platform or product development. They do product creation. So there's technology, then there is platform, and then there's product, right? Automotive companies generally operate here on the last level. We decided to go two steps below: platform for sure, and to some technology also.
[00:07:56] Tarun Mehta: The reason we did that, so we, for example, we build our own battery pack, we build our own battery management system, our own chargers, slow chargers, fast chargers. We designed our entire frame. And back in 2014, 2015, I remember almost the entire industry knew that India doesn't make frames. We don't know how to design a bike frame in India. Not very well. Everybody goes to one company in Australia, small or big. Everyone goes to the Australian company and we all get our frames designed by that one company there. And that company charges you millions of dollars. And that company only knows how to design frames for really large scale production .
[00:08:28] Tarun Mehta: So because of all these constraints, we had to also do frame design in India, which was a little bit of a first. And then obviously all the work on software, because Indian two-wheeler companies weren't big on software. There was like, you couldn't find anybody, whether embedded or regular cloud or web ops.
[00:08:43] Tarun Mehta: So we decided to do it because A), yeah, there was no, no local ecosystem that existed. That's correct. But also because we figured this could be a very interesting moat. Building a product this way will almost certainly ensure nobody can replicate an Ather in its entirety because they will have to then copy everything that Ather did. And that seems like a pretty damn hard job. Like our moat will be just the number of engineering hours spent behind it. And at some point, if you are consistently running the largest engineering team, it is just impossible to catch up with the number of engineering hours put behind it.
[00:09:15] Tarun Mehta: So you create a very different kind of a moat, which surprisingly as a startup you can create it.
[00:09:21] Shruti Srivastava: I remember this hiring campaign you guys had quite a few years back. It was called #SaveAnEngineer. The engineering hours went behind creating your moat. Has it become easier attracting talent today?
[00:09:33] Tarun Mehta: I would actually say I don't think our biggest challenge was attracting talent, even back then and now. Our biggest challenge was reaching out to a very specific group of people who were still willing to believe that you could do product development in India and were not so young that they had no idea.
[00:09:54] Tarun Mehta: So what we quickly realized is, and I think this was a campaign in 2015, I think, or 2016, maybe that we did, so fairly early years of Ather. I think by 2016 we had already built a team of 150-180 engineers. And the vast majority came either out of colleges who were working on Formula SAE, were building race cars, so fairly niche group in every college. Or they came out of the industry, but they were extremely rare people to find. Now, once you found it, and once you put the Ather recruitment team in front of them, or once you put the Ather Folks in front of them, for them, it was an immediate click. The problem was not that once you were in front of them, how to convince them to join us. The problem was just finding these guys.
[00:10:37] Tarun Mehta: So it was pretty crazy because that was the first dollar we spent on marketing and it was spent on basically a recruitment campaign. So we actually took out a bunch of outdoors, a bunch of those billboards in Bangalore and Hyderabad and a few other places. It was, yeah, it's called save an engineer.
[00:10:53] Tarun Mehta: And the idea was that most engineers who actually want to do great engineering work and want to have real fun, especially building hardware, have nowhere to go in India. You should come join us because there's a lot of fun here and we are that rare place which understands that you are an extremely rare and powerful animal. It was inspired from Save a Tiger, I think.
[00:11:15] Shruti Srivastava: So today you're seeing more quality talent flow. And is that just because of EV or the brand that the company has built or the money that's been raised? Or is there quality hardware talent supply that's actually getting built out in India?
[00:11:28] Tarun Mehta: I think India has had good talent for a while. It's just been harder to access and find, but it's been there. Software, obviously we've been good. On a lot of other stuff, like mechanical engineering, like battery, testing talent is genuinely rare. And there, we actually a lot of the talent is frankly homegrown for us, like, somebody in the media recently said that you'll find a little bit of Ather in every EV company. And because most EV companies, the founding team members, maybe you'll see an ex Ather employee, especially in these departments which is rightfully because most of this work wasn't happening in India before that. So a lot of this talent is homegrown. Other stuff, the brand helps them, being seen as a pioneer. And a reasonably good reputation in engineering circles does help but it's built up over a period of time. Yeah. It wasn't the brand that pulled people. It was the people who pulled people in the early few years.
[00:12:23] Shruti Srivastava: Got it. When we talk about brand it automatically comes with associated degree of trust whether it is talent, whether it is other stakeholders, whether it is consumers.
[00:12:34] Shruti Srivastava: When I look at the consumer trust piece here the two wheeler market has been dominated by incumbents for a very long time, and they have enjoyed a large degree of consumer trust, and their marketing campaigns have also been around that. There are years and rather decades of that trust that have cemented on top of each other.
[00:12:53] Shruti Srivastava: How did you look at creating that trust? One in the category itself and two within the category, in the brand?
[00:12:59] Tarun Mehta: I think it's still a work in progress for us. I think, and we are seeing very different stories evolve in different places. Like down South in India, like especially Bangalore, Chennai, Hyderabad, Kerala, all of Kerala. I think Ather today has a reasonable reputation. We don't lose a lot of customers to legacy manufacturers because of trust reasons. But that's also because we've been present here for a long time. Our footprint, our retail presence down south has been pretty strong for the last several years now, three, four, five years.
[00:13:34] Tarun Mehta: As you go up north our retail presence is newer. Our employees are fewer. So there are fewer stories and fault flow to go around. We've done fewer engagement events. So there we see a variant of, increasing variant of this problem that, in fact, one of the big feedbacks we get in every brand track, every quarter that we do is many people think that it is not an Indian brand and people think it's a European brand.
[00:13:55] Tarun Mehta: We've almost been discussing, listen, how can we Indianize our content? Because it looks people don't otherwise think that we are an Indian brand right now. So it is, that problem is very true as we go up north. I now personally feel that where you can't solve the problem already, it's better to not try and solve it.
[00:14:13] Tarun Mehta: I think it's better to not try and convince somebody in UP that we are more trustable than a Hero or in Gujarat that we are more trustable than a Honda, because you're essentially fighting against 30, 40 years of brand trust and hundreds of millions of dollars in marketing spent for several years.
[00:14:33] Tarun Mehta: Nothing short of that can catch up for the kind of generational brand building that these guys have done. And Indian two-wheeler space is, is quite irrational. People don't make rational choices. People don't buy the right spec. People don't buy the cheaper product. People just buy the brand that they trust.
[00:14:52] Tarun Mehta: So we are almost realizing that trying to win that battle is us playing against ourselves, is playing to their strengths. So we're not trying to flip it. What you will increasingly see is we are basically trying to convince people that time has changed and our products, our brand speaks it.
[00:15:09] Tarun Mehta: There's a lot of new tech. There's a lot of upgrade element to this. So I can't talk about everything, but my point is, I think we have come to realize that if you haven't already built trust in certain geographies, it's best to not do a lot of marketing to try and solve that. It's actually better to sell people the idea of moving to something new, moving and moving on the back of new technology and new product promises.
[00:15:30] Tarun Mehta: Just to finish this topic, down south, where we have been able to build trust over five years or so, the word spread. I remember doing a, we did a lot of events, especially Bangalore and Chennai. Over the course of two years, we did 25 events and met about a few thousand people. And every event was like five hours long.
[00:15:51] Tarun Mehta: So we spent a lot of time creating these brand ambassadors, in a few select towns. And while they were waiting for an Ather, and there was no other EV option in the market, they created a lot of aura around the brand. There was a lot of online chatter. There was a lot of looking forward to. And then we opened up these really limited number of experience centers, right?
[00:16:11] Tarun Mehta: So the word started spreading around, even beyond the tier one cities, even beyond a Bangalore. It went off all the way to Hubli and Dharwad and around Chennai, it would go to Coimbatore and Kanchipuram where people from these cities started hearing that there is this amazing, really good looking vehicle, but it's only available in Chennai, only available in Bangalore.
[00:16:29] Tarun Mehta: So there was a lot of brand pull that got created. So when you finally got to these towns we landed as a premium desirable brand, which people had been chatting about for a very long time. But yeah we can't recreate this in every place. Now we've already opened up showrooms in many other towns up north.
[00:16:48] Tarun Mehta: So now I can't create a sense of exclusivity. So you've got to play something different.
[00:16:52] Shruti Srivastava: When it comes to consumer adoption, there's another factor that plays a very strong role, and that is pricing. And right now, while total cost of ownership works out, upfront payment continues to be a hindrance for a large part of the target segment.
[00:17:07] Shruti Srivastava: And bringing down this upfront cost particularly to support cash flow amenability for potential buyers, makes financing a very critical component. What's been the trend for financing that you are witnessing whether on Ather vehicles or in the space in general?
[00:17:23] Tarun Mehta: I think pretty healthy. We're seeing now more than half of our vehicles getting financed, which is pretty close to what the industry two-wheeler trend is.
[00:17:30] Tarun Mehta: We've also pushed this for a good year now to drive more awareness and drive more partners. But generally we find ourselves in a place as an industry and as a company where there are more than enough financing options with the same or sometimes even lower rates than ICE vehicles and reasonable distribution also.
[00:17:51] Tarun Mehta: So I don't think financing is now a legitimate concern. What is a challenge, however, is how the math happens in the mind of a consumer, right? What we haven't been able to fully crack, frankly, is that the customer still thinks of the sticker price. Despite planning for financing, the customer still thinks of sticker price.
[00:18:10] Tarun Mehta: And that's a big top of the funnel problem, right? It's not a problem once you've already come into the show. Then I think conversions are pretty terrific. But top of the funnel, what people hear is, 30, 000 rupees more expensive than a petrol scooter, so what's the point?
[00:18:23] Tarun Mehta: It unfortunately escapes the attention, that's one year worth of petrol. And electric scooter comes with a five year battery warranty. So you will save 1, 50, 000 rupees driving the electric scooter by spending 30, 000 more and batteries will last much more than five years. So there is a little bit of a awareness gap that still exists.
[00:18:41] Tarun Mehta: It's not per se a financing problem. Financing options are a lot there. So if they were to come down to actually looking at the financing cost and compare that with their petrol plus EMI cost of a petrol scooter, the math is terrifically in favor of even the most premium electric scooters. But I think the gap is in just educating customers about this, top of the funnel. In the showroom, the conversion is super easy.
[00:19:07] Shruti Srivastava: Okay. And what about getting people to the showroom then? Because then that's where the work needs to happen.
[00:19:12] Tarun Mehta: That is the organizational OKR. So I'm not kidding. I think for a while now, our highest focus as a company, whether you are in product, design, engineering has been, how can we get more people to come to the showroom, right?
[00:19:30] Tarun Mehta: Remove more and more hassle, more and more friction, more and more mental barriers they have, to come to the showroom. Because once they're in the showroom, the math is so blindingly obvious. The tech superiority is so obvious. The product quality is such a major upgrade that people convert. But how do you get them in?
[00:19:46] Tarun Mehta: I think that's frankly the number one focus for us, all of us.
[00:19:50] Shruti Srivastava: And how do you see that amenability or adoption being impacted with the government withdrawing fame subsidies? And how does this impact readiness and market pool?
[00:20:02] Tarun Mehta: It's slowed down growth this year. So if I were to discuss absolute numbers, it looks like a big delta. The industry should have roughly at least doubled up this year if not 2. 5 X. I think at this point it looks like it'll be more like a 20, 30 percent growth this year. It looks like a massive shock, but in real terms, because of the extreme growth that we are in the middle of, I would call this a three quarter pause on growth. Basically all of us knew that subsidies eventually will be toned down. We were all preparing for it for next year. It just happened a year earlier. So we are now all essentially fast tracking our response to lower subsidies, which is cheaper models, more financing options and just faster awareness building. Not waiting for organic growth.
[00:20:48] Tarun Mehta: Two, three quarters worth of delay, but otherwise that's it. Otherwise, nobody considers this as a genuine trajectory change for the industry.
[00:20:58] Shruti Srivastava: That's interesting. How are you looking at mitigating range anxiety for your users?
[00:21:03] Tarun Mehta: It's not a real problem. Honestly, I think electric scooters have a reverse problem of cars.
[00:21:08] Tarun Mehta: All of us have packed in so much range that we have to tone down the battery pack sizes. Now the last regime of subsidies created a distorted market where building a bigger and bigger battery pack was rewarded by the government. So all of us has built a bigger battery pack and give them free of cost to the consumer, but on the highest spectrum, the battery packs that we were building would give somewhere in the range of 150 to 180 kilometers of certified range.
[00:21:36] Tarun Mehta: Average usage has not crossed 30 kilometers per day for a while now. I think I forget whether it's 95 or 99 percent of our customers, over five years have not done a single day where they've driven more than 50 kilometers. Like it's not like once in a while. They'll never go. So essentially it is giving free battery pack sizes to everybody in a scooter, which is a city vehicle.
[00:21:59] Tarun Mehta: Nobody plans to go on a scooter fun ride from Bombay to Goa, right? That's just not how scooters are thought of. Maybe a bike, maybe a good car, most cars, but not a scooter. Nobody plans to go Bangalore Chennai or Chennai Hyderabad or Bombay Goa or Delhi Jaipur on a scooter. We actually have the reverse problem.
[00:22:17] Tarun Mehta: The only place where range anxiety exists is yet again, top of the funnel. Before you actually walk into the showroom and you look at the vehicle and you start understanding it, most people before that step are like make a 300 kilometer range, you need a lot of range for the scooter. Which is, I'm like, 300 kilometer will be like a four lakh rupee electric scooter, who will buy it?
[00:22:35] Tarun Mehta: But it's a wish. Sure. You can, anybody can throw a wish around. So top of the funnel, what we do is we invest in charging infrastructure. Ather today runs the largest fast charging network in the country. We've got 1500 public fast chargers. And with that, what we're able to answer at the top of the funnel is that, Oh, you're from Prabhadevi?
[00:22:52] Tarun Mehta: Yeah, we have a fast charger there. Oh, you're from Dwarka in Delhi. Yeah, we have a fast charger there. Which gives comfort to people. There is a fast charger in my locality. So let me at least walk into the showroom to talk more. So we do that a lot.
[00:23:03] Shruti Srivastava: Got it. And are you looking at sticking to lithium ion batteries? Or are you also evaluating alternative chemistries here?
[00:23:11] Tarun Mehta: Everybody's evaluating alternative chemistries. But the reality is a non lithium solution is not in the next five years. The way battery chemistry works is, once you see something incredibly amazing at a lab scale, it's seven, maybe even now 10 years before it hits mainstream auto deployment.
[00:23:28] Tarun Mehta: At this point, I would say maybe there is something interesting at a lab scale now, maybe. The chances that it will hit us in the 2020s is not very high. So at least on the five years, we are all on lithium. Now it could be NMC, it could be NCA, it could be LFP. So everybody keeps experimenting with all of that. But a non lithium solution is not in the immediate horizon.
[00:23:49] Shruti Srivastava: And when you started you went full stack. Each component designed custom for you, produced in house. Majority of OEMs now are looking at outsourcing components, battery, powertrain, VCO and this, at least the rationale is that it will give faster product development cycles.
[00:24:07] Shruti Srivastava: Will this result in a better vehicle or will there be like market consolidations, smaller OEMs are likely to get absorbed?
[00:24:13] Shruti Srivastava: Design, particularly for you was custom made. Whereas if I look at the traditional auto industry and the likelihood of that being mimicked over time, how do you think that is going to play out? Will you see potential for component makers, for a motors company, a powertrain company, a standalone VMS, or is there going to be market consolidation on each of these?
[00:24:36] Tarun Mehta: I think we have entered an era where technology is gonna keep changing pretty rapidly now. So I think the old model of suppliers taking a component and mass producing a standard architecture, which will work for multiple OEMs across multiple products, I think is getting harder and harder because technology cycles are much smaller now. Like in the past, you could introduce like one carburetor design, which now you can juice out over the next 20 years. You can launch like this one infotainment unit, which we've all seen with the CD ROM, which will keep spamming out for 30 years and everybody's happy with it. I think now what's happened is you may start working on one Qualcomm processor based dashboard HMI design, but Qualcomm is changing its processor every year or even faster, right?
[00:25:29] Tarun Mehta: Testing technology is changing every six months, every 12 months. Underlying in connectivity stack is upgrading practically every year, complete 4g, 5g, 6g, 7g. The kind of application suits that are getting built on top of it are changing every day. If you're looking at batteries, even if you wanted to say, I want to be a battery back supplier, guess what? You may start your work on, let's say NMC or 2. 8 kilowatt hour for a scooter, urban compactor. Three years later, by the time you'll be ready, the OEM would have already moved on to like maybe LFP, cylindrical cells . So tech is changing much faster than the previous generations. The business model of supplier, which are design led, I think is under a bit more squeeze than in the past. So either you'll have to be very nimble as a supplier, or it's going to be more contract manufacturing of OEM owned designs that we will see for another few years, until this entire technology stops growing.
[00:26:27] Tarun Mehta: That's what's happening in mobile phones. Mobile phone tech is now plateaued out, right? At least from a hardware perspective. So now it's a legitimate argument to make; mobile, don't design, right? Like it's pointless. Just focus on a software, kind of the pixel argument. I think we're still five, six years or maybe 10 years away from that in EV. Once we get to that stage, yes, then OEMs will take their internal divisions, spin them off, make them the suppliers, and then a little bit of consolidation will happen. But I think today OEMs, all good OEMs will end up opening, owning a much higher share of their IP than ever before. And that's not going to slow down for many years.
[00:27:06] Shruti Srivastava: So you gave the mobile phone example, right? How would the evolution be different or, similar to what we saw with your Apple Qualcomm Infineon Foxconn setup that played out in consumer electronics versus your traditional GM playbook?
[00:27:23] Tarun Mehta: So why did Apple go with Foxconn and not on its own manufacturing shop?
[00:27:30] Tarun Mehta: I think, okay, I think while it'll be difficult to go with just one model, I think this new playbook will open up more options around contract manufacturing, contract assembly also of vehicles than before. See in the previous generation, the biggest value of a two wheeler maker came from running its assembly.
[00:27:50] Tarun Mehta: If you did not run your own assembly, how are you a two-wheeler manufacturer? But now as the value shifts more upstream, it shifts towards design, it shifts towards product and not just manufacturing scale, then manufacturing becomes a commodity. See previously, there was once upon a time when distribution was the value, right?
[00:28:08] Tarun Mehta: Like you running your distribution, your store is where the value is coming. Then it went more upstream. It came to manufacturing. So distribution got commoditized and distribution basically became dealers and dealers got commoditized massively with the margin squeezing massively.
[00:28:25] Tarun Mehta: For many decades, now, manufacturing in auto has been the value, but now with a lot of value kicking in on the design and the IP side and the product side, even if you look at cars, for example, cars have been pretty boring. In the last five, six, seven years, cars have seen like an explosion of tech. There was this automotive reviewer who said, the minute you talk about electric vehicle, like car designs become fancy, all the amazing tech is there.
[00:28:51] Tarun Mehta: You've got like AR, VR, ADAS, VDAS, everything you have. And the minute you talk about petrol guys yeah just add two wheels, make a new body for the car. How is tech only in EVs and that's because it's new. So as this value moves upstream, manufacturing will get increasingly more and more commoditized.
[00:29:09] Tarun Mehta: Because yeah, that's just how the world works, I think. So I do think that'll happen. It may not happen immediately because frankly, there's a lot of changes happening. There is some advantage in, in running your own assembly, which is you can just be faster in making changes, but people will learn how to manage this just like how Foxconn learnt for Apple. And when that happens, it will free up more and more OEMs from running manufacturing operations to just focusing on brand and design and product. But it's not, I don't think we are close to where Apple is with Foxconn or where the mobile phone industry in general is.
[00:29:46] Tarun Mehta: I think we are maybe even 10, 20 years away. But it's getting there. Definitely, the manufacturing, as a central value in the company, has come down massively already.
[00:29:55] Shruti Srivastava: And so when we look at manufacturing, particularly battery selling processors, a lot of that today sits in China. And with, increasing geopolitical tensions how does one look at managing supply risk and de-risking price volatility, managing inventory. And we've seen this play out with long lead times in COVID. How does one look at solving for this in the current scenario?
[00:30:20] Tarun Mehta: We were obviously born with this world. So we have never seen a stable semiconductor supply chain in our lives. So our base assumption is that semiconductors are just random. Like sometimes there is a glut and sometimes there is a shortage that lasts 18 months. So the way we think about hoarding, the way we think about diversification, like we just don't work with one semi conductor. Like there is almost no critical design that is a single vendor dependence, like absolutely not.
[00:30:50] Tarun Mehta: What we've come to realize now is traditional auto never thought that way. Traditional auto built these single partner relationships, strong vendor guarantees and commitments. And I think that has surprised traditional auto quite a lot where like suddenly a semicon company can say, you know what, your auto is low priority for us, so we're decommitting on all supplies for the next six months, moving on to mobile phones. And then you are screwed, like you have a single vendor dependence and you can't change it fast enough. So while we've also struggled with it, but we struggled with it at low volume, like two, three thousand units a month.
[00:31:28] Tarun Mehta: By the time we got to ten, fifteen thousand, we've gotten out of it. China dependence is a different problem. I don't think there is any true decoupling that you can do in this time frame, frankly. You have a dependence, you have a dependence, you can't run away from it. I think policy makers also get it.
[00:31:43] Tarun Mehta: It's not like you can just wake up in tomorrow and ban China imports . But honestly, there is a big push and it's very real, it's not just PR. There is a genuine push to, over a period of time, reduce China dependence. And that's just not in manufacturing, it's also in technology. There is a big push that's recognized even in companies. Even we look at our technology from a perspective of where does the IP for most of this product sit? So let's say if you're buying a specific kind of a cell, if you're buying a specific kind of a chip, the question that does genuinely happen in, in, in the room now is if most of that IP actually sits inside China, then it may not be a problem now, but the chances that it will at some point be used as a strategic weapon by one side or the other is pretty high. So you want to start decoupling, actually, even if it is economically better, you want to start betting lesser on technologies that don't have enough of an IP that sits outside of China.
[00:32:39] Tarun Mehta: It's a very real conversation today. I was actually even going beyond China. I think now there are a lot of different geographies that you're now worried about. I think we're lucky we're in India, which is increasingly becoming a large economy. We're not like in one of those really tiny countries. So we can still hope to have enough of a local ecosystem at least in the future. But yeah, that does happen.
[00:32:59] Tarun Mehta: And I think there's also favorable policy. If you can get the feedback out to policymakers, there is enough interest in creating demand or supply, often supply side, incentives to move a specific production to India, to move specific set of vendors to India. Technology is still harder. I don't think as a policy we have figured out how to move technology developed into India in a big way, but we're getting there. Definitely getting there.
[00:33:25] Shruti Srivastava: And speaking of managing across the life cycle EPR, Extended Producer Responsibility, now covers batteries as well. And so how is Ather thinking about end of life management for its vehicles?
[00:33:38] Tarun Mehta: The best defense for end of life of batteries is the high cost of batteries. A typical Ather battery would have, I keep mixing this math up, but I'm reasonably certain it's somewhere in the range of say 15, 16, 000 rupees of raw material inside of the battery pack.
[00:34:02] Tarun Mehta: I'm not saying the cost of what Ather buys at. It's obviously higher. If you were to strip down everything by recycling, it was just raw material in it, it's that high or even higher actually. Who should throw that battery pack away? In India, lead acid batteries, which cost like 4, 000 rupees for that thing that you put inside a car ,about 70 percent of that is lead, which is obviously recyclable.
[00:34:26] Tarun Mehta: Guess what is the recycling level of that 70 percent lead, which is by the way not very expensive. Like you'll recycle that and probably get like 600-800 rupees. So for that, the recycling level in India is I think in excess of 99%. Like lead does not just disappear, like nobody throws those battery packs.
[00:34:44] Tarun Mehta: Even if you throw, somebody is scavenging it very successfully and bringing it back for recycling. And not because of the goodness of the heart or the worry for the Indian environment, but because there is 800 rupees in it. Now, imagine the same thing for an Ather battery pack or any e scooter battery pack.
[00:34:59] Tarun Mehta: It's 15, 000 rupees. I would actually worry about people stealing battery packs from scooters. Less about people just discarding battery packs and making its way to landmines. It's just not happening. The recycling on this is going to be quite crazy, quite enormous, quite powerful. We're already seeing that, it's obviously technically doable. How to convert that to black mass and how to strip everything out from it.
[00:35:20] Shruti Srivastava: The reverse logistics is very complicated.
[00:35:22] Tarun Mehta: No, this is not complicated because these are not small items that small roadside mechanics will just replace, right? You can't. This is the central vehicle battery pack. If you're ever taking the battery out of the scooter, you're putting something else in, right?
[00:35:36] Tarun Mehta: Obviously. So it will happen at a dealership. Battery is such a central element that is not going to get just thrown away. So it'll come via dealerships or it's such a high value item that even if it's a parallel value, a parallel distribution that pops up for it, it will be organized enough.
[00:35:55] Tarun Mehta: It won't be like, people will be just, I've just collected one battery out of a scooter and I don't know what to do with it. Absolutely not going to happen. Nobody's going to give you that battery. And you're not going to be one of those lucky guys who gets like just a few batteries and you just decide to throw them.
[00:36:10] Tarun Mehta: So it's just very valuable and hence stripping it down is extremely powerful. So at this point, what we are seeing globally in EVs is these these batteries eventually find their way back to the OEM with a reasonably organized system. It does not look like it will get unorganized and once these batteries come back then, obviously I doubt most OEMs will run their own recycling operations, they will be contracted out.
[00:36:32] Tarun Mehta: There are good recycling tech partners who will then run the entire operations of stripping them down. There is a line in policy making: lithium once in the country never leaves the country. And the idea is recycling levels are going to be so enormous that 15 years down the line, we will not need to import any lithium.
[00:36:50] Tarun Mehta: We will not need to import any nickel or cobalt, sorry. Purely because you have enough lithium, nickel, cobalt, all of this in the country that just using the recycling, you can probably meet 80, 90 percent of your annual demand now. It's a very real path that's going to happen.
[00:37:05] Shruti Srivastava: As Ather today has a strong brand in two wheelers and even Ola to some extent, do you believe there's a space for a new brand in the electric cars category as well? Or will the space belong to incumbents?
[00:37:20] Tarun Mehta: I think electric cars are a bit more difficult to crack in India. Because India in itself is not a very large car market. India has been extremely late to EV car tech. There is an enormous amount of innovation that happened in the last 15, 20 years in the rest of the markets. And most of it has already made its way to India.
[00:37:39] Tarun Mehta: So in companies like Tata, Mahindra, or even Hyundai, Kia and now Nissan, everybody has already been investing seriously towards electric car tech for the last five, 10 years. And you're starting to see good products come out of it now. So I think startups have a space when they have something different, the fundamental disruption, right?
[00:38:01] Tarun Mehta: Like for example, when we started, the disruption was the spec. This spec, nobody else is building, and hence Ather has a right to enter the market and make a name for itself. By the time Ola launched, their disruption was, for a brief period, price and distribution. At that price, nobody else was willing to sell for a brief while.
[00:38:20] Tarun Mehta: But already in Electric Two Wheelers, the disruptions, it's no longer spec, it's no longer price. So either you bring in a radically different tech or rethink distribution massively, how will you break in?
[00:38:32] Tarun Mehta: And cars have a much higher degree of this problem. So am I very confident that new players will break into electric cars? No, I think the minimum ticket size, because it has become BAU, it's business as usual. So to enter a business as usual industry, without a meaningful distribution, you then need to throw a ridiculous amount of capital at it, like airlines.
[00:38:53] Tarun Mehta: In two wheelers, that number is, I would say about 100, 150 million dollars. In cars, that number is in excess of a billion dollars. . So I think electric cars are a lot more challenging than scooters.
[00:39:05] Shruti Srivastava: What are the near term plays around EV which new entrepreneurs can target to disrupt? Is there potentially something around supply chain alternatives to China?
[00:39:15] Tarun Mehta: Oh yeah, absolutely. That is a big space. It's best if you spend some time in the industry to pick up what the opportunities are, but there are opportunities around motors, there are opportunities around self manufacturing, there are opportunities around PCB and DCBA. Displays -we don't make displays in India and that's crazy.
[00:39:31] Tarun Mehta: We don't make good switch technologies in India. So yes, supply chain alternates to China, I think opens up an enormous list. Actually, that's a very good description. I like it. A lot of people often ask me and I take a million minutes to get to this description. I think that's a good description- supply chain alternates to China. That's the real opportunity. And I would say that's probably the number one opportunity if you want to break into the EV space, unless you want to break in as an OEM.
[00:39:55] Shruti Srivastava: We are at an inflection point right now as far as electric mobility is concerned in India and what elements can the ecosystem support to drive mass scale adoption?
[00:40:04] Tarun Mehta: Do you mean government?
[00:40:07] Shruti Srivastava: Whether it is government, whether it is foundations, investors, existing corporates that are active dealers.
[00:40:13] Tarun Mehta: I don't know how to answer it because except government here, nobody here, none of the other entities thinks like an entity, right? It's not like investors get around a table and say, listen, let's figure out how to help EV.
[00:40:28] Tarun Mehta: Investors can't really help EV. If the sector becomes investable, then investors will ride that wave. Whether it's investors don't decide to help EV, suppliers don't decide to help EV. If there's an opportunity, for example, in the anti China thing or the alternative China thing, then suppliers will jump in and take advantage of the opportunity.
[00:40:45] Tarun Mehta: Government is the only entity here probably, which can actually decide to make a difference. Government can decide that, listen, I want to provide incentives. So I want to encourage, I want to incentivize, let's say, manufacturing or demand or supply or infrastructure creation. And if I were to speak from that limited perspective of what can the government do, I would say government can, apart from the incentives that it has on the demand side and a little bit on the supply side, it's a very hard battle, but the government can choose to fight the battle of charging infrastructure, which is basically getting a socket in every parking lot.
[00:41:20] Tarun Mehta: I've been pitching this for a while that it's a much more sophisticated version of the post boxes that popped up in our apartment complexes. Back when most of us are 20, like 20 years, 25 years ago, one fine day suddenly like the post office decided that they won't go to everybody's house. And we all set up these 100 boxes at the entrance of every town.
[00:41:39] Tarun Mehta: It's miraculous like how the entire country figured out a way to do it, for that time. I think we need a much more sophisticated version of that. And because the thing is the most accessible commodity in the world is not water, it's electricity. It's the most accessible commodity. It's literally running through every pillar everywhere. The problem is not availability. The problem is access. We haven't figured out a standardized way of tapping into building electricity and using it in a way that's fair and well compensated and a sensible business model, right? That's what we've been missing.
[00:42:11] Shruti Srivastava: We're seeing increasing opportunities for quality tech products being built in India for the world. How do you see the potential for India manufactured EVs and export markets?
[00:42:21] Tarun Mehta: Oh, huge. India is already a pretty large two-wheeler exporter. We are, I think, 19 percent of the world's export of two wheelers. I would, I am willing to wager, willing to take a pretty big bet that India will be nothing short of 50 to 60 percent of the world's export of electric two wheelers in the coming two decades. The simple reason being that three large export houses in the world for two wheelers.
[00:42:42] Tarun Mehta: It's Japan, China, it's India. Now, China is pretty busy with electric cars and buses and trucks. Electric two-wheelers are not the priority. They aren't investing in technology, they aren't investing in quality, they aren't investing in brand. All the brand building, all the tech building, all the product building, all the quality building is limited to other products. They have decided to strategically skip the electric two wheeler beyond a certain point. And Japan does not like electric for some reason, right? So Japanese companies have been the last adopter of EV tech and that too, they've been forced into it.
[00:43:15] Tarun Mehta: So Chinese and Japanese companies are just not serious or committed enough to building electric two-wheelers. India, however, finds itself at a place where we are today the most sophisticated and the most advanced technology market in the world for electric two-wheelers.
[00:43:29] Tarun Mehta: We are the most technologically advanced, sophisticated market. We have one of the highest densities of engineering talent in the world. We may not have the highest number compared to China, but China probably has 30 to 40 people per company. India on average has 400-500 people per company.
[00:43:44] Tarun Mehta: So we're just outnumbering the Chinese in this and hence the product quality is much higher. And hence, I believe that when e two-wheelers start getting exported in meaningful numbers, Indian products will be the only ones that have a chance. China, Japan don't have a real opportunity.
[00:44:00] Shruti Srivastava: Can you shed some light on which components might OEMs keep in house outside of battery packs?
[00:44:04] Tarun Mehta: Yeah, that'll depend on every OEM specific strategy. Battery packs are generally a common denominator, you're right. I think there'll be a pretty healthy number of OEMs who will keep motor controller technology in house.
[00:44:19] Tarun Mehta: There'll be a pretty healthy number of OEMs who will keep BMS -battery management system- in house and a reasonable number of OEMs will keep HMI technology, a product tech in house. Yeah, that's in the decreasing order of what's very likely to be kept in place.
[00:44:35] Shruti Srivastava: Cool. With that we'll call it a wrap. Thanks again, Tarun, for making it here and for sharing all your views and insights. And hopefully we should see more people jumping in and trying to solve for China resilience in supply chains and other aspects of the ecosystem here.
[00:44:53] Tarun Mehta: Thanks for having me over folks.