Andrew Lockley – Exponential Investor (United Kingdom) –
Last week brought us a slew of astonishing transport stories: Uber’s data breach cover-up; Lyft’s $500m round; and Volvo’s incredible 24,000-vehicle autonomous car deal (more in that vein tomorrow).
Of course, you can read about all that in the mainstream press. Exponential Investor’s role is to bring you the investment stories that everyone’s overlooked. This week, it’s all about transport – and the hidden profit opportunities that you can take advantage of.
Personal mobility, dominated for decades by cars, is facing upheaval. Disruptors include Tesla’s electric drivetrains (available now), Baidu’s fully autonomous vehicles (coming 2021) and Airbus’ personal drones (2023). These are all very whizz-bang – but one big disruptor could be a much simpler technology. Exponential Investor has already covered how bike sharing is changing the world – but there’s a high-tech twist to the resurgence of bikes as a popular transport mode.
Could the humble electric bike be a surprise success?
Today, we’re exploring this market, by looking at one particular player – Hinton Bikes, based in Cambridge. It’s founded by Alex Murray, a cycling-obsessed management consultant, and Dave Henderson, an ex-engineer at Jaguar Land Rover (JLR) with a passion for electric vehicles. They are developing a lightweight folding electric bike for urban commuters.
Today, Alex is going to explain why he thinks electric bikes will be a huge success story.
AL: I have seen some pedelecs in the UK – but not that many. Is this really a big market?
AM: The pedelec (pedal electric cycle) market in the UK is playing catch-up. There isn’t a reliable source for pedelec sales in the UK but they are estimated at 50,000-100,000 units per year. In contrast, 270,000 pedelecs are sold in the Netherlands every year, that’s about one in every three bicycles sold. Germany is the largest market with about 600,000 units sold per year out of an EU total of 1.7 million. Accurate numbers on average prices are harder to come by but it’s somewhere around €1,500. That’s a c.€2.5bn market in 2016, and it grew by an average of just over 30% per year over the preceding decade. Sales are really booming, and with no need to develop new infrastructure and low regulatory hurdles, it’s easy to see why.
AL: Why the European focus? Surely there are bigger markets, globally?
AM: A lot of people ask us why we aren’t targeting China where over 30 million ebikes are sold per year. The short answer is that regulations, price points, and consumer behaviour is so different over there that their ebikes are a completely different type of vehicle. Meanwhile, the US is very fragmented as regulations are written at the state level. There are opportunities but you have to look at the US state-by-state or even city-by-city.
AL: There’s been a lot of talk about the future of mobility changing in the next 10-20 years – with autonomous cars particularly held up as the transport of the future. How do electric bikes fit into this vision?
AM: This is indeed a big topic and we welcome the advances that will be made. Autonomous vehicles offer a real opportunity to change the model of car ownership, and reduce traffic accidents. What they don’t do is contribute to active travel. Pedelecs are often thought of as being for lazy people – but there’s a growing of research that shows that they encourage otherwise inactive people to get back on their bikes. Although the intensity is lower than for a regular bike, pedelec riders cycle more often than traditional bike riders so the amount of exercise balances out. This is in part because having more control over the amount of effort you put in removes psychological and social barriers to cycling – like turning up sweaty at the office. Pedelecs aren’t for everyone but they are an ideal solution for those independent-minded souls who want to have more control of their personal transport and health.
AL: Electric bicycles have been around for years. What’s new?
AM: You’re absolutely right. The oldest electric bicycle I have come across is from 1881, but that is also true for electric cars. The same trends that we now see reviving the fortunes of electric cars have also opened up new opportunities for electric bicycles. This is mainly due to advances in battery technology – huge investment in which has been driving capacity up and costs down. Motor technology has also taken a step in the right direction – with tier 1 suppliers like Bosch and Yamaha developing systems for electric bicycles, and innovative new suppliers like Bafang emerging with strong service models. Having large companies doing the heavy lifting on these capital-intensive components leaves space for new companies to develop exciting electric bicycles that go beyond their traditional use as mobility aids.
AL: How do modern electric bicycles work? Is it any bicycle with a motor?
AM: That’s a good question and the source of quite a lot of confusion. “Ebike” is a generic term that can cover anything from a bicycle which boosts the pedal power of the rider, known as a pedelec, to a powerful electric motorcycle. Most ebikes are the former. They typically have a motor installed on one of the wheel hubs or down by the cranks (known as mid-drive). This is connected to a motor controller and a battery pack. Sensors detect your pedaling and top it up with assistance from the motor, to a maximum speed of 25km/h. Because electric motors deliver instant torque, electric bikes pull away from traffic lights very quickly and are very nippy up hills. Pedelecs across Europe follow the same rules as regular bicycles – but if you want one that assists above 25km/h then it will be regulated in the same way as a moped, meaning you need a licence, a licence plate, a helmet, etc – as per local law.
AL: What’s Hinton Bikes’ take on this technology?
AM: At Hinton Bikes we’re developing a lightweight folding pedelec. No has yet cracked all three at the same time. Most folding pedelecs now are the size and weight of the largest bag that you can check in at the airport, 20-25kg. We’re aiming for something closer to the size and weight of a carry-on bag at around 12-13kg. To do this, we have developed our own folding frame, designed to house the battery and controller inside the frame tubing.
Our pedelec will also be controllable by an app. This will allow you to adjust the level of motor assistance, control the lights, and provide predictive maintenance warnings. Initially we’re targeting urban commuters in London, particularly those who typically make part of their journey by bus or train.
AL: Brompton announced its electric folder in July. Haven’t established companies already tied up this technology?
AM: Yes and no. Brompton is a highly regarded folding bike brand – and they did launch their much-anticipated electric folder recently. They have been talking about this for the last decade or so, and their pedelec reveals much about the difficulties of developing a folding pedelec. Like most electric folders, the electric Brompton is essentially a retrofit of their existing bike with a hub motor fitted on to the front wheel – and a battery pack in a shoulder bag, which clips on to the front of the bike when it’s unfolded. This means that you have to carry both the bike and a bag when it’s folded. We know from talking to potential customers that convenience is really important for pedelec riders, and the Brompton solution doesn’t quite hit that. It’s also worth noting that these retrofit kits for Bromptons and other pedelecs have been available for years; and they are usually considered a stopgap between a regular bike and a pedelec, rather than an ideal solution.
AL: A number of other brands came on to the market recently. How are you going to win this sector?
AM: Other companies have also developed folding pedelecs. These tend to focus just on price and therefore have a poor fold, or require very expensive custom tooling to build. We don’t anticipate being the cheapest, but we do want to really hit those key requirements of being small, light and convenient. Having a small, light bike also opens an exciting opportunity to build a business model around direct interaction with consumers – by selling online, and offering maintenance through a postal service. Companies like Canyon have already shown that this model works for high-end road bikes and it can really add a level of convenience that gets non-cyclists on to bikes, thereby bringing new customers into the sector.
AL: One form of competition is coming from dockless bike share. Chinese startups like Mobike and Ofo rolling out millions of shared bikes per year, to cities all over the world. Why would anyone buy one of your pedelecs when they could cheaply rent a bike?
AM: Mobike and Ofo have had a spectacular rise over the past couple of years, putting tens of millions of bikes on the road and achieving multi-billion-dollar valuations in the process. They have worked particularly well in Chinese cities, where there is lots of public space for the bikes to be left by riders. It remains to be seen how well this model will work in European cities, like London – which are often built on medieval layouts, with tighter public spaces. Their bikes are also not electric, so we are really talking to a different set of customers. They have floated the idea of launching some ebikes. However, given that their business model is based (in part) on manufacturing bicycles for as little as £30, it is difficult to see how they would do that in any serious volume.
AL: Tell me more about the team behind Hinton Bikes.
AM: Dave Henderson and I are the two co-founders. We’re a young team, who met in Beijing a few years ago. We were studying master’s degrees, and learning Mandarin at Tsinghua University – after spending some time in industry. Dave is a mechanical engineer with a background in automotive engineering, mainly with Jaguar Land Rover. He has been interested in electric vehicles for many years – and left JLR out of frustration at the slow pace of adoption of EV technology by the industry. I used to work as a management consultant in London, with OC&C Strategy Consultants. I have always been a keen cyclist – having ridden coast-to-coast across the USA, and from Hong Kong to Beijing. We are both passionate about getting more people on two wheels and decided that together we could develop something exciting for the European market
Our team is rounded out by Hongwei Ma, an electrical engineer who lectures at the Beijing Institute of Technology; and David Turpin, a designer with over 20 years designing consumer electronics in France and Hong Kong.
Dave and I relocated to Cambridge about a year ago and since then have been working with the Allia Future Business Centre and the Cambridge Judge Business School to get the business off the ground.
AL: How far along are you with your product development?
AM: We’ve spent most of the past year developing our folding frame and electrical system. The prototype frame is now undergoing final assembly and we are drafting a patent to cover its folding mechanism. The electrical system is also approaching completion: it has been designed and we are currently testing components and debugging the code. We hope to be able to reveal a fully working prototype in the next couple of months.
AL: I saw you take part in Pitchfest, at this year’s Venturefest East. What did you think of the event, and what were you hoping to take away from it?
AM: We successfully made it through two rounds of pitching competitions to make it into the Pitchfest final, and were pleased to use the opportunity to tell potential investors and partners about why they should invest in our business. Investment at this stage would really accelerate us into the market by supporting our preparations for manufacturing, and giving us a marketing budget with which to successfully launch. If any of your readers are interested in backing us, they can get in touch. We’re happy to have individual discussions, or add them to our investor mailing list so that they can track our progress in the coming months.
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