Project 7 - New Business Entry Strategy for Leading Battery Manufacturer
Intro:
New Biz Development for one of the largest battery manufacturing company. The client was aiming to diversify its business portfolio, as its main business of battery energy solutions (for xEV and ESS) turned into its main growth pillar. The client seeks to use its free cash flow to invest into new businesses adjacent to its current offerings, which included an entry into the energy sector, and also developing new solutions with its current battery products. My particular module centered around creating a business model for the battery swapping, or “Battery-as-a-service” model, in particular, for two-wheelers (motorcycles), as we had conducted an initial analysis into the automotive segment, and had concluded that the economics were not worth the investment at the time being (perhaps later). Given the nascent nature of the industry, the project scope included verifying whether such a market existed, and whether the business itself was worth entering, not only from a financial perspective, but also in regards to the ESG agenda that it would complement with the additional electrification targets that the company would help the country meet. As the client was the leading player in the battery industry, it definitely was challenging in regards to proposing a completely new business model, and trying to convince them behind the logic built up, from market sizing, to the small details of actual revenue growth and marketing techniques to capture demand.
Duration/Members/W&L Balance:
As a typical new-biz/entry strategy project, this project lasted for 12 weeks, with on module looking into the energy biz., while mine looked into the battery swapping biz. We started the project with 1 PL + 4 consultants, but ended up as a 1 + 3 as the scope was later narrowed down. Since the project entailed defining the business scope, and the strategic direction into completely uncharted territory, the first month was incredibly difficult, going home at 3-4 am everyday; however, once we had won over the client and aligned on mutual objectives, the project flowed smoothly in the last month, with a bearable worklife balance, ending at around 10-11 pm-ish on a regular basis. Looking back at it, the project difficulty was very high, as the industry had a high degree of complexity, with subtle nuances determining the hegemony of the supply chain. It was definitely one of the hardest projects that I had to endure, but I did find that the work that we did brought immense value to the client, as it not only shed light on the actual market landscape, including the actual stakeholders that the client would have to cooperate with in order to realize the new business.
Battery Swapping for Motorcycles
Most electric two-wheelers can’t exceed 80 km with a single charge. Therefore, battery swapping is a strong alternative to the traditional plug-and-charge (which takes around 3-4 hours for a full charge)
Thoughts on Industry:
Battery swapping is a tricky business. Since motorcyle owners don’t really have a strong incentive to switch to electric model, there was a big reliance on the government subsidies to make the initial investment an attractive one, and the public needed to be educated on how switching to a electric model would do wonders in lowering the total cost of ownership (TCOE) for the owners in the long-run. However, because of the technological limiations at the moment, riders experience quite a bit of discomfort in regards to the performance aspect of E2Ws (electric 2-wheelers). In particular, more than the driving specifications, such as top-speed or acceleration metrics, the main issue with E2Ws in comparison to their ICE counterparts was the driving range, as most models can’t exceed over 60~80 km over a single charge. Also, charging takes a bit longer comparatively than it does for a regular car, due to the chemistry and differences in battery technology. Due to this, the battery swapping business model emerged, where the batteries can simply be replaced at a swapping station rather than going through an arduous charging period. However, in order to verify that the riders would actually use this service, we needed to make sure that the demand was actually there, and the benefits were tangible to the end-user.
Of course, setting up this entire model entails a deep look into the whole ecosystem, from the battery manufacturer, to also the companies who manufacture the E2W models, as well as the battery swapping infrastructure.
Settling on the right amount of swapping stations, and available batteries in circulation was a big problem to solve as well, as that directly affected the economics of the model. Of course, you needed to ensure that there was a sufficient circulation of batteries in the ecosystem to allow the riders an ideal experience, of actually having available batteries to swap at the right time and at their convenience, but also low enough to ensure that the utilization rate of each station/battery was sufficient to ensure profitability. This calcuation then included a deep-dive into understanding rider behavior, and the appropriate selection of locations to install the appropriate infrastructure. Of course, since we couldn’t simply expand as the gas station model, it made sense to partner up with companies that had offline retail points to ensure sufficient dispersion of these swapping stations. That could include gas stations, to convenience stores as well.
Since the only viable model existed in Taiwan (Gogoro) at the moment, the client and involved players had to be all aligned in the objective of market creation, and that was hump that we had overcome throughout the project.
Benchmark: Taiwan Gogoro
Gogoro is currently the only viable battery swapping business model in the world right now, and even they broke even after 10 years in the business. Profitability does not come easily in the battery swapping business.
Project Details:
There was nothing straightforward about this project. The client didn’t even know what they wanted with the new business model, so we had to build up from scratch, and identify the appropriate players to get involved. As mentioned above, to ensure that there was demand to keep the ecosystem flowing, albeit at a smaller scale, we decided to identify the riders who depended on their vehicles for a living: delivery riders. They drove at least 150 km a day on average, so would need to go for a gas refill at least on a daily basis, and therefore stood to gain a lot from switching to electric, especially with the excruciating gas prices as of late. Therefore, we targeted the main delivery platforms, whether that be Ubereats, Woowahan, etc. who had actual stakes in owning large fleets, and renting/leasing out the bikes to the riders.
The intial phases of the project included a lot of modeling and logic building around the actual market, whereas the latter half of the project actually led us to grab business meetings with the relevant stakeholders, and identify their willingness to participate in the business, and ultimately leading to a new business structure unfolding, which could take the form of a joint venture, a consortium, or just a simple internal venture (company-in-company) for the client.
It was quite exhilarating to actually go out in the field? And meet the actual companies to which we should cooperate with. Given the nature of the project, we had to closely work with the clients in the working level, and really align our negotiating points before entering a meeting with a third party. We actually ended up ending the project by getting the ‘go-ahead’ on the business from the CEO, having set-up the main structure of building the business and successfully transferring over the rest of the details to the client.
Personal thoughts:
Personally, this project had a lot of meaning to me, as the client was actually my first company. I returned to the company, now as an outsider, and I was able to meet up with my old colleagues who were still there. I wasn’t able to fully leverage my own expertise into batteries, as the project scope didn’t really require much technical knowledge; it was much more navigating the intricacies of the business itself. Nonetheless, it was a project that was high-stakes right from the get-go. As a high-tier consulting firm, we had to make the business “work”. It isn’t as attractive of a recommendation to just highlight the risks and difficulties associated with the business, so we had to make sure the model worked, and as the scope expanded into the initial operational phases of the business itself, we also had the opportunity to prove that our logic stood the test of reality. The stakeholders that we reached out to definitely confirmed the demand that we were looking for, and had the sufficient capability and willingness to participate in the model that we were building. I admit, there aren’t many cases like this where the actual recommendations end up providing a lot of value to the client, but that is one thing that makes you feel wholesome as a consultant.
Consulting Lingo:
New Business Entry
Renewables
Growth Strategy
Joint Venture/Business model structure
Market Sizing/Segmentation