Talk Amongst Yourselves

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There’s something happening on the electric side of the motorcycle industry, but no one is talking publicly about it. It’s a fragile idea, and it feels like even mentioning it could jeopardize its very existence. Because of this, I’ve wrestled with putting words down to discuss the topic, not wanting to be the person to spoil the whole thing.

However, lately so many influential people involved with electric motorcycles have independently brought up the subject with me that this discussion is not only becoming unavoidable, but perhaps airing the idea out in public will facilitate some sort of greater dialogue between the different parties. The concept that I’m referring to is of course consolidation.

I sincerely doubt I was the first person to ever bring up the idea, but when I was on the Motorcycle Nation Podcast in January of last year, I voiced the idea that if one could take the best pieces from the various electric motorcycle startups, you’d have a formidable company that was capable of giving the OEMs a real run for their money. For me, this started a series of conversations with other, dare I say, influential people who had a similar feeling about the electric motorcycle landscape.

The conversation on consolidation was gradual at first, as you’d hear someone say in passing, “I really like what Company A is doing with Technology X, if only we could combine that with Company B’s work on Technology Y.” About six months ago, the pundits on the sidelines started getting more vocal about the subject though, and were fueled by the ailing economy and the nuclear wasteland that was passing for the motorcycle industry.

It wasn’t until recently however that I started hearing the companies themselves talk about the idea of consolidation. The driving forces behind this are probably equal helpings of listening to pundits, struggling to raise capital, and watching the established big OEMs begin to dip their toes into the EV waters.

A reoccurring question I asked the four companies highlighted in my “Tradition is Not A Business Model” series, was what was the game plan when (insert Japanese or European manufacturer name here) entered the electric motorcycle market? I never really got a satisfactory answer to that question, and my own thoughts have been that the outcome will look something along the lines of the complete decimation of the only real innovation to hit motorcycling the past decade or two. The exits for these companies are rapidly closing.

Every company should have an exit strategy, and the good startups have more than one. For electric vehicles the exits however are limited to acquisition, strategic partnership, market domination, and oblivion. The oblivion exit is an easy one to explain: it’s an exit to the trash can. Sadly for most of the companies playing in this market, the ones simply assembling off-the-shelf parts, that’s where they’re going to end up.

Electric powertrain technology is rapidly evolving, and if you’re not developing the cutting edge that’s pushing the evolution of motorcycling, you are going to be left by the wayside. This of course means that EV’s need to develop their own intellectual property, which we see the larger ones doing…in spades. There is a trend for these startups to become more like IP houses than actual motorcycle companies, and that’s because there is value in licensing the technology to larger OEMs and strategic partners. It’s an idea that plays to the core strengths of a small company that is high on intellect, but low on capital. The downside though is that it’s like playing Russian Roulette with the devil — given enough time, you know you’re going to lose…and by lose, I mean die.

IP-based strategic partnerships almost universally end with the larger company either reverse engineering the smaller company’s technology, or using that technology as a bridge, while the larger company builds its own IP up to the market standards. The strategic partnership is alive and well in the EV world, but throw an egg timer into some water because it is really only a matter of time before these startups are cooked and served up for dinner by the OEMs they are partnering with currently.

The more advanced variation of the strategic partnership exit, is the acquisition. The recipe is the same, except the intellectual property involved might be more advanced or more costly to reproduce. There could also be some elements of brand value at play, or considerable traction in a market segment. Whatever the case may be, at the end of the day the companies banking on this exit are hoping that an OEM comes along who wants to rapidly enter the electric market, and the cost of them doing it alone are greater than the cost of buying an established player already in the market.

While this strategy was the favorite son of investor pitches a couple years back, it has one fatal flaw that no one realized. The reason electric vehicle startups were able to dabble in the motorcycle industry in the first place, virtually unhindered by the OEMs, is because none of the OEMs had the available resources to compete in making electric motorcycles (apparently there was a recession going on).

Of course the same set of circumstances that created this EV sandbox are what’s keeping OEMs from making acquisitions now, as all the major manufacturers are still licking their wounds and watching their pocketbooks from the failed economy. Add into the mix that none of the electric motorcycle manufacturers are pumping out impressive numbers of bikes to consumers, and the call for acquisition becomes even smaller.

The strategy at hand for the OEMs is simple at this point, and was predictable two years ago. The major manufacturers are content to sit around and watch the various EV startups prove the electric motorcycle market, and develop the technologies necessary to make these vehicles practical for motorcycle enthusiasts. This is all while the OEMs sit in their R&D facilities, and polish their designs and technology, waiting for when the cost comes down and the performance goes up.

They’ll partner with a few companies, likely to keep tabs on them if for no other reason, but there won’t be a lot of money in these deals. All the while the moment for that quick exit through acquisition slips farther and farther away, until one day these startups will wake up and see a bevy of competitors with established brands, worldwide distribution, and budgets that rival the GDP of East Timor competing with them. The outcome won’t be pretty, and this is where the consolidation comes into play.

While the OEMs are able to cherry-pick the startups one-by-one at will, the combined resources of these companies, developing a truly intriguing electric motorcycle package, is a much larger obstacle to overcome. Not only could the strengths of each product offering be combined into one, but more importantly having a number of these companies under one roof would not only limit the options of the OEMs in piggybacking off of their developments, but it would also eliminate the current competition for fundraising, both in the private and public sectors.

If you power down the Powerpoint slides, and set aside the investor pitch decks, you’d find a universal element existed at the creation of these companies: to start an actual electric motorcycle company. That goal is still attainable, and could be the starting point for a shared collaboration between these firms.

Talk amongst yourselves.