The Future of the Chinese E-bike Industry: lessons learned from the Chinese motorcycle industry

I believe what's happening in the e-bike industry in China is very similar to the case of the Chinese motorcycle (MC) industry evolution a decade ago, though the "Wikinomics" effect of decentralized production is perhaps happening on a larger scale with e-bikes.

What got my thinking about this were the book Wikinomcs by Don Tapscott and Anthony D. Williams, and some great reports by Ge Dongsheng, Takahiro Fujimoto, and Yasuo Sugiyama on the Chinese motorcycle industry.  My advisor posed a few questions to me on the subject of whether there are parellels between this industry and e-bikes.

 
    1) what about patent law and intelectural property protection? In this case of motorcycles, the industry evolved before     China (and Vietnam) became concerned about IP protection. Will it change as more protections are put in place?
    2) The motorcycle technology was a mature technology, esp for small cheap motorcycles. Thus the rewards from R&D     were small
    The question is whether circumstances are different for e-bikes? It is not a mature technology, stronger IP protection is     starting to be put in place, and there is no external industry/product to imitate.

My Response:

1. IP protection is still loosely enforced. I glean this from interviews with e-bike managers at the trade shows, and it's reinforced in the models I see on the streets. National gov't has little hope of regulating the estimated 1300 e-bike producers + vast network of parts suppliers. I would argue this industry evolved with maybe even less IP protection than the MC industry (in its beginning when only China SOEs made MCs, they at least paid for the technology from Japan).  It's still very "Wild West"-style over there.  IP protection is not preventing knock-offs.

"Knock-offs of what?" you might ask. You mention the e-bike industry has no external product/industry to imitate.  I would argue that they actually have a big industry with lots of products to imitate, and they're doing a great job.  Look at the following two pictures I attached.  Can you tell which scooter is electric and which one is LPG? (hint: driver demographics give it away).   

The e-bike industry is rising up to knock out the domestic MC industry, just as the domestic MC industry rose up and knocked out the Japanese MC industry a decade ago! And they're beating them in the same way the Chinese MC industry beat the Japanese MC makers! Cost.

THey're able to produce a cheaper product that, while not quite as good as a real MC, it satisfies the modest mobility needs of most users. This "good enough" product design is exactly how the Chinese MC makers beat out their high-quality Japanese rivals, whose quality was so good they lost market share quickly in a land of price-conscience Chinese consumers.  (Sugiyma 2003)

So how is the e-bike industry able to produce such a cheap mobility product?  The secret is in its incredibly simple product architecture (i.e. the relationships amongst the components of a product). E-bikes are modular (each component has a self-contained function) and open (interface is standardized across many companies in the industry). The Chinese MC industry's product architecture is considered "quasi-open" and modular (Ge and Fujimoto 2004), which differs from the closed, "integrated" and traditionally vertical Japanese MC and auto industry.  These two traits enabled a large cluster of e-bike assemblers and suppliers to thrive in the Shanghai-Zhejiang-Jiangsu golden triangle, driving up production volume and lowering cost. If MC product architecture is "quasi-open", I'd say e-bike architecture is "uber"-open!

Consider the 3 simple steps to become an e-bike producer: 1. Choose from thick catalogue of local suppliers (ideally one within driving distance) and buy frames, in-wheel motors, huge crate of "one-size fits all" VRLA batteries, controllers, wire harnesses, and various odds and ends. 2. Hire minimum-wage workers to assemble parts together 3. Engine assembly: Stuff three batteries into a box, connect wire from box to controller, connect wire from controller to motor. Body assembly: connect parts using screws and pneumatic tools.

While I'm exaggerating a bit, check out the third picture to illustrate how simple and modular e-bikes really are. The local mechanic near my school built his own.   Simple, stylish! (hey, he even attached a brand label onto the front basket for completeness =))     
 
As to your second point about the maturity of the industry, I would argue that both the product and the 4 core technologies used (VRLA battery, brush or brushless motor, controller, charger) are fairly mature. Evidence exists in the vast supplier network, low margins, and product standardization. For example, e-bike batteries only come in two sizes, either 12 Ah or 20Ah), motors and controller are designed for 250W, 350W, and now 500W for 36, 48, and now 60V systems. While of course there is still plenty of room for product innovation in in-hub motors and battery technology, it's got to be cost-competitive with the incumbent "good enough" technology. This raises issues on a potential "technology lock-in" problem inhibiting future innovation in the industry (Ge, Fujimoto 2004)

As for the dirt-cheap VRLA battery technology, its product architecture is also modular and open, enabling a large network of suppliers for the electrodes, separator material, battery case, and acid.  They're hand assembled in a very low-tech process (see the pictures from a very primitive battery factory I visited: 1) a simple mold used to soder together the hand-packaged cells of each module, and 2) a view of the plant floor: a bunch of tables). This is the 3rd plant I visited, they're all variations on the same theme. Perhaps there's some room for "process innovation" here. 

 

The birth of this massive e-bike cluster in Eastern coastal China was definitely spurred by gov't policy banning scooters in urban areas which got the market rolling. However I think it is the low cost, driven by simple product architecture of e-bikes and cluster of assemblers/suppliers that sprung up as a result, which is the driving factor now.
 
Anyway, I need to find more hard data to back up these points and scour the innovation literature some more, but the evolution of the e-bike industry seems to fit the mold of a disruptive innovation that's attacking the incumbent MC industry. I wonder what implications this will have on MC industry in other SE Asian countries, what technology will eventually rise up to beat e-bikes, and what this all means for the electrification of 4-wheelers. Can the modular/open product architecture of electric drive two-wheelers, which enabled a vast decentralized horizontal network of suppliers, be replicated for electric four wheelers??
   
If you have any questions, comments, suggestions, on this matter or points for or against the above argument, please share. This subject will be part of my concluding paper on e-bikes.  Thanks!

E-bikes in Shijiazhuang (see for yourself)

June 10, 2006: I made a video in Shijiazhuang, China to give you all a little background about my recent research on electric bikes in China. E-bikes are especially important in cities like Shijiazhuang, where the majority of people can't afford a car, so their choices are to be totally crammed in a bus, or move around by bike. E-bikes make this journey much easier. Furthermore, electric bikes emit zero tail-pipe emission, are virtually silent, and and are incredibly energy efficient (1.2 kWh/100 km).

Enjoy!!!  (background music by the Chinese band S.H.E., "Superstar")

Hello from Beijing

Just wanted to send a little hello from China and tell you what's new.

1. Biggest new thing is: I've changed my research subject!  Instead of researching hydrogen and fuel cells, I am now exploring a relatively recent, and rapidly growing transportation phenomenon in China: the rise of the electric bike.  To find out why and learn more about this, check out my latest blog on this and new e-bike/music video at www.fuelcelltrek.com

2. I've been spending the last few weeks up in Beijing working with some researchers at Tsinghua, so I'm getting to experience a whole new city, college (which is very beautiful by the way), and make new friends which is always fun!  Right now we're working on a project with the World Bank on how to preserve bicycling (and e-biking) as a form of transportation in Shijiazhuang, one of China's capital cities (pop 9 million).  The car is slowly taking over there, but the e-bike may help slow this process.

3. I did an interview with the BBC recently about a really interesting development on a large island next to Shanghai, and how they want to make this island completely energy self-sufficient and environmentally sustainable.  It's called The Dongtan Island project.  If you want to learn more about how Shanghai plans to build the world's first Eco-city (and hear my 2 cents on it), click on http://www.bbc.co.uk/radio4/science/costingtheearth_20060427.shtml  (if you don't want to listen to the whole show, I come in around minute 21, but don't mind me throwing a few embarrassing Valley-girl-ish "like"s  here and there).

4. I just partook in my friends wedding... and I was the Best Man!  For those that got my last message last Thanksgiving, weddings are indeed pretty wild, though at this wedding (unfortunately) no one got naked  and (fortunately) there were no wolves.   They DID however haze me worse than any fraternity guy I've ever encountered (best man traditionally winds up very drunk at the end of the night). See attached picture (it's a little bit like a "Where's Waldo" picture isn't it?.)

The Quiet Revolution: Electric Bikes in China

May, 18 2006:  So, as some of you know, I’ve been on a quest for the past four years seeking out a form of transportation that doesn’t pollute our cities, that’s energy efficient, and that doesn’t depend on oil. I had high hopes that I’d find this in fuel cell and hydrogen technology, thus I embarked on my “fuel cell trek”. This trek has led me from the world’s automotive heartland, Detroit (though maybe not for much longer), to the world’s center of innovation, California, (where semi-conductors and boy-bands were born), and finally to the world’s manufacturing mecca, and rising global consumer of cars, China.

Well, after four years of looking, I finally found it in a very unsuspecting place. In the 1,000 year old village in the Shanghai countryside, where people live on a couple dollars a day and the average home lacks even a toilet, it hit me (well, almost). I was crossing the intersection and nearly got blind-sided by a surprisingly quiet…zero-emission… Electric Bicycle.

(my all-time favorite ebike picture: A guy riding his ebike...carrying another guy...carrying another ebike...while onlooker stares in disbelief!)

While this was my very first encounter with this intriguing technology, it definitely wasn’t the last. It’s kind of like when you sit down on the sidewalk in summertime and start staring at the ground, first you see one ant… then a couple more… then you realize the whole ground is swarming with bugs. That’s how electric bikes are in China. Once I started noticing them, I noticed that they’re everywhere and the numbers are growing fast. In 2000, 330,000 were sold in all of China. By 2005, they were selling 10 million a year. (picture below of guy taking a heavy load by ebike)

Being a graduate student researcher, it’s my job to ask questions that will keep me in school a little while longer (joke^_^), so I starting inquiring into WHY this is such a big phenomenon in China, while in the rest of the developed world, the car is the mode of choice. Well the first obvious reason is that these bikes and the fuel they consumer are dirt cheap. You can buy one for the price of an average cell phone here ($100-$250 USD), and to charge the battery for a month's worth of commuting (3-40 km/day) is a whopping $1.25. Another big reason is that cities have started banning gas powered scooters and motorcycles in some city centers to reduce air pollution. Ebikes came in to fill the void. Another reason is the strong history of bicycle use in China. China has an estimated 450 million bicycles, and most people (besides the extremely poor) have at some point in there life used a bike to go to work or school. There’s more reasons, which I’m beginning to explore and which will ultimately form my dissertation. I’ll bore you with the details at a later time.

The important point is that, in terms of sustainable transportation for developing countries, this is a really interesting technology!

Why:
- You can go 100 km on 1.5 kWh, equivalent to 1,362 mpg gasoline equivalent (33.5kWh=1 gal gas equiv)
- It's a zero-emission vehicle (important for urban cities, though pollution is still generated at the power plant, which is usually coal in China)
- The fuel can be made from renewable energy

These three reasons alone make e-bikes a homerun for cities plagued with poor air quality and governments worried about energy security and future oil supply. No need to even mention the benefits to congestion, parking, and the increasing mobility it's bringing to working women and the elderly.

The even more interesting question is: what will e-bikes lead to? The world is watching (while nervously biting their nails) while China buys more and more cars and gasoline. This will inevitably drive up oil prices around the world, not to mention the environmental disasters that loom ahead from the CO2 and other pollutants emitted by a billion more cars.

Will battery technology develop faster because of this huge new market and possibly open the door to completely electric (or at least strong hybrid vehicles)? Will the super-cheap Chinese ebike and rising congestion in cities “drive” people out of their cars and onto an e-bike? Will a Chinese-specific new all electric mini-car evolve from this?

Hydrogen:
So what does this mean for hydrogen (and more importantly, for Hydrogen Boy ;-), see my Halloween 2004 costume). Well, as some may say, I guess I’ve jumped off the hydrogen wagon, at least for now. It just seems so far away. I’ve been involved pretty heavily for the past 3 years, and of course there’s been some great progress, but realistically, there’s some huge technical challenges that need to be overcome (namely in reducing cost and durability of fuel cells). In China, these problems are magnified by the even greater pressure for cheap and reliable transport. I’ve been going to fuel cell and hydrogen conferences and events for years which was pretty much the only place I could catch a glimpse of the the technology in action. I just went to my first ebike trade show last week in Shanghai where hundreds of exhibitors were showing off their ebikes or batteries, motors, etc. My friend, upon leaving the show, hopped on his e-bike to head back home. I can’t wait for the day when people are actually driving fuel cell cars to fuel cell conferences, but it seems still a long way off.

 

Shanghai Fuel and Transportation Issues

Dec 20, 2005: It's been over four months now that I've been observing Shanghai. The following are some of my conclusions from this initial phase of my research which has involved attending automotive and hydrogen related conferences, interviewing experts in fuels/auto sector and academia, and individual "on the road" conversations and observations.

Shanghai Conclusions:
1. Fuel transitions here and in the rest of China will likely follow a slow, step-wise process of evolution. A leapfrog scenario seems inconceivable. Shanghai doesn't even have hybrids yet.
2. Hydrogen for commercial use is a long way out in Shanghai and Beijing. Likely more than 15 years. Even longer for the rest of China.
3. Gasoline and, increasingly, diesel will power Shanghai's vehicles over the next 15 years.

4. Coal-based synfuel production is very important to China. It is not ready commercially yet but it is coming and coming fast.
5 . Shanghai's most serious problem is air pollution. It is ubiquitous, inescapable, and affects the health of around 17 million people daily.
6 . The wide income gap among Shanghai's residents causes a big problem in setting regulations because of the poor's inability to afford new/cleaner equipment and better fuel. Vehicle's are kept in circulation for a
loooooong time. Thus, old cars with low turnover = very bad air quality
7 . Weak enforcement of regulations is a problem (e.g. black market fuel; inspection/certification processes subject to "wining and dining"-type influences)

What Shanghai Needs (in my own opinion):
1. More concrete data on current fuels and vehicles (less prospective models)
2. An "early-retirement home" for old dirty vehicles
3. An institution responsible solely for the city's poor air quality, like CARB or the SCAQMD in Cali. Shanghai EPA is currently in charge of this.
Why: to speed the otherwise-natural process of fuel evolution
Shanghai's Biggest Advantages:
1. Fleet vehicle #'s are dominant: taxis, buses, company-owned trucks. Perhaps these can be more easily controlled/regulated/converted.
2. 2010 Expo coming soon: the city wants to put on a good show and dress to impress.
3. Gov't support for new clean & efficient auto technologies is strong.
This is not necessarily for environmental reasons; it is mostly for economic reasons. They want to grow their local auto industry.

Lessons from the Literature: (Some interesting selections from some of the books I've read)

1. Mowery and Rosenberg: Path of Innovation (1998):
- The key factors why America was so innovative in the 20th century was the country's rich natural resource base, it's egalitarian social structure, and the formal institutionalization of research (accomplished through universities in the first half of 1900s, national labs in second half).
- "The relatively even distribution of wealth in America created a wider market for strandardized, homogeneous products, thereby allowing companies to take advantage of scale economies for production of goods." (p.169) China doesn't have this distribution, though markets are much more global
now.
- "A sustained economy's growth reflects a continuous shift in the economy's product and industry mix". Thriving economies are continually re-inventing themselves and coming up with new industries to grow.
- Power plants gained steady improvements in efficiency between the time of invention until the 1960's, then they hit a wall and improvements leveled off. The reason isn't entirely understood but represents a case where projections based on past performance didn't pan out like expected.

2. Selected Papers from the Energy Workshop: Industry Perspectives on Pioneer Process Plants: (1981)
This collection of reports looks at the costs performance of commercially unproven advanced energy technologies (e.g. power plants). The conclusions from this report made over twenty years ago may have applicability to H2 and alternative fuel production plants today.
- Bigger plants do not always result in scale economies. In fact, in some cases, it's more profitable to build several smaller plants (if they're of the same design and at the same location) to capitalize on greater learning effects. This is largely due to the increased operating costs and decreased capacity factor of big plants due to increased maintenance.
- Power plants are becoming so large, that it becomes difficult for any single organization to fund them. If funded by several groups, it becomes more difficult to manage. Large plants, though they benefit from
economies of scale, also have to operate for a longer period of time to recoup the initial investment.
- The cost of power plants didn't change substantially over time because as designers learned to build plants better, regulators imposed stricter environmental regulations.

3. Networks of Power, Thomas Hughes (1983)
This book documents the evolution of the electricity system in America and Europe, and gives specific histories of this growth in Chicago, London, and Berlin. These lessons on the growth and evolution of infrastructure may be applicable to the infrastructure development going on now in Shanghai.
- In, the "Battle of the Systems" that took place between AC and DC current, a key factor in AC eventually winning was the development of a superior "end-use" technology, the AC motor. The transformer was also a key invention enabling the dominance of AC. Two key technologies, once developed, made the infrastructure decision very clear.
- Conversion technology that enabled coupling of AC and DC systems (like rotary converters, motor generators, etc.) also played an important role in enabling a shift to AC because it enabled DC providers to continue recouping their initial DC investment.
- The Berlin electricity system thrived in Europe because it was home to a cluster of electric industry technology companies. Berlin became known as "Elektropolis" (p.177)
- The Chicago system took the lead among utilities because of their use of technological innovations, statistics to understand their performance better, and their ability to influence local politics. Technology leaps in industry: Chicago's utility manager controversial decision to install 5,000 kW turbine generators (the largest and most advanced technology of the time) (p.209). This ended up being a very successful decision.
- The London system was among the worst of the great world cities, mostly in part due to politics and the inability to conform to one standard system (i.e. voltage levels, frequency levels, etc.)
- "The impact of society on technology is just as strong as the impact of society, or culture, on the shape of technology." (p.x)
- "In the beginning of the electrical systems development, some of the biggest problems were managerial and financial." (p.19)
- The power and importance of the "already-made" investment. "The unamortized investment in direct current was so large that it discouraged replacement with a polyphase system." (p.120) Same for gasoline.
- "Berlin is an excellent setting for a study on the interaction of an effective, informed, and strong regulatory authority with a well-managed, well-financed, and technologically advanced private enterprise suppored by financial and banking interests" (p.184) Shanghai bears similar characteristics.
- "The most significant aspect of Edison's activities in electric lighting was his concern at every step with economic factors." (p. 29)