As the United States, some European countries and Japan emerge as early adopters of electric vehicles, driven in part by efforts to control greenhouse gas emissions, developing countries in Asia are steering along their own path. But instead of electric cars, they see a market for two- and three-wheelers that is ripe for the picking.
And at least one Japanese auto company, positioning itself as the Tesla Motors of the developing world, is more tempted by this segment. "Our short-term goal is to take the lead in the Asian market just as Tesla has positioned itself as a leader in the electric automotive industry," Toru Tokushige, founder and CEO at Terra Motors Corp., said in an interview last year. "Our long-term goal is to create a company with rapid growth, beyond the growth of Samsung and Apple."
Terra Motors is headquartered in Tokyo and exclusively manufactures electric two- and three-wheelers. Tokushige makes a clear distinction between the company’s strategy for the two markets — in developed and developing countries — emphasizing that Asia is his primary focus right now.
The International Energy Agency, an autonomous multinational body, estimated that the stock of electric cars in major markets grew from about 180,000 by the end of 2012 to 665,000 at the close of 2014. The numbers of two- and three-wheelers are harder to pin down, and Pierpaolo Cazzola, an energy technology policy analyst at IEA, explained that’s because of gaps in registration and lack of consolidated data. In its 2015 global outlook, IEA noted that China has a stock of 83,198 electric cars, but it already has about 230 million electric bikes. "If you go to China, you see them everywhere," Cazzola said of the e-bikes.
"The electric bike is a success story in China," Cazzola said. "I think it is an industry that may emerge in other developing countries."
"We have sold almost 100,000 units of two- and three-wheelers to date," Tokushige said. In the past few years, the company has aggressively expanded in Asia. It is the market leader in EV sales in Japan, and Vietnam has emerged as a major market outside Japan because of strong sales of two-wheelers.
Terra Motors also has a presence in the United States and European Union, where it sells a top-end version of its two-wheeler called A4000i, but its primary growth market remains Asia.
Last year, it entered smaller markets in the region like Nepal and Sri Lanka. In 2015, one of its biggest launches was in Bangladesh, where it partnered with a leading domestic automaker, Runner Group, for local production and sale of its three-wheelers. In Bangladesh, where three-wheelers mostly operate as taxis, the company aims to sell 30,000 three-wheelers by this fiscal year.
But the company sees its biggest new market in India, where it hopes to launch later this year.
An idea spawned in the U.S.
After he completed a Master of Business Administration at Arizona State University, Tokushige worked in Silicon Valley for a few years, where he saw the evolution of the EV market. He says he was inspired by Elon Musk, the dynamic founder and CEO of Tesla. When he returned home to Japan, he was determined to implement a variation of Musk’s strategy.
"In 2010, I started Terra Motors with my own money. The first product was made in an associated plant in China," Tokushige recalled in an interview.
Terra Motors now has production plants across Asia in countries like Vietnam, the Philippines and India, but much of the quality control happens in Japan to maintain standards, said Sahoko Gohira, who is the director of business development at the company.
When Terra Motors launched in 2010, the idea was to get a foothold in the industry by gaining ground in a familiar market, she said. In 2011, Terra sold about 3,000 motorcycles in Japan. Its performance attracted the attention of high-profile investors like Nobuyuki Idei, the former CEO of Sony, and Kenji Yamamoto, former vice president of Apple, who are both shareholders in the company.
In 2014, Terra Motors was able to attract $10 million to finance its expansion plans in Asia. This round of financing was led by California-based venture capital investor Fenox Venture Capital and Mizuho Capital Company Ltd., a Japanese venture capital firm. Tokushige has said that the company would invest 300 million rupees (about $4.5 million) in India during 2014-15.
Tokushige described India as the most important market for his company in the future. He anticipates sales of 200,000 units in the first year of its launch and 500,000 in the second.
With a population of over 1.2 billion, India seems like a safe bet. China is a trickier market for Terra Motors because it is already saturated with low-priced goods and will involve stiff competition from domestic producers and an uncertain policy environment, Gohira said.
"In China, we will enter JV [joint venture] style, but we have not decided on a detailed plan yet," Tokushige said.
India’s plans may be a better fit. In 2013, the Indian government announced its National Electric Mobility Mission Plan, estimating the demand for electric vehicles would grow to 6 million to 7 million by 2020. The target includes a range of vehicles like hybrid vehicles, two- and three-wheelers, and electric buses. India’s target for two- and three-wheelers, which is more than 3 million, is significantly higher than the projected demand for electric cars.
"India is probably not going to meet the 6 [million] to 7 million target, but hopefully they will get significant number of electric vehicles on the road by 2020," said Anand Gopal, an energy technology specialist at Lawrence Berkeley National Laboratory. The lab leads the Electric Vehicles Initiative, which also works with the Indian government.
Raising consumer-comfort levels
Teppei Seki, one of the founding members of Terra Motors and the director of its India operations, has spent more than a year in India studying the market, establishing political connections and developing partnerships with Indian dealers. The company is also trying to get ahead in the game by partnering with local shop owners and other outlets that can provide access to charging points for their vehicles.
One of the reasons why two- and three-wheelers are attractive in comparison with four-wheelers is that they are easier to develop and manufacture, and they can be priced competitively given the right policy incentives. Also, most of them can be more easily charged. "Batteries for scooters can be charged overnight through conventional plugs, they have limited power requirements," Cazzola said.
Despite the advances in technology, experts and company officials recognize that there are still challenges for the promise of even electric two- and three-wheelers to be realized. Pricing and government policy are key, they said.
Purchasing power in developing countries is cheap, and maintaining high quality at such low prices is a tough ask, Gohira explained. Cheaper low-quality goods from other manufacturers can cause a perception problem and hurt the entire industry. There are very few Japanese companies that can meet the price point, she said. "There are so many competitors from China and India who can supply the products at the cost, but not the quality," she said.
Terra Motors will sell three-wheelers in India priced at 110,000 rupees (about $1,680). In China, a popular model of an e-bike can cost about $562, Cazzola said.
Gopal at Lawrence Berkeley National Laboratory said the economics of it usually make sense for the consumer. "The story of EVs is that it costs more to buy, but then after that, the cost of fuel and maintenance is much lower every year," he said. "That compensates for upfront costs and pays you back over a certain period of time." Terra Motors has planned links to microfinance institutions in India to help provide loans to customers.
According to research he was part of, Gopal said, electric vehicles also have better operating fuel efficiency in countries like India. "Engines in conventional vehicles perform pretty poorly when they spend a lot of time idling — they perform poorly at low speed and when there are a large number of acceleration and deceleration events," he said. Electric and hybrid vehicles cope better in these conditions.
Gohira, Terra’s business manager, believes that stability of government policies and political connections will make a huge difference to the fortunes of companies like Terra Motors in developing countries. And Seki, director of its Indian operations, thinks tailoring the right strategy to fit India’s needs will help when the vehicles roll out.
But in the end, reliability and perception of performance will rule the day, Gopal asserted. "The biggest challenge is raising consumers’ comfort with electric vehicles."