The E-Bike Shift: A Pragmatic Look at the Electric Bike Industry

By Ray Verhelst, CEO of ExtraEnergy Services North America.

There is a paradigm shift taking place in the electric bicycle industry, which in itself is an evolution taking place within the traditional human-powered bike community.

What became revitalized in the mid-1990s, the idea of motorized power supplements, continued to grow into 2004. According to Wikipedia, the terms e-Bike, pedal assist and pedelec became more common in 2001. Even back then there was the debate over the power threshold and more powerful versions were referred to as electric motorbikes, or “e-motorbike”.

In just the last 12 months, we are seeing a dramatic shift from traditional small business Asian imports to massive global brands stepping up to the plate, delivering integrated solutions with intense technical details, strong marketing and distribution channels and backed with the financial wherewithal to launch into the market.

While electric bicycle component exports out of Asia and into Europe are more than four times the volume of North America, the added value in engineering and manufacturing incorporated into the finished systems from are now making their way to the US and Canada.

Although the global adoption of e-Bikes has expanded, the resistance in North America has been due to the propensity to drive a car, forcing cycling of all types to its current, dominant recreational state. But this too is changing.

The Urban Migration

There is no doubt that Millennials are migrating to urban markets trading suburban sprawl for vertical views. The idea of the dramatic space between neighbors has given way to the demand for a close-knit social network that can gather in a moment’s notice. This is all part of the new Work/Life balance.

From the private investment initiatives to revitalize downtown areas to the major dot.com corporate campuses that mimic academic life, businesses seeking to hire and keep a qualified workforce are realizing convenience is becoming far more important than ownership. A perfect example is in downtown Las Vegas, where billionaire and CEO of Zappos, Tony Hsieh has personally invested $350 million of his own money to jumpstart an urban renaissance known as the downtown project.

His crowning achievement was to acquire the old town hall and transform it into the corporate headquarters and main call center for online shoe giant Zappos. This forced the transformation of everything from small businesses to residential growth to accommodate the new urban lifestyle. Acquiring high-rise condominium towers and turning them into housing options for employees and other followers of the trend has turned many sections of the downtown area from a normally blight, and unsavory area into a focal point of a new entertainment, dining and services hub for the growing population.

This growing 24/7 population (beyond the gaming tourists) has forced the city to look at the inclusion of more resident-friendly features such as bike lanes and eventually bike share opportunities. The county has already been testing the use of electric bikes as a means for local government employees to travel between government buildings, courthouses and other entities. The regional transportation commission has been the overseer of this effort.

Hundreds of similar efforts are going on throughout North America and the bicycle is moving front and center as an important local transportation method for commuting, recreation, and commercial enterprises. The growth of Uber and ZipCar are perfect examples of this service oriented society.

A difference for today’s electric bikes is the diversity of the models and features coming from some of the most famous cycling brands. To be honest, even the industry insiders never thought they would see this day. The original e-Bike niche market used to justify the electric craze as being for the “Baby-boomer” who with their bad joints and discretionary income are looking at returning to bike riding as an outdoor exercise, often in or near beach communities. The retro cruiser style led the demand.

Following that was the urban classic street ride that is more closely associated with inner city commuting and mimics the thousands of bikes found locked to the railings on bridges over the canals in Amsterdam. Now, we see a tremendous surge in the sport and mountain bike category, neither of which are specifically targeted towards aging Baby Boomers with bad knees or hips. Also, due to their pricing, they are not focused on the traditional Millennial.

Beyond those categories, we have alternate segments such as the fat tire bike that uses oversized balloon tires to tackle the off-road terrain. Another grouping is the cargo bike which by all accounts is a recycling of the original use for electric bikes found in Asia, which is to haul stuff.

An important distinction between then and now is the overall quality of the parts, fit and finish, and the companies standing behind them. On top of all of this is the new reality of the price.

In digging deeper, the new direction seems to assuage the issues associated with the many different parts suppliers and the inevitable challenges of marrying motor, controller, display, sensor and battery together. The all-inclusive solution with the majority leaning towards mid-drive packages has taken the lead. With brands like Bosch, known as the German multinational engineering and electronics manufacturing company, has volumes of experience in blending together complex systems to work seamlessly. Bringing together motors, battery packs and sensors at the highest level of quality and performance is what they do.

On the other side of the spectrum are some of today’s most recognizable bicycle brands like Shimano, Specialized, and Accell who are utilizing their massive dealer networks as a base to develop their own drive and power systems either from the ground up or in partnerships with companies like Yamaha, Panasonic, and Brose (another German automotive engineering manufacturer).

The Sourcing Change

What you aren’t hearing in this conversation are the traditional Asian names previously considered the leaders in this space. It’s a fact that relying on bicycle enthusiasts to blend compatible electric components together from a plethora of foreign manufacturers has not been that successful. China is no different than other major manufacturing centers where the incompatibility issues and the promise of a seamless handshake from one device to another is often followed by the blame game when things go awry. This usually leaves the customer in the middle to troubleshoot on their own.

For the fledgling electric bike import business, this has kept it from growing outside of Asia, and when combined with our own personal automotive preferences, has made it all but impossible to move forward in the US.

But much of the new direction heading to North America is taking its cue from Europe. While the US standards for legal electric motor size on an e-Bike has a maximum of 750watts, there is a massive influx of 250w motor systems which are the legal standard in Europe. Lacking the brute force, the engineering teams in Europe have been ramping up the torque capacity through gearing and motor designs to accommodate wider terrain choices (and US hips), without going beyond the legal limits.

At the same time, companies have been partnering with the leading rechargeable cell manufacturers such as Korea’s Samsung SDI and LG, as well as Japan’s leader, Panasonic (in all those Teslas), to produce both the best performing as well as safest lithium battery packs currently available.

In one specific example, Bosch is partnering with its battery company Japan’s GS Yuasa and is determined to double the energy storage capacity while reducing the cost by 50% between now and 2020. Primarily known for its vehicle batteries, GS Yuasa has its Lithium Energy Japan division which developed the Ritto II Plant, billed as one of the world’s largest automotive lithium-ion battery production facilities.

The displays, torque sensors, and operating systems are all being developed in-house and are using ISO standards to formulate common cross platform communications such as CAN-Bus. Even the external app development that brings the consumer’s smartphone into the mix is being overseen at the core level for upgradeability.

Driving all of this R&D and leading edge advancement is the willingness by the European consumer to pay the prevailing rates for the top of the line bikes. With more than a million electric bikes being sold annually in Europe, the demand is pushing the limits of current manufacturing. Even the premium, high-performance electric mountain bikes are selling out.

A downside to all of this is that somehow the systems are becoming homogenized with only subtle innovations separating the group. This will change as these companies will continue to invest in the technology.

Now the US is stepping up the marketing and brand building initiatives behind electric bicycles and a host of light electric vehicles. The overall buzz of pure electric, hybrid and alternative fuel vehicles has remained at the top of the news cycle and has become more frequently incorporated into the general conversation. Even Ford’s new R&D center in Silicon Valley has jumped into the mix.

There is a two-pronged approach going on. The first is from within the industry to formulate standards and classifications to reduce the confusion at the state and local government levels. Through legitimate trade organizations, funds were raised to finance legislation and education initiatives and to push for new bills that would clarify accepted use on a wider range of trails and paths. The special interest groups also set aside funds to corral all of the loose legislative bills involving bicycles in virtually every state to build a repository and start the process of driving a consistent message to all officials about the features and benefits of electric bikes.

The group also took on research projects to determine the thorny issue of electric mountain bikes on specific trail systems and whether they had an actual adverse effect (we already know the social effects).

The second effort is coming from the major brands themselves. Investments in North American sales and marketing operations ranging from new offices and distribution facilities to companies with Dot-Com funding who are building actual manufacturing centers. Sales teams are being hired and resources are being spent to develop face-to-face dealer interactions.

For our part, we have formed a new organization that brings together well-established experts in the technology sectors of electric bikes and the rechargeable industry that have a major presence in North America, Europe, and Asia. We have incorporated leading marketing, event, and social media experts to help build experiential programs that both educate and entertain consumers and retailers about the features and benefits of electric bikes. This consortium offers more than 80 years of combined history in the development of successful brand building, interactive marketing, and policy advocacy.

The development of the Electric Bike Expo is all about generating consumer education through experiential marketing and entertainment. A series of traveling road shows with terrain featured test tracks and dozens of top electric bike models available to try, will make their way into targeted demographic communities to introduce, in many cases for the very first time, what an electric power assist bicycle can do.

This three-year plan is in partnership with a number of sponsors including Interbike, the leading tradeshow producer for the cycling industry. As the series grows, it will reach more and more communities and continue to build consumer awareness about electric bikes.

Where the Biggest Change May Come From

While product launches will continue and the developing touring series will be build consumer awareness, the real potential for growth is within the Independent Bicycle Dealer.

This group has had a hard time embracing the technology, initially writing it off as a niche or fad with little hope of catching on. For the few that became early adopters, they got burned by poor manufacturing and little outside support. The failures only galvanized the salesforce, mostly made up of cycling purists, to actively sell against any type of power supplement.

Today is a different story. Products have become more refined. Manufacturers have created legitimate North American operations with sales, service and support. Advertising, while challenged by the limited outlets, has been building. Margins continue to climb as volumes increase and pricing offers retailers a great incentive to sell in quantity.

As in most disruptive business cases, when an opportunity fails to muster support through the typical channel, new channels appear. For the electric bike market, the resistance to blend assist and manual together allowed the Independent Electric Bike Dealer model to flourish. Small mom and pop operations started to appear and even some manufacturers have created licensing models, similar to franchised dealerships, where the products are exclusive and controlled all the way to the consumer.

Now with the major brands diving in, it will be even harder for traditional cycling shops to look away. The brands that have been propped up as the leading pure cycling lines are now making significant commitments to e-Bikes and will no doubt apply pressure to have some level of representation on the floor.

This slow, but inevitable incursion will force shop owners to invest in technical resources, the addition of open and willing sales personnel and the necessary back-office requirements such as business insurance and possible permits for the storage and management of rechargeable lithium batteries.

At the same time, this new demand will require an increase in manufacturer sales support, training and technical service to get and keep these new dealers involved.

Ironically, this new investment demand at the manufacturer level may actually reduce the dependence on Chinese suppliers as some of these importers will not have the wherewithal to invest and build a line to keep up with the major brands. The capital expense of building sales support on a national scale is not cheap and there is not a huge pool of qualified personnel to draw from.

To Sum it Up…

If you’re excited by the e-Bike platform, this is an amazing time. Brands are making the commitment to legitimize this market segment by taking on the creation of fully-integrated, quality solutions that can offer strong guarantees through the dealer and onto the consumer. European and North American companies are making commitments to Research and Development to improve the mechanics, the electronics, and the communications between the two. This will only further the interest by the customer, many of who are returning to cycling because of this new transportation alternative, and because they are fun.

The education and exposure of electric bikes is getting better and more organized. Legislation and policies governing electric bikes is being approached in a far more centralized fashion that will give a stronger voice for positive change.

At the preverbal end of the day, this is a market force that is bringing new or returning cyclists back into the fold. From a retailer point of view, this is a profitable business segment that brick and mortar retailers cannot turn away from.

Thanks to Ray Verhelst, CEO of ExtraEnergy Services North America for this informative article.

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