Cost Arbitrage for Automotive Startups

Recent report by Deloitte on Global Automotive consumer study points to a crucial element which at times become impediments for Automotive Startups.  The consumers are not willing to pay more than US$500 for any advanced technology driven feature in the vehicle i.e. not more than Rs25-35k.  Thus breakthrough technology product designs need to have cost disruption too which is never a possibility till there is economy of scale through mass production and strict end quality delivery product for faster adoption. But it’s a Chicken and egg story, Technology adoption is slow process and should be looked at acceleration through special purpose finacial  vehicles based by Industry & Govt.

However, Cost is not the only Barometer. What is most important is Total Cost of ownership (TCO) or The Return on Investment (ROI) for the user. Let’s say Rs.30k feature saves future cashout of 2k per month for cumsumer ,it is a payback period of 15 month which is fair enough assuming vehcile life of 10 years min, After 15months it’s net profit for the end user . Its all aobut Arbitrage, not only for StartUps but also for end user also.

      So, Startups shall not giveup but they should become more mature on the business elements while they pitch the idea. Its not only about idea, it’s about how it is packaged and articulated. In my last 20 years of mentoring the startups, I observed that even the brilliant ideas come with poor understanding on 3 questions i.e. 1. Who is real customer 2. Piece cost Or the TCO  3. How to pitch it to suite changing Audience.

While speaking of Automotive startups, the Trio I.e Connectivity, Electric Vehicle, Autonomous are in Vogues and their nearest pal “Shared Mobility”. However, these have big paly now in the hands of Giant OEMs. Thus budding startups to be very selective in the picking areas.

Consumers do feel that shared mobility is way forward as it helps them to multi-task during the ride but then it is discontinuous in India. Point A to B travel has to have multiple modes for long distance. However the multi-mode transportation seem to be a distant dream In India.  Post COVID, there also has been a steady rise in demand for economical personalised vehicles but can qurstion is can I afford,  it’s again arbitrage berween personal safety and cost of travel for the consumer.

Electric vehicles will remain in demand largely because of low carbon emissions and reduced operational cost with better TCOs in future once stablised. However, for Indian companies to manufacture cost effective EV’s, it will be important to either continue good business relation with China or find a quick substitute for electric vehicle components.

There will be a need for more research in Hybrid and Autonomous  vehicle technologies.  Safety and Security continue to remain a concern for consumers, so more research be undertaken on data privacy, bio-metric products.  There will be a continuous need for studying market and pricing models of various OEM’s and a need for predictive pricing models be developed using AI interventions.

When we speak of OEMs,  Most of pricing decisions are governed by demand / supply needs.  Dynamic and Personalized pricing will be way forward for many vehicle manufacturers not only Startups. This is to address the ramup hurdles or production capacity constraints. Even pivoting new vehicle brands in market through effective digital marketing communications will need Skimmimg or Penetrative method of pricing based on area of play.. Customer loyalty programs will be another focus area to bring in competitive edge over other manufacturers. So, while even OEMs are hard pressed in such a scenario, the startups to Arbitrage carefully and get mentored well.

Autonebula is a connected transportation vehicle accelerator and investment fund that nurtures startups in this realm by mentoring them across business, technology & marketing – Check out Softlanding with Autonebula


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Harsha Sanil : hsanil@autonebula.com