In the past few months, an influx of electric scooters has caught fire across the country. In some cases people have even died. A report by the Defense Research and Development Organization (DRDO) stated that the fire was caused by poor quality battery cells and that the battery pack was not adequately tested. Business Standard quoted a person who viewed the DRDO report as saying that the defects could be due to the manufacturers using low-grade input material to cut costs.
Some insiders in India’s electric vehicle (EV) industry have blamed the problems faced by nascent EV technology for the fire. Others have tried to reassure us that every new technology has a learning curve and therefore its challenges.
While the talk about nascent technology is well taken, it is an argument that worked well until the 20th century. The trouble is, we are in the 21st century and everyone who has the economic ability to buy an electric scooter already has a smart phone. Videos of such fires have gone viral on WhatsApp and other social media.
This creates the problem of information asymmetry. Videos cast doubt on the quality of electric scooters available in the market. Typical buyers are not really in a position to find out which companies are making reliable electric scooters and which are not. So, in their heads, all electric scooter manufacturers are likely to paint with the same brush.
As Jonathan Haskell and Stian Westlake write in Restarting the Future: How to Fix the Intangible Economy, “If buyers perceive that the only people in the market are poor quality suppliers, the market may exclude good suppliers who Were unable to provide this information.” Thus, companies that make poor quality electric scooters may exclude those making quality products.
This makes it more than likely that many companies in the field of electric scooters are new without established brands. As Haskell and Westlake write: “The value of a brand … does not lie only in the informational content of the name and logo … it is relational in that it is a kind of promise and reminder of the past, to the countless past. Refers to transactions that build brand reputation and are intended to provide customers with a particular experience or quality.” Brands new to our market for electric scooters do not inspire such confidence, given their lack of previous records.
Apart from the problem of information asymmetry, there is also the ‘qwerty problem’ which is faced whenever a technological leap is required. As Marcus K. Brunermeier writes in The Resilient Society: Economics After Covid, “The Qwerty keyboard… was based on the need to reduce mechanical breakdown on typewriters (!) This is indeed an inefficient setup for a computer keyboard, but the cost of switching is enormous. People have become so used to the QWERTY keyboard that there hasn’t been a move to another better layout.
A similar problem is preventing the move from fossil-fueled vehicles to EVs. Companies selling two wheelers that run on petrol have been around for some time and there is a certain confidence in the minds of potential consumers. The entire ecosystem around two wheelers running on petrol is quite well developed, from getting a loan to buy one to getting a local mechanic for repair work to selling a used one in the old market. The same is not the case with electric scooters. Of course, any system takes time to develop and unless people buy electric two-wheelers, the system will not develop. So, the qwerty problem is basically the chicken-egg problem that comes first.
This is reflected in lower EV sales. In response to a question raised in the Lok Sabha in March 2022, the government had said that the total number of electric vehicles in the country is around 10.5 lakh. This was only 0.38% of all vehicles in India. The number of electric two wheelers stood at 336,924. This, notwithstanding the Center allowing tax deduction up to 150,000 per annum on interest repaid on loan taken for purchase of EV. Apart from this, the state governments are also giving subsidy.
So, what is the way out of this? In the short term, there is a need for better communication from manufacturers of electric scooters. Second, they may draw some inspiration from the success of manufacturing in countries such as Japan, Taiwan and South Korea, which, as Haskell and Westlake write, “would be impossible without huge investments in intangibles such as R&D, process design and training”. Clearly, in a hurry to become the first in the market, some manufacturers have resorted to importing low-cost components.
Simply creating a better product will not solve the problem of insufficient brand trust. This is where the existing two-wheeler companies, which sell lakhs of petrol-two-wheelers, can come in. Brands can redeem people’s trust by offering a good electric scooter at a reasonable price. In the current scenario, it is the best bet for electric two-wheelers to become a mass-market product.
Vivek Kaul is the author of ‘Bad Money’