Management

A DEALERNEWS SPECIAL REPORT: In the same way some motorcycle dealers have leveraged their powersports branding to expand into new territory such as personal watercraft, scooters or side-by-sides, e-bikes could help a growth-minded dealer expand to reach a whole new, but related customer segment. But there are several things to consider before taking action.

By David Kopf

HISTORY REALLY DOES repeat itself. Tracing the roots of the motorcycle—a.k.a. the motorbike—all the way back to its seed, we arrive at the bicycle. Depending on which invention you start with, roughly three decades before the turn of the 20th Century, someone got so sick of pedaling (most likely uphill) that he finally said in sweaty exasperation, “this stupid thing really needs an engine.”

From there, Hildebrand & Wolfmüller produced the first production motorcycle in 1894, and shortly thereafter bicycle maker Excelsior started a line of “motor-bicycles” in 1896 that became so successful that they changed their name to Excelsior Motor Co. less than two decades later in 1910. From there, the rest, as the cliché goes, was history. A new mode of transportation was born, a new sport was born, and a new industry was born.

Fast forward to today, and another “new” market is being born in similar fashion: the electric bike industry. Known as e-bikes, their origin follows a similar route of people needing a motorized two-wheel vehicle. While many see riding bicycles as a recreational or athletic pursuit, there are many cyclists who also use the bicycle for its original purpose: transportation. But commuting to work or running errands can leave riders tired and sweaty, especially if they have a long haul.

The e-bike seeks to change that by providing an electric motor to either assist the rider’s pedal strokes at the crank, or directly turn the rear (and in some instances front) hub. Either way, the net result is that riding to work no longer requires packing a change of clothes and toweling off in the restroom. Moreover, e-bikes appeal to the environmentally minded since they don’t produce emissions, which can be a primary reason why some riders choose to bike commute in the first place.

SERIOUS MOMENTUM
It’s easy to chalk e-bikes up as a case of “everything old is new again,” but this new take on the old idea of self-propelled two-wheelers has picked up serious momentum. Market analysts at Navigant Research (www.navigant.com) forecast that global annual sales of e-bikes will grow from 31.7 million units in 2014 to 40.3 million units in 2023, which is a compound annual growth rate of 2.7 percent. Given that the Freedonia Group (www.freedoniagroup.com) puts 2013’s global motorcycle sales at 99.5 million, e-bikes weigh in at roughly a third of the global motorcycle market. That’s a number worthy of consideration.

Polaris in early 2013 announced a partnership with EVantage to distribute a new line of electric bicycles in North and South America.

The U.S. portion of that market, while small in comparison to Western Europe and China, is growing at a much quicker place as it moves to close the gap with the rest of the world, and there is a substantial number of existing cyclists who might want to purchase an e-bike.

“The U.S. market basically took off pretty well in 2014 compared to previous years,” said Ryan Citron, research associate with Navigant Research’s Energy Market Research group. “Consumer awareness has definitely had a big uptick as far as e-bikes go … In 2014 we have around 150,000 sales of e-bikes, and that includes retrofit kits. [There are kits for fitting hub-based motors onto existing bicycles.]

“We see [the U.S. e-bike market] growing around 6 percent each year,” he continued. “There’s just such a big pool of bicycle owners in the U.S. that’s pretty untapped. I think there’s around 15 to 16 million bicycle sales a year, and we’re looking at 150,000 to 200,000 in the next couple of years that are going to be e-bikes. It’s still a pretty small fraction, but we do see it growing, and definitely a positive market.”

SO, WHO’S BUYING E-BIKES?
That depends on the application of the bike.“We’ve done a lot of customer segmentation into who electric bikes appeal to,” said Eric Bjorling, brand communications manager for Trek Bicycle Corp. (www.trekbikes.com). “In the Netherlands we have from a low step [the top tube and down tube of the frame are parallel and run low, so as make the bike step-through], comfort, around-town bike, all the way up to a full-on performance mountain bike electric assist product. In Germany actually our electric assist mountain bikes are incredibly popular; they’re starting to outpace our non-electric.

“So the breadth of product abroad is pretty wide,” he continued. “The product we have brought into the United States so far has been around that sort of comfort, hybrid customer.”

That comfort, or hybrid category describes a kinder, gentler on-road bike that trades in drop bars for a standard handlebar, and has the more comfortable geometry of a mountain bike. That’s just the sort of thing for people who might want to have a little fun riding a e-bike without a riding position that borders on a crime against ergonomics. Also that comfort style appeals to riders who simply want to easily get to where they’re going. Those low-impact recreational and commuter riders seem to be the main types of U.S. e-bike users, according to Navigant’s Citron.

“Part of the reason is that it’s following a little bit of the pattern of Western Europe, where more and more people are using e-bikes for commuting, especially young professionals,” he explains. “Past sales in the U.S. have relied heavily on the Baby Boomers, whereas now it’s definitely transferring to a younger crowd.”

And that younger crowd wants an easy way around town.

“We know in a lot of the big U.S. cities that roadway congestion is a big issue,” Citron says. “So if you’re in a city that has good public transportation you could use in the winter time, then ditching you car and getting an e-bike and missing all the traffic isn’t such a bad idea for the other three quarters of the year.”

So, we have a decent-sized market for a new type of motorized two-wheeler that appears to be growing at an enticing rate, and has a good blend of recreational and utility riders. That should be attractive to some dealers, especially if they could convert those riders to motorcycles in the same way some purchasers of scooters and smaller displacement motorcycles can be upgraded to bigger or more specialized bikes. Is that a likely scenario? Citron has his doubts.

“I’m not sure the segment that is interested in buying electric bicycles would be interested in buying motorcycles,” he explained. “That’s mostly a gut feeling. As far as I know the demographics are a bit different, and motorcycle buyers are traditionally more of a suburban crowd whereas e-bike buyers are generally in more urban areas, especially when you look at the well-selling markets in Western Europe. So I’m not convinced it’s the same group to target.”

Add in the riders that pursue cycling because of emissions, and that erects another barrier to motorcycle conversions. But the Ed Begley Jr. Effect is only part of the equation.

“It’s just like electric cars,” Citron said. “Not everyone is buying it because it saves the world, but because they want to save on fuel costs and all the rest of it. But there’s definitely something to be said about that group and their views on environmental issues.

“I do wonder if it would make more sense to have electric motorcycle showrooms to have electric bicycles,” he added. “I wonder if that would have a bit stronger connection.”

While e-bikes might not necessarily create mass converts to motorcycles, they won’t necessarily attract the hardcore cyclists, either. What seems to be happening is that e-bikes are creating a whole new type of two-wheel rider.

“Electric bikes are an interesting category because there are a lot of hurdles to clear, as far as in the United States, such as there’s the perception that you’re ‘cheating’ somehow,” Trek’s Bjorling said. “The great thing though is that they offer cycling as an option to extend and expand the potential number of people who get on a bike if you add that electric assist. … We believe that electric bikes are kind of their own mini category.”

THE OPPORTUNITY
What this points to is e-bikes as a line extension. In the same way some motorcycle dealers have leveraged their powersports branding to expand into new territory such as personal watercraft, scooters or side-by-sides, for example, e-bikes could help a growth-minded dealer expand to reach a whole new, but related customer segment.

And companies are pursuing this new market. Case in point: Piaggio, which showed off a new e-bike at EICMA last November. Piaggio has showcased e-bikes before, starting with the Piaggio Albatross in 1995, but this latest effort, the E-Bike Project, is big on tech integration. A 400W ion and lithium battery powers the mid-drive motor at the crank, which in turn moves a toothed belt rather than a chain. Instead of a cassette and derailleur, a rear hub “transmission” functions more like a continuously variable transmission than an internally geared hub.

Moving away from the drive train, we get to the part of Piaggio’s project that seems the clearest acknowledgement that e-bikes represent a new market:  the Piaggio Multimedia Platform (PMP). The PMP lets riders attach their smart phone to the bike’s bars in order to  accomplish tasks such as GPS navigation, fitness tracking, or smart route planning to optimize battery range. The PMP also lets the rider control the e-bike’s performance characteristics via various “motor mappings.” Yes, Piaggio’s E-Bike Project likely is, at least in part, about market presence, but that kind of R&D effort also points to commitment and investment in a substantial markeplace.

THE CHALLENGES
If a dealer wants similarly commit to diversifying into e-bikes, they need to make it work for them. For starters, dealers will have to consider if they want to sell vehicles that are far cheaper than what they already offer, given that e-bikes retail for between $1,500 and $4,000. Given that this is a new addition, the lower, per-bike revenue is not necessarily a disincentive; dealers looking to pursue e-bikes simply need to figure out the numbers.

“It’s import to consider what’s in it for the dealers,” Citron says. “What’s in it for them to start carrying vehicles that will require them to start training new sales people to understand how [e-bikes] work and then selling them for a third of the cost of their normal product. Is there incentive for them to get involved?”

Look at car dealerships that sell electric cars. One of the challenges in that automotive segment is while dealers might have sales targets for electric bikes, their staffs still don’t understand the vehicles well enough, and the dealers have less incentive to sell electric cars because they make less money on maintenance and service.

Another issue is code. Motorcycles, scooters, ATVs and various segments are governed by an alphabet soup of federal and state code, as well as some municipal laws. But e-bikes operate in a variety of gray areas. Do riders need a helmet? Where can they ride? Does the state require a driver’s license for an e-bike? What kind of lighting should e-bikes have? The answers to these questions can even vary depending on whether the rider is on the road or a path, Bjorling noted.

Right now, e-bikes tend to get lumped in with motorcycles or mopeds from a legal perspective. This puts dealers in a good position based on their knowledge of local code, which they can use to their advantage in terms of differentiating from their competitors and providing expert customer service.

But perhaps the biggest challenge is awareness. Given the size of America’s e-bike market in comparison to the world, manufacturers and dealers need to get the word out if they want to see this category gain mass appeal. The key for U.S dealers when it comes to e-bikes is to step up advertising and marketing efforts in order to will get the segment to resonate with their buyers and grow to its full potential.

“It’s [U.S. e-bike sales] still a pretty small fraction of bicycle sales, so clearly enough people don’t know about them,” Citron says. “I’m sure a lot more people could use one … just not enough people know about them yet. I’m sure that will change over the next three to five years for sure. But it’s still a bit of an unknown. Defining that market and understanding it better will be key if motorcycle dealers want to get into it.”