Why should we care about the climate?
Why should we care about the climate? This is a question I often used to ask myself. I could not comprehend how my actions would be significant in the grand scheme of things. Looking back, this was the diffusion of responsibilityphenomenon in action which occurs when people who need to make a decision wait for someone else to act instead. The more people involved, the more likely it is that each person will do nothing, believing someone else from the group will probably respond. I am not too sure when my ‘aha’ moment came to be, but what I do know is that, our future, and whether it will be a good or bad one, is dependenton how mankind deals with the climate challenges. We are currently experiencing global catastrophic risk with the thinning of the ozone layer and we are slowly moving towards an existential risk.
In the figure above, the Y-axis represents scope, that is, the size of the group of people that are affected by the risk.
The X-axis represents the severity, that is, how badly each individual in the group would be affected. This is further classified into:
• Imperceptible risks: Risks that are so slight, gradual, or subtle as not to be perceived.
• Endurable risks: Risks that may cause great destruction but mankind can recover from it e.g. threats to Earth’s biodiversity, moderate global warming, and global economic recessions.
• Crushing risks: Risks in which mankind is either utterly destroyed or irreversibly crippled in ways that radically reduce their potential to live the sort of life they aspire to.
A crushing pan-generational risk can be classified as an existential risk. The effects of existential risk would be devastating and the approach cannot be one of trial and error as there will be no time to learn from mistakes. Instead, a proactive approach must be adopted. It is through thinking about this that I got to understand the value of climate tech. Although moderate global warming is not an outright existential risk (learn more on this from The end of humanity: Nick Bostrom at TED*Oxford), runaway global warming is a cause for concern. According to the Existential Risk paper by Nick Bostrom, the release of greenhouse gases can turn out to be a strongly self-reinforcing feedback process. He states that this is what could have happened on Venus, which now has an atmosphere dense with CO2 and a temperature of about 450oC.
Why Africa and why now?
According to a report done by the African Development Bank, 7 of the 10countries that are most vulnerable to climate change are in Africa. Despite the continent having the least contribution to global warming and greenhouse gas (GHG) emissions, it will suffer the effects of climate change to a disproportional degree. The vulnerability stems from the fact that agriculture has been and will continue to be the continent’s economic backbone and climate change will create food insecurity, poverty, and population displacement. It is estimated that climatechange threatens the lives of 100 million in extreme poverty.
What is climate tech and what promising ideas are out there?
Climate tech is technology that is explicitly focused on reducing GHG emissions, or addressing the impacts of global warming. According to the State of Climate Tech 2021 PWC report, they can be categorized into those that:
i. Directly mitigate or remove emissions
ii. Help us to adapt to the impacts of climate change
iii. Enhance our understanding of the climate
Taking a closer look at the ecosystem, the above objectives spread across 4 key sectors that serve as the pillars of climate tech, namely:
From a global standpoint investment in the climate tech space is continuing to show strong growth and the mobility and transport sector remains the most heavily funded area. The transportation sector’s carbon footprint and dependence on oil is of major concern. And the use of electric vehicles is arguably the most realistic medium-term solution to address these concerns. For purposes of this article, I therefore decided to focus on the e-mobility sector.
A focus on electric mobility in Kenya
The current state of the market
The level of electric vehicle adoption in the country remains low and the path to adoption is still unclear. Nevertheless, there have been some advancements in the market.
In late September 2022, the Kenya Power and Lighting Company (KPLC) announced its plan to shift its entire fleet to electric vehicles. Before doing so, the company set aside KES 40 million (approximately $ 331,000) to pilot this bold initiative. These funds will be used to purchase three electric vehicles (EVs)-two pickups and one four-wheel drive, as well as invest in setting up three EV charging stations in Nairobi for the company’s use and for demonstration purposes. KPLC has also stated its interest in purchasing 50 electric motorcycles from Roam, formerly known as Opibus.
KCB has also partnered with BasiGo to finance green Public Service Vehicles (PSVs). The partnership will allow KCB’s PSV customers to receive up to 90% funding with a 36-month repayment period to support them in reducing their GHG emissions. The buses cost KES 5 million (approximately $41,000) and above.BasiGo will retain the ownership of the battery and the battery is subsequently leased to the PSV operator via the Pay-As-You-Drive (PAYD) subscription, at a price of KES 20 (approximately $1.7) per kilometer. BasiGo mitigates the risks to PSV operators by guaranteeing battery performance and providing all charging and maintenance for the bus throughout its life.
From the examples above, we see that to have a thriving ecosystem and drive adoption, the entire mobility ecosystem must work to make the transformation successful, from EV manufacturers and suppliers to financers, dealers, energy providers, and charging station operators.
The figure below illustrates the e-mobility sector value chain and the current players operational in the Kenyan market.
Note: This is not an exhaustive list, it is only for illustrative purposes. However, should I have missed a critical player fell free to reach out to me
From the figures above, we see that most players are integrated in more than one segment of the value chain. For example, EV assemblers also play a critical role in the sales and distribution, and provision of charging infrastructure.
In order to now drive adoption, there needs to be transformative shifts in four key areas: (i) the regulatory landscape; (ii) the battery technology; (iii) the charging infrastructure, and; (iv) consumer demand.
Governments around the world are introducing regulations to accelerate the shift towards a greener economy through the following initiatives:
• Defining stringent CO2 emission targets
• Enforcing EV subsidies and incentives, such as favorable tax policies, subsidizing the cost of electricity etc.
• Setting up EV production targets
• Enforcing bans on the production of Internal Combustion Engine (ICE) vehicles
Industry players are working towards several developments in the e-mobility space such as:
• Decreasing battery prices
• Advancing battery technology to improve range efficiency
The mass rollout of charging infrastructure is a key component in the shift towards sustainable mobility. This could be done through:
• Building a fast-charging network
• Building a battery-swapping network
The preceding initiatives have gained a bit of traction, however, increasing consumer demand remains a bottleneck when it comes to mass adoption. There needs to be a lot of consumer awareness and sensitization to assuade consumers byproviding answers to the following questions:
• Will the battery range be sufficient for my travel needs?
• What happens when my battery is depleted but I am not close to a charging station?
• How long will the batteries last and does the depreciation drastically affect the EV’s performance?
• Can I charge my battery at a competitors charging station?
• How easy is it to maintain and source for spare parts?
I took my research a step further and interviewed the founders of the following e-mobility companies in Kenya: (i) Ecobodaa; (ii) Stima boda and; (iii) KiriEV. The table below gives a high-level summary of the key attributes of these e-mobility firms.
|I||Motorbike retail price ($) 1,2||943 – 1,200||1,650||1,540||• 1,420 – 1,592 (bikes)• 1,161 (scooters)|
|II||Range||Unlimited||• 85km(light load)• 75 km(heavy load)||• 110km(light load)• 100km(heavy load)||• 70km(light load)• 80km(heavy load)|
|III||Cost of fueling per day/ charging (KES) 3||500 – 1000||250 per swap(not pro-rated)||280 per swap(pro-rated)||• 200 – 250 per swap(pro-rated)• 160 per full charge|
|IV||Time taken to charge the battery (hours)||N/A||5||4||2.5|
|V||Battery to bike ratio||N/A||2.5:1||1.3:1||3:1|
|VI||Leasing cost per day (KES)||400||400||400 – 500||500|
|VII||Lead time (months)||N/A||N/A||2||3|
Notes: 1. Assumed 1 USD = 120.80 KES | 2. The Bajaj Boxer was used as a proxy for the ICE bikes | 3. The cost of swapping differs given the different ranges of the bikes | 4. These values are accurate as at the date of publication
From the table above, we see that:
i. The upfront cost of an electric two-wheeler is higher than that of the traditional ICE. Currently, the bikes are being imported as Complete Built Units (CBUs) from India or China. A large proportion of the total cost goes to tax and shipping. Firms are now looking to import Complete Knockdown Units (CKDs) and assemble the bikes locally. This is expected to lower the cost by reducing shipping and excise tax.
ii. The EV range is substantial. According to stakeholder interviews, the weekly distance for a two-wheel taxi driver is approximately 350 – 400km, which translates to 50 – 57km per day and well within the range.
iii. Swapping batteries costs less than fueling an ICE motorcycle and most businesses are reliant on battery swapping as it is a faster process for the end user.
iv. Although the battery swapping process takes less than 5 minutes, it takes a considerable amount of time to charge depleted batteries.
v. E-mobility firms need to have more batteries than bikes, due to the battery swapping nature of the business making the business model very capital intensive. However, Kiri EV is looking to create interoperable charging infrastructure because:
a. It will be cheaper than swapping once they receive preferential rates from the government. (In the future, solar charging stations may be considered in order to cater to more remote regions of the country with unreliable electricity supply)
b. It is less cost intensive as one does not need to have a high battery: bike ratio
vi. There is little to no difference when it comes to the cost of leasing. In my opinion, there should be more attractive green financing options for EVs to pique consumer interest and adoption.
vii. Overreliance on CBUs and low demand means long lead times (of approximately 2 to 3 months) for bikes and spare part orders, an inefficient supply chain, and quality control issues.
What can we learn from other markets?
There has been a lot of discussion on whether battery swapping is better than fastcharging and vice versa. For this reason, I analyzed three different firms operating in developed markets, that is:
i. Better Place (filed for bankruptcy in 2013): A venture-backed Israeli e-mobility company
ii. Tesla: an American multinational automotive and clean energy company
iii. Ample: an American startup that is developing battery swapping technologies for electric vehicles and seeks to have ‘Electric Cars for Everyone’
Better place sought to partner with ICE vehicle manufacturers and retrofit their vehicles effectively converting them into electric cars. The firm would then provide battery switching services for electric cars. The company raised $900 million, before completely imploding. Some of the reasons for its demise include:
• The $500K battery swap stations ended up costing $2 million per station.
• The firm could not co-locate the swapping stations with the fueling stations.
• The swapping stations required huge cooling infrastructure to charge the batteries without degrading them.
• The company grew faster than any revenue could support —it had around 1,000 customers but was burning $1 million per day on salaries.
• The firm only secured one partner who was interested in converting their vehicles – Renault. There was no incentive at the time for car companies to create swappable batteries, as it was not clear what their upside would be.(That being said, we have to be cognizant of the fact that this was over 10 years ago and the call to action for climate change was not at the forefront for a lot of companies)
• The design of each automaker’s batteries is deeply entwined with unique vehicle architectures. None are designed for one-size-fits-all or easy removal and reinstallation.
In 2014, Tesla piloted its first battery swapping station. At the time, the firm had 119 standard Tesla superchargers across the country. The success of the battery swap model was bleak from the get-go as most charging was done at home. It did not take long for the company to pull the plug on this venture.
Tesla does not plan to revisit the battery swapping model because they believe the charging mode is best for large-scale civilian EVs. The impracticality of storing and servicing thousands of batteries (at each station) and the very notion of battery swapping sidesteps the actual solutions for “range anxiety” – higher battery densities and quick charging.
This quote from Grace Tao, Tesla China’s Vice President of External Affairs clearly explains the firm’s preference for super charging: “You might recall that ten years ago, many electronic products we used removable batteries, and a mobile phone required two batteries. Nowadays, most electronic products such as mobile phones and computers have become integrated built-in batteries, and the way of supplementing energy has also changed from replacing batteries to high-power fast charging…Constantly increasing the layout of charging piles and improving charging efficiency at the same time, we think this is the best solution to users’ anxiety about charging…The national standard charging interface is consistent, which will greatly improve the efficiency of charging. Tesla’s latest V3 overcharge technology can replenish up to 250 kilometers of battery life within 15 minutes, and the time for a cup of coffee has basically met the electricity demand of a week in the city for commuting.”
Ample has launched a new modular battery swapping that delivers a full charge in under 10 minutes and works with any electric vehicle. Instead of trying to swap the vehicle’s factory battery pack, they replace it with an aftermarket pack that is made of smaller modules. Unlike DC fast chargers, this battery swap system will only work with vehicles that have been retrofitted with the modular battery packs. At present, this limits their use to vehicles that have had that done, so their rollout will be small scale for now. The concept of retrofitting although good may be difficult in Kenya. For starters, most ICE bikes are imported and therefore in order for mobility companies to retrofit these bikes they would have to get consent from the original manufacturers and this may prove difficult. Additionally, most EV players are startups all trying to gain market share, this level of collaboration where the batteries can be retrofitted across all bikes may not be feasible in the near future.
Ample’s battery swap stations are also portable and do not have to be installed permanently at any location, dramatically reducing the cost and time it takes to install EV infrastructure. This system is designed for rapid deployment, making it possible to equip an entire metropolitan area with a ubiquitous network in a matter of weeks.
Notes: The battery swapping station occupies two parking stations
The firm also has the additional benefit of being able to capture wind and solar power when it’s available, and then dispense that energy to EVs when needed.
Although the battery swapping model is what is predominant on the continent, we have to keep in mind the hidden disadvantages of battery swapping stations:
• There is a need to deploy capital on extensive charging infrastructure.
• There is a need to standardize batteries to make them swappable across different EV models within the same firm.
• Should companies want to open up their infrastructure to other players, the challenge of battery interoperability comes into play.
• The mobility company must own more batteries than EVs deployed, which is another cost intensive output.
This being said, battery swapping stations have succeeded, as well as failed in different markets. Nio, a Chinese EV company, has seen tremendous success with the battery swapping model with the added advantage that the batteries do not wear as fast as those subjected to fast charging. Additionally, slower charging allows mobility companies to take advantage of the best time to charge based on electricity price tariffs or the availability of renewable energy. The other advantage is that in this market, drivers would likely not want to charge at come and incur higher than usual electricity bills. Therefore, as long as battery swapping stations are conveniently placed this would be the likely preferred option.
In summary, e-mobility firms have to really assess the pros and cons of each model before rolling out infrastructure. Additionally, the conventional automotive business model will not work for the EV industry and a more collaborative and innovative environment will be more feasible. This could be done in several ways:
• Creating scale: the current levels of demand by each EV manufacturer for supplies is too low to generate economies of scale resulting in higher component costs. EV players should consider working along different stages of the value chain e.g. one player could consolidate the supply chain, providing better economics. Alternatively, they could work independently but import parts jointly.
• Building a charging/swapping infrastructure: It is highly unlikely that one firm will have the capital required to roll out charging/swappinginfrastructure within Nairobi. To promote faster adoption, EV players need to come together to solve the issue of range anxiety.
• Digitizing the supply chain: Tesla was able to steer clear of the semiconductor supply chain shortages that hit the automotive industry since the start of 2021. It did so by controlling its battery supply chain and building in-house capability to write software code that runs its cars as a substitute for chips. Although this was beyond the company’s core competency and was more expensive, it paid off in the long run as Tesla was able to: (i) work with whatever semiconductors it was able to procure; (ii) change suppliers as needed and not be overly reliant on anyone and; (iii) have the flexibility to use chips or code. It may be too early to do this but is a useful consideration.
Nevertheless, the probability of EV companies working together is low as each firm operates in the hardware industry and would not want to make the same thing. The design is often regarded as core intellectual property, and hence standardization will not occur any time soon.
From an investment perspective, investors have to keep in mind that investment into an EV company will require a lot of capital because not only will one be funding the production of the EVs but also the infrastructure and the payoff may not be realized in the near term given the nascence of the sector.
As we wrap up this article, I would like to state that even though the move to EVs is good for the environment, I would like to challenge EV manufacturers to have in place net zero campaigns that hold their suppliers and partners accountable. For example, the manufacturing and disposal of batteries should not be detrimental to the environment.