Jonathan Xavier Weinert 2008

I believe what's happening in the e-bike industry in China is very similar to the case of the Chinese motorcycle (MC) industry evolution a decade ago, though the "Wikinomics" effect of decentralized production is perhaps happening on a larger scale with e-bikes.

What got my thinking about this were the book Wikinomcs by Don Tapscott and Anthony D. Williams, and some great reports by Ge Dongsheng, Takahiro Fujimoto, and Yasuo Sugiyama on the Chinese motorcycle industry.  My advisor posed a few questions to me on the subject of whether there are parellels between this industry and e-bikes.

 
    1) what about patent law and intelectural property protection? In this case of motorcycles, the industry evolved before     China (and Vietnam) became concerned about IP protection. Will it change as more protections are put in place?
    2) The motorcycle technology was a mature technology, esp for small cheap motorcycles. Thus the rewards from R&D     were small
    The question is whether circumstances are different for e-bikes? It is not a mature technology, stronger IP protection is     starting to be put in place, and there is no external industry/product to imitate.

My Response:

1. IP protection is still loosely enforced. I glean this from interviews with e-bike managers at the trade shows, and it's reinforced in the models I see on the streets. National gov't has little hope of regulating the estimated 1300 e-bike producers + vast network of parts suppliers. I would argue this industry evolved with maybe even less IP protection than the MC industry (in its beginning when only China SOEs made MCs, they at least paid for the technology from Japan).  It's still very "Wild West"-style over there.  IP protection is not preventing knock-offs.

"Knock-offs of what?" you might ask. You mention the e-bike industry has no external product/industry to imitate.  I would argue that they actually have a big industry with lots of products to imitate, and they're doing a great job.  Look at the following two pictures I attached.  Can you tell which scooter is electric and which one is LPG? (hint: driver demographics give it away).   

The e-bike industry is rising up to knock out the domestic MC industry, just as the domestic MC industry rose up and knocked out the Japanese MC industry a decade ago! And they're beating them in the same way the Chinese MC industry beat the Japanese MC makers! Cost.

THey're able to produce a cheaper product that, while not quite as good as a real MC, it satisfies the modest mobility needs of most users. This "good enough" product design is exactly how the Chinese MC makers beat out their high-quality Japanese rivals, whose quality was so good they lost market share quickly in a land of price-conscience Chinese consumers.  (Sugiyma 2003)

So how is the e-bike industry able to produce such a cheap mobility product?  The secret is in its incredibly simple product architecture (i.e. the relationships amongst the components of a product). E-bikes are modular (each component has a self-contained function) and open (interface is standardized across many companies in the industry). The Chinese MC industry's product architecture is considered "quasi-open" and modular (Ge and Fujimoto 2004), which differs from the closed, "integrated" and traditionally vertical Japanese MC and auto industry.  These two traits enabled a large cluster of e-bike assemblers and suppliers to thrive in the Shanghai-Zhejiang-Jiangsu golden triangle, driving up production volume and lowering cost. If MC product architecture is "quasi-open", I'd say e-bike architecture is "uber"-open!

Consider the 3 simple steps to become an e-bike producer: 1. Choose from thick catalogue of local suppliers (ideally one within driving distance) and buy frames, in-wheel motors, huge crate of "one-size fits all" VRLA batteries, controllers, wire harnesses, and various odds and ends. 2. Hire minimum-wage workers to assemble parts together 3. Engine assembly: Stuff three batteries into a box, connect wire from box to controller, connect wire from controller to motor. Body assembly: connect parts using screws and pneumatic tools.

While I'm exaggerating a bit, check out the third picture to illustrate how simple and modular e-bikes really are. The local mechanic near my school built his own.   Simple, stylish! (hey, he even attached a brand label onto the front basket for completeness =))     
 
As to your second point about the maturity of the industry, I would argue that both the product and the 4 core technologies used (VRLA battery, brush or brushless motor, controller, charger) are fairly mature. Evidence exists in the vast supplier network, low margins, and product standardization. For example, e-bike batteries only come in two sizes, either 12 Ah or 20Ah), motors and controller are designed for 250W, 350W, and now 500W for 36, 48, and now 60V systems. While of course there is still plenty of room for product innovation in in-hub motors and battery technology, it's got to be cost-competitive with the incumbent "good enough" technology. This raises issues on a potential "technology lock-in" problem inhibiting future innovation in the industry (Ge, Fujimoto 2004)

As for the dirt-cheap VRLA battery technology, its product architecture is also modular and open, enabling a large network of suppliers for the electrodes, separator material, battery case, and acid.  They're hand assembled in a very low-tech process (see the pictures from a very primitive battery factory I visited: 1) a simple mold used to soder together the hand-packaged cells of each module, and 2) a view of the plant floor: a bunch of tables). This is the 3rd plant I visited, they're all variations on the same theme. Perhaps there's some room for "process innovation" here. 

The birth of this massive e-bike cluster in Eastern coastal China was definitely spurred by gov't policy banning scooters in urban areas which got the market rolling. However I think it is the low cost, driven by simple product architecture of e-bikes and cluster of assemblers/suppliers that sprung up as a result, which is the driving factor now.
 
Anyway, I need to find more hard data to back up these points and scour the innovation literature some more, but the evolution of the e-bike industry seems to fit the mold of a disruptive innovation that's attacking the incumbent MC industry. I wonder what implications this will have on MC industry in other SE Asian countries, what technology will eventually rise up to beat e-bikes, and what this all means for the electrification of 4-wheelers. Can the modular/open product architecture of electric drive two-wheelers, which enabled a vast decentralized horizontal network of suppliers, be replicated for electric four wheelers??
   
If you have any questions, comments, suggestions, on this matter or points for or against the above argument, please share. This subject will be part of my concluding paper on e-bikes.  Thanks!