And having been at this a long time I have collected some perspective.

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1 Car Makers in the Bike Biz or, Wake Up! Bike Guys By Edward Benjamin Senior Managing Director, ecycleelectric One of the wonderful things about my job is learning about many aspects of business. I get to visit all sorts of factories. And I get to interact with genius businessmen, brilliant designers, innovative inventors, visionaries and bike (ebike) nut cases. From all over the world. And having been at this a long time I have collected some perspective. My work in the bike business started in 1969, when I was a teen aged bike racer who got a job assembling bikes at a local bike shop. I knew nothing about what I was doing, and learned on the job from some interesting characters. That led to working in, managing, owning, selling, and recovering from owning bike stores. Along with writing a book on running a bike shop, working for a dealer association, editor for a trade journal, and opinionated author. Part of the recovery was to start a consulting business that - once again - I knew nothing about in At that time, the electric bike business was only in Asia, and the only commercial success was in Japan, where the Yamaha PAS was setting sales growth records. But I thought that combining electric power with human power was a very cool idea, and so focused my efforts on making friends in that new business. Most of my bike biz peers laughed at me, and promised failure in short order. As it turned out, I was early in, (1996) and did make a lot of friends in the emerging ebike industry. And my international focus (not an easy task for a bike mechanic from Kentucky) was the correct strategy to build the consulting company. Today we have been at this for 20 years, have offices in USA and China, and contacts in most brands and suppliers to the ebike industry. One thing that I have observed, that is critically important to the bike business today, is that the basic premise of product development and production is being upended. And most bike guys seem to be oblivious to this. Here is what I mean: The bicycle industry of the world has been offering the same basic product with variations in minor details, color, snd marketing story, since Want to argue that? Take a couple of pictures of bicycles from the 1950 s era and put them next to current bikes and tell me what the fundamental differences are. Yeah, weight is less, durability is better, they have more gears, etc. But the actual basic premise of the product is the same.

2 Now take photos of any consumer good from the 1950 s and put them next to the current iteration. Phones? Radios? TV? Cooking gear? Clothing? Do I need to drive the point home that my ipad (TV, fax, typewriter, phone, radio, sound system, game system, calendar, et. al.) would have been incomprehensible due to lack of context in the 1950 s? I think the folks in the 1950 s could have grasped the idea of lycra clothing, vapor permeable fabrics, and microwave ovens. But maybe not believed they would become ubiquitous. Consumer products have changed, and improved, a lot. While bikes did not. And here is a big one: Cars. On one hand, my Toyota pickup (Old southern men in USA all drive pick up trucks. It is a cultural thing ) hauls me from A to B much like my 1960 Ford pick up did in my college years. It is simply faster, smoother, much more reliable, uses less fuel and is more comfortable. That, you might say, is not so different from what has happened with bicycles. And you would be correct. Here are the big, big differences: 1. I expect to drive it ,000 miles before replacing it. (Good chance I will be replaced before it is) My old Ford was gasping its last at 60,000 miles. 2. My 2011 Toyota is obsolete. 3. In the span of the last few years, cars have added: Sensors for nearly everything, including monitoring the blind spot, tire pressure, who is driving (adjusting car configuration to suit the driver at hand), internet connectivity, vehicle to vehicle communication, the ability to summon help in the event of a crash, GPS functions hat make stealing the car a waste of effort, and more, and more. 4. And these enormously complex offerings are warranted for very long periods, which in turn means the car maker must build to a standard of quality excellence, at a low price, that is stunning. (We can see that electric bikes are coming out with connectivity, GPS, and more. So stay tuned,) The key take away from my rant so far is that the car makers have learned to build to a very high standard of quality. And to invest huge effort (and capital) into the product development. A bike company typically takes a standard frame design, maybe makes some changes in the tube cross section, selects some components, creates an appealing color and

3 graphics package and then has a bicycle OEM build it with the same basic processes that we have been using since the 1970 s. And that has been OK, for everyone in the bike biz has followed this path. The bike quality was OK, primarily because most western riders do not ride all that much. Even heavy users of bicycles ride only a few miles a day, and not all days, in the majority of cases. The auto industry, in contrast, has learned to follow a different path. Since a successful car model sells in the tens of thousands to the millions of units, for tens of thousands of dollars, there is huge pressure to get it right. Huge budgets are created for engineering, product development, consumer study, and validation of the product concepts and details. Huge pressure is placed on the teams to get it right, and these teams can consist of hundreds of talented people ranging from designers to engineers, to focus group moderators. And they take the time they need. Once the product is decided upon, the quality of the manufacturing becomes the focus. Cars get used every day, and consumers demand ever longer warranties and expected life from their cars. Most of today s ideas about quality manufacturing process come from the car industry. Other industries use them, but they started in car plants. Not long ago, I had the educational experience of accompanying a team of car industry factory experts on a tour of bicycle factories. I learned that most of the factories that I would have described as excellent, were not so excellent in the eyes of these experts. The faults were many, and in most cases the factory bosses proudly pointed out flawed processes and inadequate quality. I have come to understand that the bike business made a decades long pause in our product development and quality processes. While the consumer products of the world, competing fiercely, evolved, constantly improving in both features and quality, the bike business chose to chase the low wage rate production facility, and kept both product development and quality levels stagnant. New products from the bicycle industry are few and far between when compared to other consumer goods. (And I am not willing to accept the argument that a diamond frame bike is perfect as is, with no improvements left to be discovered. That argument reminds me of the statements in the 1890 s that everything that can be invented, has been invented.) Mountain bikes? Simply repurposing existing equipment. Initially resisted by the industry. Same for Beach Cruisers, BMX, Freestyle, Triathlon bikes, and more. The innovation was in the way the bikes were used by consumers, not in the product.

4 We are all aware that the bike industry has little automation. Invests little in engineering. Less in quality processes. (And very little in marketing, training, or warranty support ) We hear that the next big thing will be factories in yet another, more remote and lower paid third world country. One that will allow the brand to avoid anti dumping duties - as though that is the most important thing to consider. Before the angry retorts begin, I am well aware of ingenious improvements in gear systems, brakes, frames, etc. I am amazed at sub 15 lb road bikes. Lots of work went into these. But all this is simply refinement of existing concepts and products. It is amazing to me that a different bend of handlebar or a different color of stem excites anyone in our industry - yet that is what we are offered. And we really do not need any more gears. Here is the reason why the bike business is about to gain a bunch of very capable participants that play by different rules. The world is getting pretty crowded. And most of those people are living in high density urban environments. 20 story apartment towers 20 feet apart from each other. Living spaces of a few hundred square feet or less. It used to be that a city with tens of thousands of people per square mile was considered crowded, and rare. But we now have places where population is in excess of 50,000 per square mile. (Google Kowloon walled city for a glimpse of the future density levels.) The residents of such cities need transport. Many of these cities have metros, almost all have bus systems. There are roads, but the roads are over crowded with autos, trucks, and Buses. For many people, feet are the primary transport to an from the metro or bus station, work, and home. At the same time, the human race is getting a little richer, at most levels, in most places, and people can afford a bicycle, a motorcycle, or even a car. And that makes life much better than walking everywhere. But there are issues. High density cities are not good places for cars. There is no place to park, and a round the clock traffic jam. Motorcycles create noise and air pollution. Bicycles are easy to park, environmentally friendly, but not all people can propel a human powered bike, or want to. That is another disconnect for the bike biz. Most of us bike guys are former athletes, or at least avid cyclists. We have big strong legs, and regard sweating and an elevated heart rate as good things. Bikes, for us, are recreation, fitness, and sport.

5 So we have little understanding of the person who has a disability, is pregnant, must manage shopping bags and kids on the bike, or is simply tired from a day at work and wants to be carried as easily as possible. A motor is desirable for many reasons. Along comes the very smart and observant people who are the strategic and planning folks at car companies. They have a problem. Big cities are not easy places to sell cars. And many cities have very few car dealers, and those dealers may be focused on high end status symbols, not on basic transportation. And now more than half of all humans live in such places. So a car company cannot serve 50% of the human race. That is a big limitation for companies that regard themselves not so much as car makers as transportation suppliers. That limits growth a lot. And it is getting worse. The car industry has not had an easy time in the last decade. They are looking for new ideas and new markets. They are, as a group, humbler, and smarter than they are given credit for. One of the obvious markets for them is powered two wheelers. Gasoline powered two wheelers are a pretty mature industry, and frankly that is a another category with an limited future. There are many examples of governments banning motorcycles to reduce air and noise pollution. Electric powered two wheelers, however, are a wide open category. The existing industry is weak, and the category is and will experience tremendous growth. Margins are much better than cars. Predictions that the category will be 130 million units per year within a couple decades are heard. That would make the business bigger than any other transport product. Car makers are not much interested in sport, fitness and recreation use of bikes. But the biggest use of bicycles, world wide, now and even more in the future, is transportation. And they are very interested in transportation. So we have car makers, and auto parts makers entering the bicycle and electric bicycle markets. And most bike guys can laugh about this and point to the succession of failures that car brands have had in the bicycle industry over the decades. Those failures could be attributed to two basic things. Car makers did not make a unique product - their bikes were the same as everyones and not as cheap. And car makers were not sincere in their efforts, the bikes and ebikes were positioning pieces for trade shows or PR. That has changed.

6 We can learn from the entrant of one big car parts maker: Bosch is new to bikes, compared to just about everyone in the bike biz. They invested years of effort, put a big team on the task, invested tens of millions of euros, and blew us away with a sophisticated bicycle propulsion system. Works great, lasts a long time, and is constantly improved. Exactly what the car business does, as normal practice. Some of the car companies have continued to make insincere efforts. But here is what I see from my perch. ecycleelectric Consultants is the only well established information gathering and consulting company in the electric bicycle field. So we get asked questions, a lot, by companies considering joining the fray. The take away from those questions can be summed up: Hundreds of major car and consumer products companies, famous names, huge businesses, are paying close attention to the bicycle and especially the ebike business. Their questions indicate that they are getting involved, or planning to get involved, at an accelerating pace, in nearly every market. So lets imagine that 8-10 car makers decide to copy Bosch, and assign teams of 50 plus people to develop cutting edge products that have patented features galore, that use the most talented designers and call upon the best technology providers in the world. Imagine that those bikes are connected, talk to the vehicles around them, call for help when a flat tire or a crash occurs, cause only mirth when someone attempts to steal one, and sell in the millions. And lest imagine that the bikes are built to the quality standards of cars. By companies that are used to the much narrower margins of the car business. And expertly marketed inside billion dollar marketing budgets, alongside other transportation vehicles. By people who do not regard the existing bicycle distribution channels as a default choice, and do not regard the existing Brand/OEM relationships as the default choice. And who have the ear of the regulators, politicians and markets in ways the bike business can only dream about. And who can easily decide that while ebikes led them to the business, manually powered bicycles are interesting as well.

7 And have, already, thousands of retailers in nearly every country in the world. The bike business is about to be disrupted on a grand scale. Better products, more consumers, more use of bikes and ebikes. Disappearance of many existing brands, dealers, and factories. Changes in the component supply paradigms. Changes in service work and training. Changes in what needs to be communicated to consumers. Changes in who works in the business. And what they do. Humans usually do not welcome change. That has always seemed odd to me, for one constant is that everything changes. This change will be like riding a big wave. Fun if you can stay on top. We face a bright future, so long as we stay on top.

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