Thread by @bharatbetpf

Hero Moto just announced a PIPE into Gogoro. It also has a partnership with Gogoro- and this could be a critical component of Hero's LT strategy.

So let us understand Gogoro in this thread! 🧵

Small account trying to grow - so please RT if this adds value! ♻️

Gogoro is a Taiwan based integrated swappable battery company.

Before we understand why what Gogoro does is valuable - it is important to understand the key challenges EVs currently face.

1. Cost: A bulk of the value of an EV is in the drivetrain and battery tech - this inturn drives the price of the vehicle up

2. Range anxiety: Given that the EV can run x kms on a charge and then needs to be charged again - range anxiety is a critical painpoint for EVs

3. Time: Even when a strong charging point network is built - you have to spend large time to allow charging at the station

4. Grid stability: Given that EVs will be a major consumer of electricity into the future - their role in maintaining grid stability is critical.

5. Fire safety: Incorrect charging/equipment leads to fire accidents especially with at home charging

Here's how Gogoro addresses these problems:
1. Cost: Reduces upfront cost materially since you can now buy without the battery
2. Reduces range anxiety since the firm develops a strong network in the area it operates in (Gogoro station density > petrol pump density in Taiwan)

3. Reduces time to charge: Instant plug and play solution offered via swappable batteries
4. Grid efficient: Optimizes cost, battery life and grid stability via efficient consumption during periods of excess supply and slower charging when possible

5. Proven safety with compliance to international safety standards

With respect to growth it is following the classic template successful startups use - start in a small end market - dominate it - grow in concentric circles.

It entered Taiwan in 2015 - and established 35% market share in the E2W market. It soon emerged as the preferred tech - growing share to 82% in 2017, 90% in 2019 and 97% today.

The firm now commands 10%+ 2W Market share in Taiwan and has one of the strongest networks (exceeding petrol pump density) with 10K+ battery stations. 95%+ of electric 2W in Taiwan are sold by Gogoro/Gogoro partners

The business is vertically integrated - controlling the end to end customer experience: Drivetrain, scooters, battery, swapping network, and customer facing app.

With global aspirations in mind - it is now targeting the #2 and #3 two wheeler markets next - India (Hero partnership) and Indonesia (Gojek partnership)

Now with the business and growth prospects understood - let us dive into an aspect that is virtually ignored by sell-side today - how this model will impact cash flows.

World over successful companies have build great value by building recurring revenue businesses. This recurring cash flow is valued highly because of the visibility it offers once you have an install base on ground.

What is a business like Gogoro offers is a chance to drastically transform that cash flow mix - driving more revenue from rich recurring subscription revenue as you build your network of scooters on ground.

The two major challenges to a razor-blade model are (1) Switch razors
(2) Use competitor blade

With a 10yr+ vehicle life, and control over battery tech & compatibility, this creates one of the most beautiful razorblade businesses.

From a customer lifetime value pov - <46% of the customer's value is in the upfront hardware (scooter sale) - a majority of it (54%+) comes from recurring subscription revenue.

Further this recurring revenue will be shared with the local partner - in this case Hero.

One of the major reasons why 2W trade at low teens valuations is that their business is inherently cyclical. This combined with the threat of disruption driving down terminal value has crushed multiples further.

Firms like Hero are now demonstrating considerable evidence that with a proactive stance (Ather+Gogoro+Own launches) they will survive the EV transition - which should drive one level of rerating as terminal value confidence comes back.

The next leg of rerating will probably begin as the market begins to gain clarity on the dynamics of the recurring revenue that a business like Gogoro will bring in.

Disc: I'm invested in Hero both in my personal and my client portfolios. This is a purely educational thread and not intended as investment advice.

@itsTarH @datta_arvind