Product Research: How is BluSmart building its cab and EV business?
In this article, I tried analyzing the business model of the biggest cab service providers in India(Ola and Uber) and comparing them with the BluSmart business model.
Let’s explore the USP of BluSmart and how this startup is seeking to challenge Uber and Ola for market share in the country with bets on an all-electric taxi fleet.
About BluSmart
BluSmart is a 100% electric cab service that began its operation in 2020 by providing airport rides to Delhi and now has extended its services to Bangalore.
Blusmart since it’s launch saw rapid growth with the average car ride increasing from 1,400 per day to 17,000 trips per day. (Read more here)
The company is even planning on growing its fleet to 14,000 taxis next year and 100,000 in five years, expanding to four more cities.
How is BluSmart different?
BluSmart has correctly identified user pain points such as cab users (especially in India) face high cab cancellation rates, unclean cabs, and high surge prices when using Ola or Uber.
Blusmart considered these problems and turned them into their USP. They provide cab services with:
- Zero cancellation rate
- Clean and hygienic cabs (through direct management of its fleet and drivers)
- No surge prices
How is BluSmart offering clean rides with zero cancellations?
BluSmart owns the complete infrastructure i.e. EV cabs, and charging setup(use Asset-heavy model), and only hires drivers.
By directly managing the cab and providing incentives for clean-cab rides they were able to provide better quality service such as cleaner cabs and no ride cancellations (which increased their trust among customers).
Unique Incentives by BluSmart
Incentives provided by BluSmart:
- Flexible working hours that allow drivers to log in and out as per their schedule.
- Free accidental insurance up to 2 lakhs
- Cab quality-based incentives that motivate the drivers to keep the cabs clean.
These incentives have attracted many Ola and Uber drivers to work for BluSmart. Almost 43% of BluSmart drivers are from Uber.
OLA/UBER Working Model and their Drawbacks
Ola and Uber work on an asset-light model i.e. they don’t own any of the cabs. The drivers own the cab and the company takes a commission from the drivers for using their platform.
This aggregation model comes with its own set of problems such as the driver being unhappy about the ride prices as most of what they make goes into paying off their car EMI and with Ola, Uber's poor incentives schemes the drivers end up quitting for other jobs that pay more. Due to this, Ola and Uber faced a huge shortage of cabs and cab drivers.
Since Ola, and Uber don’t own the cabs it became difficult for them to control the cab's hygiene, its reliability and provide quality rides to the customers. As drivers started quitting due to lower pay, Ola and Uber had to increase incentives to attract drivers and keep ride prices lower than their competition to acquire new customers. This resulted in more cash drain than cash inflow.
Comparing incentives provided by Uber, Ola, and BluSmart
Incentives play a key role in keeping drivers content and motivated to work. The happier drivers are with their jobs, the better the service provided by them.
Incentives provided by Ola or Uber are in terms of reward points. The more rides the drivers complete, the more points they will get. They can then convert those points either into money or attractive coupons.
But this type of incentive framework only encourages drivers to accept more rides but doesn’t ensure better ride quality.
Whereas BluSmart provides more variety of incentives that are more lucrative to drivers. Their incentive frameworks motivate drivers to keep the cab clean and provide better quality cab rides to the passengers.
Incentives such as minimum business guarantee ( i.e. drivers are guaranteed INR 2.8k worth of rides per day) build trust between the driver and the company.
How has BluSmart increased its asset utilization (cab and EV charging setup)?
- 20% increase in revenue by optimizing the driver-car ratio
The company ownership model allowed them to staff more than one driver for one vehicle. Using this approach, the vehicle can be operated for much longer hours and higher revenue can be generated even while the lease cost remains fixed, thus increasing profitability. The optimization of the driver-car ratio resulted in a 20% increase in revenue per vehicle. (Read more here) - Strategically placing charging hubs to decrease dry-run time
When the company learned that the drivers faced an increase in dry-run time(Dry run denotes the percent of the time that the vehicle is running idle without a paying passenger).
Time begins to increase when charging infrastructure is placed away from high-demand regions since this would mean additional time spent by drivers traveling away from pick-up zones to charge the vehicle.
To avoid this, the company strategically placed charging hubs in key demand catchment areas which helped them to achieve two key operational requirements: optimally meeting demand and reducing dry-run time. (Read more here) - Providing EV charging services
To increase revenue and utilization of electric charging provided by the company. BluSmart Charge was introduced which is one of BluSmart’s business segments to offer charging services to other EV users and increase asset utilization of chargers.
This allows EV users to locate, book, and pay for charging sessions. Currently, BluSmart cabs charge using both captive BluSmart chargers and public chargers. (Read more here)
How did BluSmart raise female passengers by 1.8 x?
With continuous driver training and ensuring safety standards, BluSmart has created a secure community. To provide safety for women passengers the company has even hired and trained women drivers.
The percentage of female passengers as a proportion of total users on the BluSmart platform is around 1.5 to 1.8 times higher than that on other ride-hailing platforms. (Read more here)
Challenges in the BluSmart Business Model
1. Cost of setting up charging infrastructure
One major issue with BluSmart's business model is the cost of doing business. Since they own the complete infrastructure it becomes a cost-heavy operation as they have to lease EV cabs( which are 25–30% more expensive than petrol cars) and even provide charging infrastructure in their target cities.
Although the cost of ownership and operation of EV cabs is cheaper. The company petrol/diesel car. The total cost of operating EVs is INR 4.6/km when compared to INR 7.1/km for CNG vehicles or INR 8.2/km for diesel vehicles. Setting up charging infrastructure is expensive.
2. Lack of vehicle options
As of now BluSmart only offers sedan cars( which have a capacity of 4), unlike other cab-ride providers who offer different types of cars ranging from sedans to SUVs, bikes, and autos.
BluSmart collaboration with different EV car manufactures
With few automobile companies manufacturing EV cars, Blusmart has limited companies to partner with and purchase cars in bulk.
They get most of their cars from Tata Motors (the only affordable EV maker in India right now). They have already raised Rs 1,200 crore for vehicle leasing. 95 % of their cars are Tata Tigors (the electric variant) and the remaining 5 % are premium cars such as Hyundai Kona Electric, MG ZS EV, and BYD E6. The company plans to keep the composition the same.
BluSmart Cab Services Stats
BluSmart has over 2,600 charging points, has a fleet of over 3,500 cars, claims to add 500 cars every month, and has over 4,700 drivers. Over 2.4 million users have downloaded the BluSmart app. BluSmart plans to have 10,000 EVs in FY24.
The firm has reported operating revenue of Rs 170 crores as of FY23 as against Rs 29 crores in FY22.
The potential of EV Market in India
EVs are a huge growing market in India as they play a vital role in transitioning India to a zero-emission transport system.
Many e-commerce and delivery companies like Amazon, Flipkart, Zomato, Swiggy, and others, have committed to 100% fleet electrification over the next decade. This provided BluSmart with the opportunity to collaborate with other e-commerce giants and enter into the delivery market.
Conclusion
Bluesmart vision of providing a clean and green space business with a focus on sustainability, and better quality service is its recipe for success. Within a short period, it has challenged established companies such as Uber and Ola. Blusmart has identified and targeted the appropriate market to address the prevailing issues in cab services.
Reference
3. BluSmart
4. Forbes India
