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Report

Achieving Cost Savings by Transitioning to a Low Carbon Vehicle Fleet

Charles Cole B. Navarro
Business Acceleration Specialist

III. Partnership Agreements

  1. Due to restrictions imposed by the pandemic lockdowns, the LCT project was not able to fully execute its partnership agreements with Grab, Lalamove and Sakay before the end of 2020. The following section documents the salient points from the previous discussions with each company, and offers recommendations on how the partnership agreement can be framed as a win-win proposition from a development and commercial perspective.
  2. A. GRAB PHILIPPINES

    Rationale

  3. The pandemic lockdowns caused a profound shift in the behavior of the consumers being served by TNCs. Work from home policies and the closure of public spaces reduced the demand for Grab’s taxi services. However, the same work from home policies accelerated the growth of Grab’ e-commerce and e-grocery business. Given these trends, Grab expressed their interest to develop an EV Program for their last mile delivery service called GrabFood, and understand how transitioning to electric motorbikes will enable them to improve their bottom line.
  4. According to an article by Manila Standard, a GrabFood “Delivery Partner” receives a fee of PHP 49.00 per delivery, with an average of 12-15 deliveries per day. This translates to daily income of PHP 590.00 to PHP 730.00. If we assume that the Delivery Partner took out a loan for a brand new motorcycle worth PHP 100,000.00 to fulfill his delivery tasks, it is estimated that he will be paying converted loan amortization amount equivalent to approximately PHP 125.00 per day. Aside from this, the Delivery Partner also incurs fuel expenses of approximately PHP 100.00 per day, and a converted maintenance cost equivalent to approximately PHP 50.00 per day. This gives the Delivery Partner a net income of PHP 315.00 to PHP 455.00 per day, for five hours of work six days a week.
  5. The EV Program being proposed by the LCT Project to Grab will attempt to lower the daily operating expenses of their Delivery Partners, or their total Cost of Mobility. This is achieved by offering an electric motorbike leasing scheme that is 20% to 30% cheaper than their current Cost of Mobility. This business model, more commonly referred to as a Mobility-as-a-Service (MAAS), transfers all the costs and risks associated with vehicle financing, maintenance, refueling, and storage to a third-party entity called a MAAS Provider. It is possible for the MAAS Provider to offer a lower Cost of Mobility and still achieve profitability because they have access to cheaper capital (i.e. the Deliver Partner’s loan has an interest rate of 26% p.a.); electricity is cheaper than fossil fuel, especially in large commercial facilities that enjoy preferential rates; and electric vehicles have few moving parts, thereby drastically reducing wear and tear and resulting maintenance costs.
    1. The MAAS business model has been firmly established in more advanced economies like India and China. DiShangTie (DST) is one of the most successful MAAS Providers in China. It has achieved “unicorn status” or a valuation of USD 1 billion by offering a fully electric last mile logistics fleet on a B2B basis to both local and international brands, such as IKEA. India is another major market experiencing a surge of MAAS startups, led by Euler Motors, Zypp Eelectric and SmartE.
  6. Each Delivery Partner pays a total of PHP 275.00 per day to cover his amortization payments, fuel costs and maintenance expenses. This PHP 275.00 functions as the baseline Cost of Mobility that the MAAS Provider needs to compete with. Based on the experience in China and India, an electric vehicle fleet has a 30% to 40% lower total cost of ownership than their petrol-based counterparts. Any resulting reduction in operating expenses will benefit the Delivery Partner directly, thereby contributing to Output 4 in Table 1.
  7. In order to facilitate the seamless adoption of electric vehicles by e-commerce and e-grocery companies, the MAAS Provider needs to invest in the supporting infrastructure and equipment required to support the round-the-clock operation of the fleet, on top of the capital cost of the vehicles themselves. This includes a dedicated charging station where the electric two-wheelers can charge overnight or receive top-up charging during the daytime, a service station that is fully equipped to provide preventive maintenance services for the fleet, and a parking garage. If all this investment is successfully mobilized, it will contribute to Project Indicator 3.2.2 in Table 1.
    1. Given the financial commitment of this full stack, vertically integrated solution, the MAAS Provider must be able to extract lease revenues from a fleet of at least 30 two-wheelers2. This will allow the MAAS Provider to properly service any financing obligations and achieve the intended ROI targets for the business, while being able to offer a competitive Cost of Mobility to the Driver Partner.
    2. It may be appropriate for the LCT to explore roviding blended financing support or even direct grants to the MAAS Provider participating in the pilot project, given that this is the first attempt to implement an electric vehicle-based MAAS business model in the Philippines.
  8. Through former Assistant Secretary and National Project Director Mark Richmund de Leon, the Project sent an endorsement request letter to the Electric Vehicle Association of the Philippines (EVAP) to recommend candidates for the role of the MAAS Provider in the GrabFood pilot project. EVAP nominated two of its members, ECLIMO Motors Inc. (ECLIMO) represented by Mr. Edmund Araga, and Oriental and Motolite Marketing Corp. (Motolite) represented by Mr. Jose Montano and Mr. Dennis Ibarra. ECLIMO will assume the operating role of the MAAS Provider, while Motolite will assume the role of the financier of the
    electric motorbike fleet and charging equipment.
  9. Recommendations and Next Steps

  10. In order to execute the Partnership Agreement with GrabFood, the LCT Project Team needs to reconfirm the interest of ECLIMO and Motolite to participate as the respective MAAS Provider and electric motorbike leasing company of the pilot project. Motolite’s commitment to finance the electric motorbikes is critical to the success of the EV Program, since it is unlikely that ECLIMO will be willing to procure these electric motorbikes directly just for the purposes of the pilot.
  11. It may also be worthwhile for the LCT Project to explore ways by which it can help Motolite and ECLIMO Motors Inc. offset their financial risks. A representative from ECLIMO, for example, can be engaged under an individual consultant contract to compensate them for managing and implementing the MAAS business model. This contract can also cover any operating costs related to implementing the pilot, such as the lease cost of the charging station, vehicle servicing station and garage. Beyond this, the LCT Project can also consider diverting the grant funding originally allocated for a solar charging station to finance the electric motorbikes and/or charging equipment Motolite will be supplying.
    1. In exchange for the LCT Project’s financing support, both ELIMO and Motolite must commit to submitting all operational and financial records of the transaction. This information will be used to further refine the financial model and arrive at a determination of whether the MAAS business model can be scaled up in the Philippine setting.
  12. A key premise of the Partnership Agreement with Grabfood is the ability of the MAAS Provider to offer a lower Cost of Mobility to GrabFood’s Driver Partners. It is therefore important for the LCT Project Team to confirm how much GrabFood’s Driver Partners are paying for the monthly amortization of their motorbikes, their quarterly maintenance costs, and daily fuel expenses. This data should be provided by GrabFood. Once confirmed, the LCT Project Team must develop a financial model that simulates the feasibility of the MAAS Provider receiving a daily lease revenue per electric motorbike that is 20-30% lower than the Driver Partner’s Cost of Mobility, and estimate the potential return on investment given the MAAS Provider’s
    operating expenses.
  13. If the financial model shows a positive return on investment, then the LCT Project team can then confidently engage the Management of GrabFood and ECLIMO Motors Inc. to commit to executing the pilot project. One of the details that need to be finalized is the location of the charging station, service station and garage where the electric motorbike fleet will be headquartered in. This location must be near restaurants with a high volume of GrabFood order so that the Delivery Partner has the option to recharge their motorbike in between deliveries. Each GrabFood driver will need to go to the garage at the beginning of every workday to get their electric motorbike assigned to them. After their shift ends, they will then deposit the same electric motorbike to the garage, where it will be fully charged for the next day’s operation.
  14. B. SAKAY MOBILITY PTE. LTD.

    Rationale

  15. Sakay’s primary area of interest is to increase the active users of their mobile application, Sakay.ph. Sakay.ph enables commuters to determine the optimal combination of public transport routes from Point A to Point B, using a proprietary algorithm and route database. The output of this algorithm can be found in Figure 1, where it is compared to Google Maps. As demonstrated by the diagram, Sakay has the unique capability to recommend several combination public transportation route combinations to meet the desired cost or travel time requirements of the commuter. Google Maps, on the other hand, offers greater utility to taxi services and private car owners because it only recommends the shortest and most direct route to a given destination, regardless of public transportation availability.
  16. Figure 1 – Sakay.ph vs. Google Maps

  17. Last November 2020, Sakay won a tender from the Land Transportation and Franchising Regulatory Board (LTFRB) to install a mobile phone-based GPS system to all Public Utility Jeepneys (PUJ) in the Philippines, starting with Metro Manila, Cebu and Davao. This project will establish the foundational technology for the LTRFB’s larger service contracting program, which gives an initial set of 60,000 PUJ Drivers supplemental revenue based on the number of kilometers they traveled as a public transport provider.
    1. The Sakay platform will analyze all the GPS information provided by participating PUJs, and automatically compute for the number of kilometers traveled and subsidy entitlement amount for each PUJ Driver. If successfully implemented, this level of automation will reduce the implementation costs of the service contracting program significantly, thereby enabling LTRFB to increase the number of PUJs it is supporting without compromising service quality. Once fully rolled out, the service contracting program will improve the livelihoods of PUJ Operators across the country, thereby achieving Output 4 in Table 1.
  18. The implications of having the real time location of all active PUJs has broader, long-term implications that go beyond the LTFRB’s service contracting program. Currently, the Sakay.ph mobile phone application has more than 150,000 daily active users. Since Sakay has access to the real time location of their active users, it will be in a position to match the public transport demand of these users with the public transport supply offered by PUJs participating under the LTFRB service contracting program, for example. Furthermore, Sakay can also provide fleet analytics data to PUV Operators, based on the daily usage rate of their vehicles. Some of the specific features Sakay is planning to launch during the first half of 2021 are as follows:
    1. Global Positioning System (GPS) integration and Expected Time of Arrival (ETA) analytics. By integrating this GPS data with the Sakay.ph platform, Sakay will be able to track the real time location of all active jeepneys with respect to their approved routes. If this information is combined with the GPS location of the app user’s mobile phone, then Sakay will be able to give an accurate ETA of when the next jeepney, bus or tricycle will be arriving.
    2. Fleet Intelligence. The profitability of a PUV business depends on the operator’s ability to ensure high capacity utilization when the vehicle is on the road, and minimize downtime due to vehicle breakdowns. By tracking real time passenger demand in a given route throughout the day, Sakay can help PUV Operators determine the optimal number of PUVs that should be deployed during each hour of the day. In addition, once the GPS locations of the PUVs are integrated with the Sakay.ph platform, Sakay can track vehicle usage patterns and recommend an appropriate preventive maintenance schedule.
    3. Payments and Ticketing. The need for contactless payment solutions has never been more pronounced since the onset of the COVID-19 pandemic. In order to help PUV Operators transition away from a cash-based system and comply with the Government’s cashless regulations, Sakay is in the process of integrating the Sakay.ph app with major payment gateways like PayMaya, GCash, and Beep QR. Using Sakay’s existing capability to track the distance traveled by a Sakay.ph user on a registered PUV, it can automatically compute the appropriate distance-based fare and give the user the option to settle this payment digitally through the app. Finally, digitizing all payment tractions of a PUV fleet will enable the operator to have greater visibility of the financial health of her business.
    4. Smart Advertising. Sakay is developing location-based advertising in the Sakay.ph app. For example, if there is a 7 Eleven along a given route, the Sakay.ph app will alert its user about any promotions or discounts currently being offered by 7 Eleven once the branch is close by.
  19. Last 30 September 2020, Sakay entered into a Memorandum of Understanding (MOU) with the Department of Transportation (DOTr) to support the deployment of low carbon transport systems in the Philippines. The details of the MOU are outlined in Appendix A, but the specific outcomes relevant to the requirements in Table 1 are as follows:
    1. Promotion of PUJ operations that are using electric vehicles by designation a “green icon” on their route box in the Sakay.ph application. This modification will help achieve Sub-activity 3.2.3 and Output 4 by increasing the awareness of Sakay.ph users about low carbon transportation options along their daily commute. It will also promote PUV Operators with electric jeepneys to a larger set of commuters, which could increase revenue. This outcome is in line with Output 4 in Table 1.
    2. Propose an online and offline package to the advertising agencies Sakay is currently working with. Interested brands will be given both virtual advertising real estate in the Sakay.ph application, as well as physical advertising real estate in the vehicle of a participating PUJ Operator. It is anticipated that modern jeepneys will receive more interest than standard jeepneys, particularly with brands that wish to associate themselves with a “green” initiative. Advertising revenues will be split between Sakay and the PUJ Operator, thereby achieving the objective of increase PUV revenues under Output 4.
    3. In exchange for accessing these services, the PUV Operators will support Sakay promote the Sakay.ph
      application to commuters. By growing its user base among commuters and PUV Operators, Sakay will have access to a larger pool of data that will help it provide more meaningful services to its clients.

    Recommendations and Next Steps

  20. In order to help Sakay contribute to the outputs in Table 1, the LCT Project can connect Sakay to all the PUV Operators that participated in the Low Carbon Transport Forum last 04 December 2019, the Business Development Webinar last 20-22 October 2020, and various LGU programs. Increasing Sakay’s userbase from both PUV Operators and commuters will result in a virtuous cycle that will drive Sakay.ph app adoption, and organically increase the efficiency of the public transport system over the long-term.
  21. Sakay is planning to conduct a Series A fundraising round on February or March 2021. The proceeds from this round will be used to implement the features detailed in Paragraph 18, and finance Sakay’s expansion into other transportation modalities. The LCT Project can provide business advisory support to Sakay during this period.
    1. Sakay is considering various subscription options for fleet management application. To achieve immediate traction, the Business Acceleration Specialist recommends that Sakay offer this service for free. This should accelerate the adoption of their fleet management application among PUV Operators, particularly those that are already partnering with Sakay under the LTFRB service contracting program. More PUV Operators on the Sakay.ph platform will also increase the number of commuters using the app, resulting in a virtuous cycle.
    2. Sakay can extract revenues from other related services, such as charging a fee for each transaction under its contactless payment system, or by developing a marketplace for spare parts that are required during preventive maintenance.

    C. LALAMOVE

    Rationale

  22. In response to the slowdown in passenger transportation during the COVID-19 lockdowns, Lalamove
    launched a program to repurpose jeepneys into delivery trucks. This program, called LalaJeep, is currently being piloted in Quezon City. If successful, LalaJeep will enable PUJ Operators and drivers to increase the utilization of their jeepneys and benefit from the rapid growth of the e-commerce space. This outcome is aligned with the LCT Project’s mandate to increase PUV Operator revenues, under Output 4 in Table 1.
  23. Recommendations and Next Steps

  24. The LCT Project has not initiated any formal discussions with Lalamove to explore their interest in
    introducing an electric vehicle element to their LalaJeep Program.
  25. Given the nascent nature of the LalaJeep Program, its specific financial benefits for PUJ Operators and Drivers are still uncertain. The LCT Project can position itself as an unbiased third-party to assess the financial, environmental and social benefits of the LalaJeep Program to its stakeholders. Based on this analysis, the LCT Project can support Lalamove tailor-fit the LalaJeep Program to LGUs like Baguio, Iloilo, Laguna and Pasig.
2 This number is an estimate based on the experience in China and India. It must be confirmed by a financial model that simulates the actual operating and capital costs of implementing a MAAS business model in the Philippines.