[E2] Arcimoto: Mark Frohnmayer's vision for innovation by subtraction
Fun with a tandem 2-seater EV on 3 wheels
Dear Reader,
For this profile in Product | Strategy | Innovation, I’m writing about an electric vehicle (EV) company, Arcimoto, headquartered in Eugene, Oregon. Innovation is often associated with new technology and new features, but here we explore an “Innovation by Subtraction” mindset. I have followed Arcimoto since mid-2018 as it continues to commercialize its primary product, the ultra-efficient, pure-electric Fun Utility Vehicle (FUV). Arcimoto disrupts conventional passenger vehicles by subtracting the internal combustion engine (ICE) and replacing it with twin electric motors and plug-in batteries. The reverse trike design subtracts one wheel and 3-5 seats from conventional passenger vehicle designs as a tandem 2 seat, 3-wheeler. Doors and side-windows are also removed in the base model. And then Arcimoto subtracts the conventional steering wheel and substitutes a handle bar to reduce weight and provide more agility. The combined result is a radical reduction in weight (1,300 lbs.), size (L113” x W61” x H65”) and price (target $11,900 by 2024), but amplifies the fun factor with a more immersive experience for the typical errand or trip around town.
We will explore the following topics in this profile on the Arcimoto FUV:
FUV Product Design Features
Adjacent Use Cases
Business & Sales Models
Manufacturing & Vehicle Delivery Strategies
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Background
Arcimoto, Inc. was founded in Eugene, Oregon by company President & CEO Mark Frohnmayer in November 2007. Mark says he was looking for an electric vehicle during this time, but nothing matched what he was looking for as an alternative to conventional vehicles. He saw cars & trucks as over-designed for many routine trips weighing over 4,000 pounds and occupying 100 square feet of space to transport 1 or 2 people around town for an average 30-40 miles per day with limited cargo. In addition, the internal combustion engine is associated with a cumulative negative impact on climate, air pollution and noise. Arcimoto’s mission is to “catalyze the shift to a sustainable transportation system”.
Arcimoto has designed and built 8 generations of prototype FUVs over a 13 year period. Manufacturing currently takes place at the Arcimoto Manufacturing Plant (AMP) located at 2175 W. 2nd Ave., Eugene, OR. The company announced on January 6, 2021 the purchase of a manufacturing building in Eugene that is 5x larger than the current location for expansion and to scale production. Arcimoto currently has less than 80 employees and has raised $45M to date in 6 funding rounds including its IPO on September 21, 2017. Arcimoto trades on the NASDAQ as FUV (Jan 21, 2021: $23.06 per share, +$4.69, +25.5%; market cap $785M; and revenue $2.51M, trailing twelve months).
Arcimoto published the following 5 minute video in early December 2020 to provide an overview of the FUV including some additional use cases beyond passenger vehicle on the same chassis platform. This is a great overview of the company and includes Mark Frohnmayer himself providing key information as the Founder, President & CEO of Arcimoto.
1. FUV Product Design Features
From its earliest, first-generation prototype, the Arcimoto FUV has always been designed as a plug-in battery, pure-electric vehicle with 3 wheels. By the third-generation prototype vehicle, a tandem two-seat configuration became the standard within a metal-tube, roll-bar frame for the primary passenger vehicle use case. The eighth-generation prototype serves as the first production-ready design manufactured today. This latest design also switched from steering wheel to handle bar to further reduce weight and add more agility. Arcimoto is now working with automotive engineer Sandy Munro and his Detroit-based, engineering & manufacturing consulting firm Munro & Associates to further reduce cost and optimize manufacturing. The target sales price for the standard FUV is $11,900 by 2024.
The Arcimoto FUV is a motorcycle-class vehicle under US federal regulations. That eliminates much of the regulatory burden associated with conventional cars & trucks, but also means FUV passengers must comply with motorcycle license and helmet laws in the state where it is operated. The driving range around the city on a full charge is stated to be 100 miles by Arcimoto and 66 miles driving at 55 mph. This further positions the Arcimoto FUV for short-range trips within the typical 30-40 miles driven daily around town.
Arcimoto in its base configuration protects passengers from the majority of rain and weather while operating due to the aerodynamics of the windshield and overhead shell, but rainwear is helpful to stay dry. Arcimoto is also designing upgrade packages that offer doors and side-windows for additional weather protection when desired.
2. Adjacent Use Cases
The primary use case for Arcimoto’s FUV is as a passenger vehicle for consumers to run errands around town with limited cargo space for groceries and other items plus room for a 2nd passenger. However, Arcimoto has identified some business-oriented use cases that leverage the same FUV chassis with some modifications in the final stages of finishing the vehicle. These modifications plus an alternative design as a passenger vehicle for consumers are described below.
Deliverator: Last-Mile Delivery
A key use case for many businesses is last mile delivery. Companies like Amazon do this at scale and need adequate on-vehicle storage to make runs with hundreds of packages. But local businesses that deliver to local customers make more frequent runs with smaller quantities of goods that require more limited storage. These could be restaurants, florists & pharmacies where time from order to delivery is important. But gig-economy couriers for companies like Postmates and Instacart fulfill last mile delivery for many corporate clients.
For instance, when I recently purchased a new iPhone on the Apple website, on checkout I selected my telecommunication carrier and then had an option to either pickup the phone later that day at a local store at no charge or have it delivered within about 2 hours for an extra $9 charge. I was busy that day on a project and elected for the delivery. The driver arrived about 90 minutes later and was a Postmates courier. Thinking about convenience I spent about 10 minutes on the purchase making an informed decision on the right iPhone to select and another 10 minutes of my time invested transferring data from my old phone and activating the new one. So for about 20 minutes of my time invested, I was up and running on a new iPhone in less than 2 hours without leaving my office. That was an incredible customer experience compared to the usual experience with my telecommunication carrier who provides the phone as well. But the customer experience required last mile delivery by Apple outsourced to Postmates and fulfilled locally by a courier who accepted the gig.
The vehicle requirements for last-mile delivery are single-passenger for the driver and more space dedicated weather-proof storage of items to be delivered. The FUV chassis and configuration for the driver meet these requirements. The 2nd passenger seat is then basically replaced with an enclosed storage area. Company branding of the vehicle shell is another option. This photo demonstrates the Deliverator vehicle design with some customer branding.
Going forward, Postmates, Instacart and other last-mile delivery services could contract with Arcimoto to provide their own custom-branded, city-localized pool of last mile delivery vehicles for daily, weekly or monthly rentals to courier drivers that contract for their services at a fraction of the cost of a car.
Rapid Responder
Time is critical when first responders are called to an emergency. We typically associate this with an ambulance blazing through town with lights and sirens blasting to alert traffic of the need to pass through. However, the ambulance also functions to transport a variety of equipment, trained emergency medical technicians for basic life support and patients when indicated to access emergencies services at a hospital. But based on the details presented regarding the emergency, advanced life support by trained paramedics may also be required for rapid response. Sometimes paramedics will already be on the ambulance, but in many cases, paramedics are sent separately from a fire station or on a separate EMS crew. These paramedics have more limited equipment needs if an ambulance is on the way to transport the patient if needed. In many cases the vehicle used is an SUV to transport some equipment.
But in cities with lots of traffic, SUVs are not the best option to navigate the traffic even with lights, sirens and a smaller form factor than a box-truck ambulance. This is where the Arcimoto Rapid Responder outperforms. It transports the required equipment plus up 2 EMS responders with a top speed of 75 mph with city mile range of 102 miles. It is also much more cost effective than alternatives and starts at $24,900 with lights & sirens packages ranging from an additional $3,000-5,000.
Roadster
The Arcimoto Roaster leverages the FUV chassis, but subtracts the metal-tube roll-cage, full windshield and overhead shell for a more open and immersive ride. This design puts Arcimoto more into the motorcycle-class, but is preferred by some for this experience. The Roadster will be released later in 2021, but pricing will be more of a premium and range may increase for longer highway trips.
3. Business and Sales Models
Arcimoto’s business model operates the company as a vertically-integrated, motorcycle-class vehicle designer and manufacturer. The company communicates and transacts business directly with consumers for passenger vehicles and businesses who buy vehicle fleets or special use case vehicles like the Deliverator. This is similar to how Tesla operates without an independent dealer network that buys vehicles in bulk to then sell to consumer & business end-users. Arcimoto has also entered into partnerships with businesses to build regional fleets of vehicles that are then rented to end-users for a specific use case like site-seeing for visitors to Key West, Florida. This disrupts other models like participating in bus or van-guided tours. This is a common use case in destinations like San Francisco, Los Angeles, New Orleans, New York, Hawaii and South Beach in Miami. Establishing fleets of Arcimoto FUVs at key destinations exposes more people to vehicles operating around town and provides a low-cost option for lead generation when customers test drive an FUV as a rental around the country. Arcimoto would then deal directly with in-bound interested parties who want to purchase a vehicle.
Sales are handled separately for in-bound end-user customers (consumers and businesses) and out-bound business development that drives fleet sales. In-bound sales are handled online with a pre-order reservation and a fully-refundable $100 deposit. The pre-order reservation identifies the location of the order and currently prioritizes pre-orders from Washington, Oregon, California and Florida. Strategy and business development drives partnerships that create hubs to establish fleets of vehicles. Postmates, Doordash, Amazon, Apple, McDonald’s, Uber Eats and Domino’s Pizza can brand Deliverators to take more control over the last mile delivery in key markets while still using gig-workers to drive the vehicles.
HyreCar provides an online platform to connect vehicle owners with gig-work drivers. HyreCar now operates a small fleet of Arcimoto Deliverators that are rented in Los Angeles by gig-workers who drive for Postmate, DoorDash & other companies for last-mile deliveries. This program may expand to other cities once the business case is validated in Los Angeles. The value proposition to drivers is to rent lower-cost, pure-electric transportation to reduce the carbon foot print of last mile delivery and to avoid accelerating miles driven for deliveries for those who would otherwise use a personal car. And HyreCar also provides an income-generating opportunity for individuals who have or can get a license to operate a rental vehicle, but do not own a vehicle.
On November 19, 2020, Arcimoto and the city of Orlando, Florida announced a joint municipal 90-day pilot program to test ultra-efficient electric vehicles for city fleets across 6 departments. These departments include the Orlando Fire Department, Police Department, Code Enforcement Division, Permitting Services, Venues, and Parking Enforcement. Orlando and its mayor want to be the most sustainable city in the southeast United States. To achieve this vision, environmentally-friendly, efficient and cost-effective solutions are required. With success in Orlando, Arcimoto can scale similar fleet programs to other municipalities across the country and eventually internationally.
4. Manufacturing & Vehicle Delivery Strategies
The Arcimoto Manufacturing Plant (AMP) model includes processing input materials like metal tubing by bending into finished components and final assembly of all components. Arcimoto has used initial vehicle production to verify and improve its manufacturing processes. The recent announcement of Arcimoto buying a larger building in Eugene allows the company to replicate and further refine this AMP model on a larger scale. Arcimoto plans to scale to 5 AMPs in strategic locations over the next 6-7 years to reach annual production of 500,000 vehicles. The pandemic has impacted vehicle production volumes for 2020 and 2021, but the AMP build-out appears to be on track. Arcimoto has indicated future AMPs may be realized through joint ventures and partnerships. These are more likely outside the US to help accelerate entering foreign markets.
One benefit of using a common chassis design and manufacturing process is producing these at volume in one area and then directing them to different lines to finish the vehicle based on the intended use case like FUV, Deliverator, Rapid Responder or Roadster. So these 4 production paths share a common path and then diverge when deviations from the base FUV design are required. The Roadster would likely diverge first since it subtracts more features from the base FUV design. Modifications like adding doors and side-windows are likely done post-production in a separate area. AMPs will likely make all designs so distribution of the finished products matches orders in the same region.
Orders have been limited initially to the west coast to reduce transport distance to end-user deliveries from the AMP located in Eugene. Orders taken now from Florida support commercial activity in Orlando and Key West. But this expansion from the west coast also corresponds with a partnership announced in October 2020 with DHL to provide nationwide home deliveries for Arcimoto vehicles. Phase 1 will focus on the lower 48 US states. Phase 2 will expand to Alaska, Hawaii and international destinations. This is feasible due to the weight and dimensions of the vehicles. This partnership makes the direct-to-consumer sales model more viable as a long-term solution and will only improve as deliveries scale and the AMP locations expand to reduce the average miles driven to complete a delivery.
Conclusion
Arcimoto designs and manufactures ultra-efficient, pure electric vehicles that subtract key attributes from conventional vehicles to produce a fun, immersive experience for routine errands and trips around town. The founder, president and CEO, Mark Frohnmayer is only about 4 years behind Tesla’s own journey to design and manufacture electric vehicles. Arcimoto and Tesla are actually very complimentary since combined they are accelerating the transition to sustainable energy, but their products are positioned to go after different use cases and price points. Although unlikely, I see Arcimoto as a strategic partner to Tesla as it plans to enter India where infrastructure, pricing and vehicle norms present significant challenges for expansion even with a lower priced USD$25,000 Tesla vehicle manufactured in Shanghai. The Arcimoto FUV and Deliverator offer ready to use designs for the vehicle market in India at a much lower price.
Subtraction for simplicity and other attributes that often lead to lower pricing can be a key feature for the disruptive innovation described by the late Professor Clayton Christensen at Harvard Business School. Professor Christensen often shared how mini-mill steel manufacturer Nucor entered the market with its technology to only manufacture the lowest quality and lowest margin rebar (short for reinforcing bar) products. The Nucor technology could not offer most capabilities provided by conventional steel manufacturing to produce a wide spectrum of products, but it did offer one clear benefit with its limited form-factor and electric arc to melt metal. Nucor could turn on and off its mini-mills to provide on-demand production to lower operating costs. Over time Nucor continued to improve it technology and expanded the products it could manufacture while still maintaining the key benefit of on-demand production. Nucor disrupted steel manufacturing to take market share for finished steel products.
The future could be bright for Arcimoto if Nucor serves as a proxy for Innovation by Subtraction. Unlike other electric vehicle companies competing directly with Tesla, Arcimoto benefits from the move to sustainable energy, but also benefits with very different product positioning to Tesla’s core businesses. Together they accelerate this transition with a wider distribution of use cases and vehicles. Maybe they also enter India together. For full disclosure, I am an investor in Arcimoto. I see execution risk ahead, but I like the disruptive nature of the FUV design and its additional use cases to drive revenue while maintaining operational efficiencies. Scaling production while the capital markets are favorable to electric vehicles will help capitalize future production capacity.
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Nothing in this post is intended to serve as financial advice. Do your own research.
Arcimoto published a 2021 Stakeholder Letter on Jan 25th. I'm including a link here. https://www.arcimoto.com/2021/01/arcimoto-2021-stakeholder-letter-2