Crushing inflation, a tight labour market, and materials shortages. The current business climate will lead many organisations to adopt risk-averse strategies. Yet for some opportunists, a big, bold bet on the future when others are stepping back can be the key to huge value creation. Where there is a temporary supply-demand imbalance, as we now see in the need for electric vehicle (EV) charging points, a first mover can capture a window of opportunity while demand exceeds supply to capture untapped value. A first-mover advantage can be defined as a firm’s ability to have an edge over its competitors as a result of being first to market in a new product category [1].

Take Tesla. Launching an automotive company in the US was a high-risk move, with giant incumbents like Ford as competition. Doing so with no experience in high-volume manufacturing and uncertainty over the mass-market adoption of EVs is a high-risk business model. Yet 19 years after its founding, Tesla has a market cap of over 4x that of the second highest, Toyota and nearly 14x that of Ford, that had a 100-year head-start in automaking [2].

However, first-mover disadvantages are real. High-risk moves translate to high failure rates. Being the technology pioneer is very risky, very difficult, and extremely expensive. While a first mover bears the brunt of the R&D spend involved in being a pioneer, future competitors can sit back, observe the hard lessons learnt, and pounce once the market has been established. Case in point, SixDegrees.com was a social network site launched in 1997 that allowed users to send messages and post bulletin board items to people in their degrees of connection. Sound familiar? The platform was shut down in 2000 and four years later thefacebook.com was launched.

A Case in Point

In the EV charging space, Scotland has been an early widespread adopter of charging points. ChargePlace Scotland has the fourth largest market share in the UK, even while not operating in London and the South East, the densest area for EV charging points in the UK [3]. A key question for many players in construction and infrastructure is whether the timing is right to take the plunge to invest heavily in charging points. A Scottish case study can offer some insights into both the advantages and disadvantages of being first.

ChargePlace Scotland is a national EV charging network, founded as a government initiative in 2013. They started with just 55 charging points which has increased to over 2,286 in 2022 [4]. Installing a widely distributed network early on was a key strategic move in order to meet the demand we now see in May 2022 with 510,000 EVs registered in the UK, a 92% growth from 2020 [3]. This is a rapidly growing market with ever-increasing demand as the government aims to end the sale of new diesel and petrol vehicles by 2030 [5]. However, this network isn’t without its issues. ChargePlace’s network is, in some parts, nearly a decade old and it shows, drawing some criticism from users [3]. This exposes the downsides of moving quickly in infrastructure, starting early in building any project that utilises digital technology can lead to outsized maintenance and upgrade costs on the backend.

First Mover Rewards

Taking on the risk of being first can pay off in a big way:

Customer capture: lock-in is often about getting to the customer first. If you can establish long-term contracts and relationships, then switching costs can disincentivise alternative options. As local authorities seek to roll out net zero infrastructure initiatives, some companies are more ready than others to capture that opportunity.

Market Control: when competing in evolving technology, once the industry standard is established then the market pivots to serve the dominant design. Increasing standardisation of EV charging is likely to come where a certain speed is deemed ‘good enough’ by the market and the unit economics make sense. First movers that are on the right side of the design choice, can increase performance with experience and maintain a lead over competitors.

Scotland wouldn’t have been the first choice for most EV charging companies, as many of them have focused on the South East and London before expanding to various urban centres. This meant that ChargePlace Scotland, as a government initiative, met with very little competition as they expanded, allowing them to grow into a monopoly. They own over half of the charging points in Scotland as of 2022 and have the relationships and the network to establish themselves further.

First Mover Risks

The benefits of early bets aren’t guaranteed:

Learning from failure: You typically want to be the early market leader, not necessarily the first. A second mover can drastically reduce the mobilisation cost of launching a project by copying and learning from the failures of those that have come before. First movers have often invested a lot in a first version of the technology and if that was done serving a small market, can struggle to generate the cash to invest in upgrades.

Existing market: While first movers have to spend a lot of effort to create a market, second movers can build on an established system. For a second mover, adoption is not the challenge, focussing on efficiency and scale is. There are likely to be more government grants available for established concepts. Later entrants can have fewer initial costs to get up to speed and so can potentially launch more competitive bids.

As a utility, there is likely to be little brand loyalty when it comes to EV chargers. You use the charger that is closest, fastest, cheapest, and that works. ChargePlace Scotland has dominated the market in Scotland primarily because it is a government-led initiative and the focus of potential competitors has been on the South of England. However, as these areas become saturated, its market share may be threatened. Later entrants will not need to convince consumers to use EVs and there is already a network of established resources that they can utilise.

Out of all the UK EV networks, ChargePlace Scotland has the highest failure rate, as high as over 1600 faulty units in a year [6], and the largest proportion of slow to fast rather than rapid chargers. This isn’t unique, as only 5,156 devices in the UK are rapid but with longer distances between charge points in Scotland, it becomes an issue [6]. The chargers have become difficult to maintain, some don’t connect to the app which is used for payment and others are not compatible with the range of cables needed for different cars. The technology is no longer the most advanced and competitors can learn from the technological issues ChargePlace Scotland has faced. The issues in reliability are not only problematic for the consumers, but also as a result, for ChargePlace’s reputation. This may cause a slowdown in the adoption of EVs in Scotland, slowing their growth and allowing other companies to enter the market more easily.

The growth of the network has also slowed down compared to that of other regions, increasing by only 16.5% between July 2021 and July 2022 [7]. This is partly due to the failures, but also the reduction in government traction in the project as it nears the end of its first decade, having only just started charging customers.

All in all, despite being a first mover, ChargePlace Scotland is facing a number of challenges for future sustainability.

The Takeaway

So, what can be done to manage the risks of being at the forefront of a new market? It depends on the industry and how fast technology moves, but a number of things can allow early movers to deliver sustainable value in the long run:

Careful consideration of the risk/reward ratio over time, before committing significant resource
Taking advantage of all available sources of funding and support to help to stay the course where possible, such as government-backed initiatives
Investing in maintenance and upgrade of existing infrastructure to avoid issues that may increase costs over time or a loss of reputation
Prioritising agility. Keep close tabs on the pace of evolution of the technology and market you operate in. This will impact your need for adaptability and longevity. Many first movers in the past have fallen prey to fast followers

Words by Christine Brookes

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