Piaggio is one of Italy’s best known companies: great design is in its DNA. When the company decided to enter a new market – electric bicycles – it was essential that Piaggio produce an innovative product that stayed true to its brand. Here a number of senior executives from Piaggio, as well as ING bankers that work closely with the company (see box), explain the genesis of the project, Piaggio’s aspirations for the e-bike and why successful firms must always innovate.
The importance of innovation
Why is innovation important to Piaggio?
Luca Sacchi, head of strategic innovation, Piaggio: “Innovation is relevant to all companies but for Piaggio, the nature of our business – mobility – is changing radically with the growth in use of electrical vehicles and the emergence of autonomous vehicles, so we have to be quick to adapt and forward-thinking. At the same time, the way people think about transport is changing: there is recognition that it is no longer sustainable to use a 1,500kg vehicle to transport a 70kg person around a crowded city: the future is lighter urban vehicles. Piaggio’s history is one of innovation that changes people’s lives. The Vespa was a radical advance in personal mobility that revolutionised the lives of many. We needed to take that spirit into a new era.”
What roles do design and innovation play in creating new products?
Marco Lambri, head of design centre, Piaggio: “The design and innovation departments at Piaggio always work closely together: we are both there at the beginning of every new project the company takes on. The design centre is essentially focused on styling and giving shape and form to ideas. We communicate the reality of Piaggio’s vision, both to the board of the company and to the consumer. Inevitably, there can be differences of opinion between the design centre and the engineering department. Our role is to seek the impossible, while engineers focus on what is possible. But it is the creative tension between these two philosophies that results in innovative, robust products.
Creating a new product
Why did Piaggio want to create an e-bike?
Sacchi:“Electrical vehicles are not necessarily the end point of innovation although they do make sense in an urban environment. A bike’s configuration as a vehicle is excellent for cities and the addition of electrical power enhances a bike’s versatility. Physical engagement is becoming more relevant and a bike facilitates that. But by adding a motor to a bike new possibilities are opened up.”
How did Piaggio approach the project?
Sacchi: “We decided that the only way to create a vehicle that met our ambitions and meets today’s challenges was to design it from scratch ourselves. Developing a motor powered by electricity is relatively simple. The challenge is to manage the power effectively. We are able to use our knowledge from the world of electronic engine management in race bikes to make an entirely new type of engine for bicycles. Our engine changes dynamically: it reflects the effort that a person puts into cycling but is adjustable so that the user can adapt it to their requirements. Other innovations in the bike include the use of a belt rather than a chain and electronic variable transmission, which continuously and automatically changes gear giving the user a feel similar to a scooter.”
How does the e-bike reflect Italian design and Piaggio’s heritage?
Lambri: “Piaggio represents excellence in Italian style – a style that draws on the beauty of the country’s landscapes and architecture, its food, its renaissance heritage and its reputation for fashion. We wanted the e-bike’s design and styling to reflect Italian style so that it stands out from the crowd. In practical terms, that means attention to proportion and detail and a choice of elegant colour combinations. There are no hard shapes on this bike: as a company we are all about movement and shapes that capture and reflect the movement of the Italian sun.”
Sacchi: “This is the most scooter-like bike you can buy – so it fits with the Piaggio brand. The engineering is also of a superior quality compared to traditional bikes. As standards are higher in the scooter world, many of our suppliers had to revise their processes to meet our targets.”
What were the greatest design challenges?
Lambri: “The greatest challenges for the e-bike project were the design of the technical parts and the frame. In motorbike design, the engine is in view and plays a stylistic function but on an e-bike it is hidden, which is difficult to do beautifully because of the dimensions and positions of the engine and battery. We have integrated the engine and battery into the bike through a sophisticated design that balances the bike perfectly and, from a design perspective, leaves part of the engine visible. This visible part is carefully detailed in aluminium, almost like a watch. It was difficult to achieve that attention to detail while meeting the engineering and cost targets. Designing the frame was also challenging: each section is complex and designed to meet a precise requirement – there are no simple, circular tubes. Our bike is different to the rest of the e-bike market: it looks striking and has excellent proportions – it reflects modernity through style.”
How is technology from outside the mobility world incorporated into the e-bike?
Sacchi: “The use of a SIM for GPS enables the user to interact with the bike from any location and effectively acts as a satellite-based anti-theft system. The bike can be remotely immobilised: without the SIM being re-initialised by Piaggio, a new battery or other component cannot be used. The SIM also means that Piaggio can monitor the bike and diagnose any problems before the user even notices. We also collect anonymous data on how the bike is used, which will help us to improve future versions. In addition, a Bluetooth connection can map cardio and other data from the bike to the user’s smartphone or smart watch. The motor can be adjusted via Bluetooth so that the user can meet their exercise target, for example.”
Did Piaggio have to think differently to build an e-bike?
Lambri: “A bike is completely different to a scooter or a motorbike, although it is part of the heritage of both those vehicles. Although we were able to use our experience from scooters and motorbikes, designing a bike was a new experience. We never want to stop learning, so the e-bike project was an exciting opportunity to master new knowledge.”
Sacchi: “We had to make some internal changes as a company to produce this bike. For example, in the motorbike industry, manufacturers make many components themselves: the bike market is different. Similarly, bikes have huge numbers of variables whereas scooter dealers are used to a choice of two engines and a handful of colours. There is also an expectation of immediate delivery with bikes unlike the motor vehicle market. Internally, the project received lots of support and there was broad acceptance of the changes required to working practices: the assembly line workers in Italy welcome the opportunity to put together a new product.”
Financing the future
What new investment was required to produce the e-bike?
Gabriele Galli, CFO, Piaggio: “Piaggio produced a hybrid scooter, the MP3, in 2008 so we were able to leverage our knowledge of electric cages, batteries and energy management to good effect and adapt our existing plant and facilities – including the production line – to the new product. Consequently, there was limited capex required to develop the e-bike. The only significant changes required were the implementation of new quality controls and they did not require significant investment. We also developed new partnerships to facilitate the e-bike, such as with Vodafone for communications and Samsung for batteries, which minimised our investment requirements. As a result, we believe that the product will be profitable from launch.”
How did Piaggio decide what to build in-house and what to outsource?
Galli: “Over recent decades, we have adopted a flexible approach to scooter and motorbike production as part of a drive to reduce fixed costs. Where we see a competitive advantage we produce parts. But for everything else we design them to be manufactured by external suppliers. For the e-bike, we wanted to use proprietary technology in the engine and be involved in the battery management system and battery cell assembly. But for the frame, we recognised that we have less technical competence than a dedicated external partner with scale and experience.”
Did you talk to your financial partners about the project?
Galli: “We talked to equity analysts that follow Piaggio about our e-bike plans during quarterly results and regular meetings and explained that while this product is different, it is still in line with our goal of getting people from A to B. We also outlined our plans to our banks in our three-year plan. Our decision to go ahead with the project was received warmly by equity analysts because they recognised the risk of substitution of scooters with e-bikes and therefore the threat to our future revenues if we did not act. It makes sense to leverage the brand into the e-bike market because although we may lose some scooter sales, overall the brand will benefit: no-one ever benefits from ignoring changes in customer behaviour.”
Choosing the right partners
How do you select which banks to work with?
Galli: “The banks we work with need to have the right geographical footprint: when we do business in Asia-Pacific it is much easier to be able to use the same products in both regions. At the same time, local knowledge is important. Some markets are complex and require local relationships and products. We need a bank that can deliver both approaches.”
“It is important for banks to understand our company and the market we operate in because it means we can leverage their knowledge. For example, it makes it easier for Piaggio to build a relationship with a distributor or supplier because the bank can help with partner evaluation. We use a lot of working capital financing, so if the bank knows the distributor it can ensure faster access to credit and similarly, if they know our supplier they can provide faster access to reverse factoring.”
What do you value about ING’s approach to banking?
Galli: “ING is determined to establish a broad relationship with Piaggio and we respect that. They have been responsive to our needs and quick to implement solutions and keep their promises. We share common values such as innovation and sustainability: that makes it easier for us to reach our targets, lowers risk and provides an advantage. ING’s footprint, especially its presence in North Europe and India, could be helpful to us in the future. Already, ING has helped us to extend our reach to consumers in Holland and Germany.”
ING Perspective: Empowering Piaggio
Why is Piaggio a good fit for ING?
Valerio Capizzi, head of corporate coverage, Italy, ING: “Piaggio has strong brand recognition, is financially healthy, has new investment needs, and is internationally focused on many countries that align with ING’s market footprint. When we see the potential for a long-term relationship – as we do with Piaggio – we invest time and resources to ensure we understand a company’s business model and manufacturing processes, its brand, innovative capacity and market. We are never speculative or transaction based: we focus on the potential over many years.”
“ING is focused on sustainability and innovation – demonstrated by Piaggio with its e-bike project – because we believe these characteristics reflect ambition and ensure a strong future. At the same time, Piaggio’s basic mission is to enable people to get from A to B – so e-bikes or hybrids are not a leap into an unconnected market that would compromise the company’s DNA: there is a strong business case for innovation. Like ING, Piaggio is maintaining its core values while future proofing its business by seeking to innovate and create sustainable products.”
How is ING helping Piaggio to achieve its objectives?
Edoardo Cini, head of corporate lending & client services, Italy, ING: “Our aim is to empower our clients and help them stay a step ahead. Piaggio – like ING – didn’t just want a relationship based on traditional lending but instead wanted a true partnership across many areas. As they are moving into the e-bike market, Piaggio could see the power of the ING brand to reach new customers, especially in retail banking. We are working with Piaggio to launch the e-bike in Holland and Germany and market it to our retail customers. In Germany, for example, we provide consumer finance for the e-bike, and marketed it exclusively to ING customers in advance of the general launch. We also promote the product as a prize when customers close a mortgage. ING’s strength in Germany – where ING-DiBa is the third largest retail bank in the country – aligns perfectly with the e-bike market, which is Europe’s biggest with 400,000 owners.”
How has ING’s relationship with Piaggio evolved?
Capizzi: “Since we established a relationship with Piaggio, we have taken part in a top-up of an existing financing and provided both a term loan and a revolving credit facility. We were able to execute the top-up financing just six weeks after we began talking to Piaggio because we had done our homework on Piaggio: with their support, the credit application credit check, documentation and other processes were performed quickly. We are now talking about opportunities in ancillary business, such as financial markets, trade finance, working capital solutions and supply chain finance, in Europe, including in Italy and ING’s home countries, and countries in Asia. Ultimately, our ambition is to position ING as a top-ranking bank for Piaggio and win capital markets mandates.”