hGears boss: “eBike industry may soon go to automotive standards”

A lesser-known component maker to the electric bike industry’s key motor systems can fairly be seen as a bellwether for the direction of the marketplace. CI.N catches time with hGears CEO Pierluca Sartorello to understand the true demand of a boom sector…

Fans of precision engineered bike parts will often swoon over the minute details. A fan of Hope’s brakes will always be an advocate of their stopping power versus rivals and a Colnago owner will be the first to jump to the brand’s defence when discussions arise as to the finest Italian-made bikes. But what about the precision parts that are lesser seen or discussed, arguably no less important? After all, an expensive set of brakes is nothing without either quality DOT oil or a cheap, but nonetheless important cable.

hGears is that parts maker for the eBike world; the precision components maker that is influential in the drive behind some of the market’s most popular systems. You could be forgiven for not yet having heard of the Germany company, but it is nonetheless an enormous and important entity to many markets, ranging EV transmission through to tooling.

The now public company listed on the Frankfurt stock exchange in 2021 having the year prior seen its component parts feature in nearly half of the 4.6 million electric bikes sold in Europe. With some of its customer ordering north of two million component parts from the company annually, the groups’ turnover has surged north of €135 million. Yet, despite its immense role in powering the eBike market, you may never directly come into contact with its components.

“Following our IPO we wanted to go big on R&D investment. By strengthening this part of the company we were able to have higher level of dialogue with potential future clients. With each project we now look to progressively handle a bit more of each complete product since the confidence exists in our capability across a wide range of technical components. We know more than ever about transmission thanks to the 35 highly skilled engineers who all bring skills in eMobility,” says CEO Pierluca Sartorello.

The eMobility division is the firm’s newest arm yet has, in a few short years, come to represent about a third of the group’s revenue. Pierluca spoke on the ever-growing importance of this trade and the expectation that the current upward trend of the market will continue deep into the future.

The business forecasts a tripling of eMobility trade in the mid-term, but how will this be achieved and more importantly, is this indicative of the true trajectory of this money-spinning segment?

“It is both that the market is forecast to grow this way and it is also our company’s own internal plan to keep enhancing our current business with customers, all while adding new clients. We shall be smart enough to ride the wave, but also increase our customer number,” he starts.

The demand is certainly there, in CyclingIndustry.News’ most recent market report 66% of retailers said that they will invest more than in prior years on electric bike stocks in a bid to similarly ride a wave of demand. In 2020 the European electric bike market was worth €10.6 billion, a figure that got a bump from the pandemic’s side effects on demand for cycling goods, but nonetheless is headed further north.

Certainly, in manufacturing terms this is where investment has been most focused; 80% of eBikes sold in Europe were also assembled there. This makes hGears’ Italian and German operations particularly useful to brands seeking localised sources capable of high volume, low lead time engineering. The firm also has a 17,000 square metre plant in Suzhou, China.

This depth in manufacturing resource has brought hGears to the attention of automotive giants, in particular those making EVs. On the increasingly blurred line between automotive and bike industry, Pierluca says “I am a profound believer that eBike industry will soon go to and search for automotive standards,” something that is reflected elsewhere within this very magazine with EAV’s move toward an automotive production line.

He adds “by this I mean in terms of consistency and sustainability. The volume of eBikes made is now reaching a threshold where you have to work in that way to be cost effective. Automotive today has the best methodology. Our knowledge of this put us in advantageous position to be a major force in the next step of eBike market’s journey.”

It is more than mobility, Pierluca suspects, that is drawing automotive labels to bikes. Noting the recent departure of Mercedes into the electric bike market, he outlines the immense ability of the electric bike to data capture consumer trends; more so even than the car-based EV market thanks to the disparity in sales volume.

“With the modern eBike each has an app that records usage. That’s a fabulous source of information that will be very useful to car makers, he says.

Despite working across both industries, Pierluca is himself the owner of eight cycles and says that he sees the big picture. “This is a market that is responding to a profound need to go to a more modern and sustainable means of moving around. Between changes to the environment, the need to bring about CO2 reduction and even people getting older and wanting to continue moving – these are significant trends that will not change. From Europe, where the electric bike momentum is strongest it will expand to other parts of the world.”

Where the European Commission seems to have set a course with its RePowerEU legislation, the bike industry has the ear of politicians keen to make quick changes to shunt away from car and oil dependence. Cycling, in particular the electrically assisted kind, is perceived as a technology already available that will not cost the earth to stimulate. Where infrastructure is built so cyclists follow and it is this trend that gives confidence in the manufacturer’s forecast.

In terms of new client acquisition, the parts maker is breaking new ground. Back in May it was announced that hGears would become a complete transmission manufacturer in partnership with the Revonte brand, whose design IP was collaborated on with the transmission manufacturer to enhance its high-volume production viability, all to the metrics desired by the label. Until this moment, the firm was only called upon for components such as planetary or helical gears, gear sets and shafts and a handful of other intricate, but vital ‘mission critical’ components.

On whether the Revonte deal sets a new precedent for the business Pierluca says “As a start up their main weakness was the lack of a strong manufacturing base. By matching with us they filled a void to progress their IP. They had a nice smart concept that would unfortunately be worthless to its onward customers unless those clients know they can deliver sustainable, high numbers at a high quality and be able to scale up the volume in time. For this reliability, they matched their name with ours both for the technologies and manufacturing capabilities we have, but also the assembly; this is critical and in itself a key part of our overall competence. Against our competitors having everything under one roof is our unique characteristic.”

On the subject of the collaboration opening further doors, Pierluca says “Sure, Revonte may be an icebreaker for future conversations with other designers. We specialise in taking a concept and making it manageable and able to be industrially scaled with ease of assembly.”

That said, hGears does not wish to devote too much resource to becoming an assembler themselves. “I have high respect for our roots as a component manufacturer,” says Pierluca.

Supply of those goods is 70% focused on Europe, where a trend of manufacturing investment in local electric bike production continues to pre-empt another surge in demand. While Europe appears to be the centre of the eBike universe, hGears is also exporting and Pierluca says that the USA’s consumption is rising fast after a hesitant start.

“What I can say is that I see more and more customers that seeking to reshore their product journey and as part of this ask us to provide goods directly to a European plant in order to shrink their supply chain. We support some customers in developing and making available a whole supply chain exclusively in Europe. Of course, cost still remains more important to some, but a cheap product sourced from far away that does not arrive is a big concern for brands now. It looks nice on the accounting side, but if it’s stuck in China it’s no good.”

With just over 12 months since the IPO it is noteworthy to hear the pros and cons of a listing from the CEO. At the time of writing a new 52-week low for the share price had just been printed in a market that seems generally bearish in the midst of Russia’s war and inflation running at a multi-decade high. Is this a good place to invest amongst that noise?

“One of the greatest perks of going public is the visibility it has brought the company and certainly that has brought new opportunities,” starts Pierluca. “Sure, I am disappointed by the downward trend of the past few months, but it is largely a trend that follows the market as a whole. If I look at other companies that entered the stock market at around the same time we are among best performers. The market at large is headed in a direction less related to the performance of its businesses and reacts instead to Russia, port closures in the East and inflation. It is important in this moment that we are keeping our promises in an unprecedented market. In this situation we are staying strong to our word and we are going increase our presence as we stated in eMobility.”

Upstream vulnerabilities affect all businesses, so naturally we’re curious whether the high demand of the eMobility business has been accounted for in the firm’s planning of rapidly increasing raw material costs and supply issues. On this point the CEO is confident the business has planned ahead well enough. “We have no problem at all, we were able to plan with proper timing and held close dialogue with customers to plan accordingly. Our customers, unfortunately, suffered some logistics constraints where they could not receive some parts on time.”

Everything, then, is in place to hold the course toward that lofty goal of tripling hGears’ eMobility division’s revenues. It’s not all business, mind. Now is a time to play a part in a broad societal change for the betterment of the planet.

“I feel right doing this, being part of the shift in transportation. Over the past five years it has been right to reposition our company around the eMobility movement,” concludes Pierluca.

Find hGears at Eurobike booth 8.0 / E08