Corporate, PE investments in EV start-ups grow 170%
The $306-million investment in Ola Electric Mobility by SoftBank Corp, Arun Sarin Family, Ratan Tata and Matrix has been the biggest funding in this space in value terms this year.
Driven by the belief that the next wave of disruption for India’s automobile industry will be led by electric vehicles (EVs), corporate and private equity (PE) investors seem to be increasing their bets on start-ups working in this space.
Investment flows into such start-ups in 2019 (until the end of November) have grown nearly 170 per cent to $397 million, compared with $147 million in the first 11 months of last year.
The $306-million investment in Ola Electric Mobility by SoftBank Corp, the Arun Sarin family, Ratan Tata and Matrix, in two tranches – $56 million in February and $250 million July 2019 – has been the biggest funding in value terms, show data from Venture Intelligence.
Among other major investments in the EV space are Hero Motocorp and Sachin Bansal’s $51-million investment in Ather Energy in May 2019, Mitsui PE’s $15-million in electric last-mile connectivity provider SmartE in July, and Bajaj Auto’s $8-million funding of shared e-mobility service provider Yulu Bikes last month.
Amid the government’s announcement that ride-sharing companies will have to move to EVs from next year for India to be able to achieve 2.5 per cent electrification by 2021 and 40 per cent by April 2026, the aim is a 30 per cent penetration for EVs by 2030.
Even as the automobile sector faces a slowdown, EV sales have grown significantly across the country – 759,600 units were sold in 2018-19, compared with only 56,000 in 2017-18.
Ather Energy co-founder Tarun Mehta had earlier said that it was difficult for product-led start-ups to raise investments when his company had started.
The requirement of a big upfront capital expenditure, products’ long journey from conception to market readiness, and the absence of immediate returns on investment were the most common deterrents.
However, the government’s support in the recent past and incumbents’ active interest in the EV ecosystem seem to have bolstered consumer interest.
Firm business plans, long-term outlook for electrification of mobility and increased investment in the industry have also reinforced investors’ faith in the growth potential.
“We believe there is mass awareness about opportunities in the EV industry, and that has contributed to a simplification of the fundraising process,” Mehta says.
Bajaj Auto Managing Director Rajiv Bajaj says his company believes that two key factors – a reduction in congestion and pollution control – will drive shared micro-mobility solutions.
These, and the expansion of public transport systems like Metro networks in large cities, will boost demand for flexible last-mile connectivity, he adds.
But why start-ups, and not the bigger automobile players?
According to the CEO of one of India’s largest automobile companies to have invested in electric start-ups, large organisations, given their past failures, might not be keen to experiment.
Start-ups, on the other hand, with their approach unsullied by raw experiences, could go on experimenting until they bring about an innovation.
The CEO, who did not wish to be named, further said that the auto industry was recognising this strength of start-ups and that was opening up a lot of opportunities.
Also, given the fast pace of development in technology, larger players might prefer to rely on start-ups to create new business models and solutions than taking a plunge themselves.
“The electric two-wheeler space is particularly attractive for investors,” says Aswin Kumar, programme manager for mobility practice at Frost & Sullivan.
“The entire PE focus will shift towards India and they will cast their nets as wide as possible, investing in start-ups with promising technology.
“The idea will be to see if we can have a Tesla for two-wheelers in India, or another unicorn for the market.
“The one thing that they would look at is a scalable model to reach at least 10-15 per cent of the potential market.”
Though the immense possibility for EVs is an accepted fact, experts also point to some structural issues in the Indian market that need redress.
These include the creation and availability of charging infrastructure.
Its absence at present hinders banks’ financing decisions and leads to a significant price disparity between EVs and fossil fuel-based engines (ICE).
Ranjeet Mahtani, senior partner at Dhruva Advisors, which provides solutions for M&A and restructuring activities, sees a bright spot in the various tax incentives offered by the government.
These help drive demand among customers, and incentivise the production of EVs by manufacturers, he says.
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