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NEW DELHI : Sumit Kumar has seen the best of times, the worst of times. The 35-year-old driver has been driving cabs in Delhi for the better part of the last decade. Today, he is driving me to Gurgaon from Noida in a spiffy electric version of the Tata Tigor. It isn’t yet peak-hour traffic, but intermittent rain has slowed down progress. Despite the showers, Kumar didn’t cancel the cab booking, nor did he ghost his passenger. BluSmart, the three-year-old mobility startup that has helped me find this cab, didn’t demand twice the usual fare – the app promises no cancellations nor surge pricing. This is the second time I have taken a BluSmart cab. The fleet is made of new cars —most are Tata Tigor EVs launched only last year. They are cleaner and well-maintained and the drive itself is smooth.

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For Kumar, too, there is a clear positive. “I can take any day off during the week at a day’s notice," he says. In the heyday of 2014-16, when cab aggregators burnt cash to scale up and acquire customers, he made as much as 65,000 a month as an Ola cab driver. But by 2019, earnings had dropped to 15,000 per month. A few months into the pandemic, he had to sell his car. In 2020, he started driving for BluSmart, which did not need him to bring his own car. He still puts in a lot of hours—15-hour shifts, of which three hours are spent charging the car —but gets a weekly off. “We get a fixed 400 per day and incentives for rides. I make about 5-6 trips every day and I take home about 22,000-25,000 every month," Kumar says. “If I were still driving for Ola or Uber, I may have been making a bit more but I would have been under a lot of pressure."

EVs vs the rest
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EVs vs the rest

“The root cause of the problems you see in the industry—cancellation, ill-maintained cars or rude behaviour by the drivers—is because the driver bears the cost of the asset and is always under pressure," says 36-year-old Anmol Jaggi, the face of BluSmart and one of its three founders; his younger brother Puneet Jaggi and Aston University graduate Punit Goyal being the other two.

Unlike the aggregator model of Ola and Uber where drivers mostly own cars (and pay off car loans) and the platform gets them the passengers for a commission, here, BluSmart leases cars from third-party companies for a monthly fixed amount. It also pays for the charging. This is a risky and asset-heavy model—cars after all depreciate over time but it gives BluSmart more control over drivers so they cannot cancel rides. On the flip side, because of a small fleet, cabs are not available on the go and one has to book well in advance.

Though it mostly operates in Delhi NCR, BluSmart has made a good first impression—it enjoys high approval ratings among its users. Investors, especially overseas green funds, have shown keen interest. In the last two years, it has raised over $50 million from a clutch of over 100 big and small investors and is currently in the closing stages of a mega $250 million funding round, which will have BP Ventures, the British Oil Company’s investment arm, as a prominent investor. Jaggi feels it is time for BluSmart to press the accelerator—expand its fleet, raise more capital and go beyond Delhi NCR. On 26 September, it entered Bengaluru, considered a home ground for Ola.

The plan is simple. Before the big boys, Ola and Uber join the EV party, it wants to gain enough scale to be able to compete with them. By 2025, it plans to spend $1 billion to expand the fleet to over 100,000 cars. But how realistic are these ambitions? The asset-heavy lease model has never worked in a high-stakes high-scale industry. Can the Jaggi brothers pull it off?

Picking up speed

The company is backed by investors as diverse as BP Ventures, 9Unicorns, Inflection Point Ventures, Blacksoil, Stride Ventures and Green Frontier Capital. Among its earliest backers are also a clutch of high net-worth individuals (HNIs) like Bajaj Capital managing director Sanjiv Bajaj, former MD of McKinsey Rajat Gupta, KA Innovations LLP—the family office of Bollywood actor Deepika Padukone—and Survam Partners of Hero Group’s Suman Kant Munjal’s family office.

“I found them to be very aggressive and focused on the electric mobility story. Others may have faltered but they stuck to their guns," says Saurabh Kumar, former managing director of Energy Efficiency Services Ltd, which was one of the earliest firms to lease its vehicles to BluSmart.

The first lockdown in March 2020 robbed the shared mobility industry of momentum. For BluSmart, which was barely a few months old, it could have meant the end of the road. Its lack of scale back then —just 200 cars in early 2020— worked in its favour.“They got lucky. If they had the debt overhang and scale that we had, they would not have survived," said a top official at a rival firm. “You have to give them some credit. They have smartly packaged themselves to attract investors. Let’s see what happens when the music stops and funding dries out."

“There was no tech stack that supported electric mobility at that time. In an EV, it is not that important if the vehicle is closest to the consumer but what matters is whether it has enough charge to get him to the destination. So we built our own tech stack and launched the application on 6 December. We had 200 cars by then and we got 42 customers on the first day. Within a month, the number swelled to 1,000 customers," says Jaggi.

The Gensol link

Providing the foundation to BluSmart is Gensol Engineering, which in many ways can be called its parent firm. Started by Jaggi when he was fresh out of college as a petroleum engineer in 2007, Gensol is a solar engineering, procurement and construction firm. It was listed on the Bombay Stock Exchange in October 2019, around the same time that BluSmart was taking shape. This year, it has been a stellar performer at the bourses—the stock has gained over 22-fold in the last year, from 64 to 1,426 per share.

A big reason for this optimism on Dalal Street is Gensol’s pivot to electric vehicles. For instance, it leases a third of BluSmart’s 2,200-strong EV fleet. Going forward, it has plans to get into EV manufacturing too. Earlier this year, it bought over US-based Strom Motors for an undisclosed amount and is setting up a factory in Chakan near Pune with an investment of 210 crore to manufacture Strom’s quirky three-wheeled electric reverse trike vehicles. BluSmart wants the two-seater vehicles to become part of its fleet as a sophisticated upgrade to “autorickshaws" in Indian metros. Gensol’s plans are drawing attention—in August, analysts from global brokerage house JP Morgan visited its Chakan factory and put out a note on the firm.

“The share price not only reflects the performance of the company but also that EV manufacturing and leasing will play a big role in the future growth of the company," Jaggi says. “Profitability of Gensol’s solar business has grown 13 times in fiscal 2022 and this year, revenues will top 500 crore," he says.

Jaggi says Gensol is already developing a small affordable electric car, priced at 8.5 lakh, which will bring down prices in the segment. “70% of car sales in India are sub- 10 lakh cars but not one EV is being launched in that price bracket." The company is scouting for land for a 60,000 unit per annum factory for which it has set aside an investment of 750 crore. Jaggi claims he will launch the car as early as August 2023 while the three-wheeler, priced at 5.5 lakh, will hit the roads in January next year. “In a way, we are being forced to get into manufacturing. For us, money is not a problem. Investors are ready to back us, banks and financial institutions are happy to give us loans," he says.

The speed-breakers

If all of this sounds too good to be true, perhaps it is. Experts are not convinced about the prospects of the reverse trike three-wheeler nor about its plunge into four-wheeler EV manufacturing. “It is not easy making a car. The challenges are insurmountable," says industry veteran Arun Malhotra, who has worked in companies like Mahindra, Bajaj, Maruti and Nissan. “They should stick to their core business. Getting into EV manufacturing can burn them out."

The more enduring criticism is that BluSmart is burning too much cash. Details of the finances of the holding company were not available on the Registrar of Companies website but a subsidiary firm Blu-Smart Mobility Tech Pvt Ltd had registered a net loss of 18.4 crore in fiscal 2021.

Jaggi points out that the company turned cash positive in August. “At an operational level, we are not burning any money. In August, we became probably the only ride-hailing company of this type in the world to become cash positive. Which means any future fund-raising will be for growth," he says.

Not everybody buys that claim, though.

The business model is still fluid with a lot of unknowns. Electric vehicles have an inherent advantage of low-running costs—almost a fourth of any internal combustion vehicle (ICE) which helps partially offset the higher cost of vehicle (almost 50 % more). But experts believe the inflexion point for EVs in a large-scale fleet is still a few years away. That explains why Ola or Uber are not in the game yet.

“The cost of operations (inclusive of the price of the vehicle, depreciation and maintenance) for a petrol, diesel or CNG cab has gone up but overall it is still 7-8 cheaper than electric. So, to that extent, cash is still being burnt because you can’t charge that much premium from consumers," says an industry insider. “EVs will make sense for a fleet only when the cost gap with a petrol or diesel model is 20%."

Lower availability of products hinders scale, while there are other unknowns like the resale value of cars, as lithium-ion batteries are known to degrade significantly.

“The maths is loaded in favour of EVs. With regular vehicles, the running cost is 5-6 per kilometer while for EVs it is 0.9-1.3/km. If a cab runs 50,000 kilometers annually, the saving would be upwards of 2.5 lakh, which means by the third year you can break even," says Brajesh Chhibber, partner, McKinsey and Co. “But it is not only about mathematics. Resale value is a big question mark. By the time an EV gets to the used car market, the battery would have degraded which would affect its value and the technology itself could have changed."

Even for established automobile companies, it takes 3-4 years to build a car from scratch. Getting it validated and homologated with testing agencies is a tedious process in India, which takes upwards of six months.

In the next two years, the lack of options is expected to ease as companies like Maruti Suzuki, Hyundai and Kia, among others, begin to roll out their mass-market EVs.

“They are simply pandering to investors with talk of an electric car. It is very fashionable these days—Ola did the same. Look how they are struggling today," says a senior executive with a prominent automobile firm. “You also need vendors to make investments for the parts and dealers to set up showrooms. It may end up as a project only on paper. Not everybody is an Elon Musk."

Sitting at his Gurugram office, Jaggi looks outside at a sky heavy with clouds, and admits that the scepticism isn’t going away soon. “There will be a lot of questions. We just have to prove to the world that we can do it," he tells me. There is no surge pricing, but the meter is ticking.

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