NEW DELHI :
Founders of electric vehicle (EV) startups in India have said that the raft of government incentives offered to electric vehicle sellers should also be extended to component manufacturers to encourage them to build factories in India. In addition, goods and services tax imposed on components for electric vehicles should be reduced to strengthen the cash flow for such companies.
Tarun Mehta, co-founder and chief executive of Ather Energy, a Bengaluru-based electric scooter manufacturing startup that was founded in 2013, said some of the company’s suppliers were trying to set up shop in India after the government made announcements to boost electric vehicle sales.
Component makers were expecting similar incentives to establish factories and do research and development work, as the volume of sales is negligible in the country at present.
“For our suppliers, there isn’t much support at the moment. The recent announcement by the government focused on the demand side and it will work. Our suppliers have started moving their operations to India and tax exemptions on purchase of equipment, setting up capacities and developing IP locally would help this industry," Mehta said in an interview.
Most traditional automobile manufacturers have stayed away from the electric two-wheeler segment. Multiple startups like Okinawa Autotech Ltd, Twenty-Two Kymko, Ather Energy and others have tried to fill the gap. The Centre has been trying to push these startups towards manufacturing, as opposed to an import and assemble strategy adopted by some.
Apart from electric vehicle manufacturing, startups in the renewable energy space, including Magenta Power and Exicom Power Solutions, have entered the business of developing and setting up fast and slow (DC and AC) vehicle charging stations.
The government, over the last four months, through its policy measures, has tried to encourage manufacturers to develop and manufacture EVs in India.
Pushing ahead with its goal to have more EVs to curb high levels of pollution in major cities and cut costly oil imports, the government introduced the second phase of Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME 2) scheme, with an outlay of ₹10,000 crore, on 1 April, 2019.
In the budget, finance minister Nirmala Sitharaman announced income tax rebates of up to ₹1.5 lakh for customers on interest paid on loans to buy electric vehicles, with a total exemption benefit of ₹2.5 lakh over the entire loan period. She also announced customs duty exemption on lithium-ion cells to help lower the cost of lithium-ion batteries in India as they are not produced locally.
Makers of components such as solar electric charging infrastructure and lithium storage batteries will be offered investment-linked income tax exemptions under Section 35 AD of the Income Tax Act, and other indirect tax benefits.
On Saturday, the goods and services tax council decided to reduce taxes on electric vehicles to the lowest slab of 5% from 12%. The tax on electric vehicle chargers has also been reduced to 5% from 18%.
Mehta said the ministries concerned should come together to improve access to electricity, and install charging stations at parking areas in residential and commercial complexes as a number of electric two-wheelers to be launched in the near term are not expected to have a very long range.
“As a result of the increased rate of taxes imposed on the components, the input rate of GST far exceeds the output rate of GST, which impacts cash flow in the short term but is fine in the long term. We would request the government to either reduce taxes or fast-track the process (to claim the tax credit)," said Mehta.
NITI Aayog and the ministry of road, transport and highways are mulling a blanket ban on petrol and CNG three-wheelers and two-wheelers with engines under 150cc from 2023 and 2025, respectively, a suggestion that has raised resistance from traditional automakers. Close to 80% of all vehicles sold in India are two and three wheelers. Senior executives of large automakers have termed electric vehicle startups ‘traders’ as some of them import most of the components, especially from China.
“Some of us are trying to build a long-term company by investing in research and development of products," said Mehta. “Some startups have taken a shortcut and imported components from other countries to expedite the launch of their products. We do have a product advantage here and how it plays out depends on the execution. Larger players will also make the transition in the market," added Mehta.
Ather Energy is backed by the country’s largest two-wheeler manufacturer Hero MotoCorp Ltd, American venture capital Tiger Global, and Sachin and Binny Bansal, founders of Flipkart.
Earlier this year, the company raised $51 million, which would be used for setting up a new manufacturing capacity, research and development for a range of upcoming products and setting up of charging stations. Former Flipkart founder Sachin Bansal made an investment of $32 million in the current round of fundraising while Hero MotoCorp has converted its convertible debt of $19 million. Singapore-based InnoVen Capital, one of Asia’s largest venture debt providers to startups, has extended $8 million in venture debt to the scooter manufacturing startup.
With the government’s push towards electric vehicles, and traditional automakers slow to make the shift, startups in the mobility ecosystem may take the lead in the electric two-wheeler segment. So, the next set of unicorns in India’s startup ecosystem may emerge from the e-mobility space.