The startups leading India's electric mobility charge

“What we found common among these early adopters of EVs is that they loved the technology and believed that electric is the future. But they hated every single product on the road. These conversations in 2013 were a turning point for us," said Mehta.

Ather has come a long way since then. So has India’s where a small band of startups have emerged over the past 10 years to challenge a set of well-established legacy auto giants that have been the dominant players in the country for decades.

As governments across the world gear up to lead the energy transition race that is set to gather pace in the 2020s, the shift to electric mobility has become somewhat inevitable rather than a choice. Unlike the West, India’s journey towards a carbon-free transportation grid will most likely be led by two-wheelers, three-wheelers and buses as they constitute a bulk of the vehicles plying on the road. This large segment of on-road vehicles could potentially switch to electric mobility in the foreseeable future.

And this shift is likely to disrupt the existing structure of the automotive industry in a significant manner. Currently, the firms that are leading the charge in the EV space are all startups such as Ola Electric, Ather Energy, Magenta Power, Ampere, BluSmart Mobilty and Lithium Urban Technologies.

Although most of these fledgling entities have little to show in terms of products or sales, some of them are investing heavily in manufacturing and product development, establishing local supply chains, and putting in place mechanisms to provide finance for those who wish to buy an electric vehicle.

Most of the established manufacturers are yet to join the electric bandwagon in any significant way. Naturally, private equity (PE) and venture capital (VC) money is busy chasing the upstarts. PEs and VCs pumped in around $672 million between 2019 and 2021 in the EV sector, compared with the $200 million in the preceding three years, according to data compiled by consultancy EY.

“I have seen a significant shift in the mindset of PEs and VCs towards the EV market. Now, most of these institutions are building their (mobility) strategies around the EV ecosystem," said Sameer Aggarwal of RevFin, a digital lending platform that offers financing options for EV buyers.

In US and China, the EV revolution has been mostly led by startups including Tesla Inc., Nicola Motor Co. and Nio Inc. Recently, Mercedes-Benz acquired Yasa Ltd, a British electric motor manufacturer. In India too, such a scenario cannot be ruled out as the legacy players might find it difficult to swiftly create a new supply chain. “As the demand for electric vehicles grows and India becomes a manufacturing hub, there will be a lot of benefits to ancillaries in terms of tech development," said Varun Dubey, head of marketing at Ola Electric. “That will propel the entire ecosystem forward and not just us."

The startup play

In a recent tweet, Elon Musk, founder of electric car manufacturer Tesla, said: “Electric vehicles are computers on wheels." This means an electric vehicle requires a completely new supply chain. Software and electronics play a significant role in the vehicle’s operation. This facet is new to the existing automakers. A successful EV transition will inevitably require a re-imagination of the entire pipeline—from product development to distribution.

Since the scale of the problem is large, some Indian startups have decided to address a narrow segment of e-mobilty, rather than developing a full product. Others have decided to acquire and leap ahead of the competition. In May last year, Ola Electric acquired Dutch electric scooter startup Etergo, with an eye on launching electric two-wheelers in India and in a few other emerging markets. The Bhavish Aggarwal-led startup has already invested in setting up a manufacturing facility in Tamil Nadu. The first batch of scooters is expected to be unveiled this month. In addition to launching products, Ola Electric will also set up 100,000 charging stations over the next few years in order to address range anxiety among customers.

Another Bengaluru-based startup, Ather Energy, has already launched its scooters—Ather 450 and 450X—in most leading cities and the company is in the process of expanding its showrooms. The Hero MotoCorp Ltd and Tiger Global-backed startup has also invested in a new manufacturing plant in Hosur, Karnataka, as it expects the sales of its scooters to surge over the next few years.

“Our focus in the next five years will be on expanding the product portfolio," said Mehta of Ather. “We have two products and the 450 line-up will definitely be expanded. There will be other products and eventually motorcycles. We are already looking at reaching 50 cities in India this year and 100 cities by next year. There is demand even beyond."

There are several other new players such as Amphere Eletric Co. and Okinawa Autotech Pvt. Ltd that are equally optimistic about the potential of the electric two-wheeler and three-wheeler segments in the coming years. This optimism is mostly driven by the government’s nudge to build an electric fleet of vehicles used for last-mile delivery of services. E-commerce giants such as Flipkart and Amazon and food delivery firms such as Zomato and Swiggy have already pledged to make electric vehicles a sizeable portion of their existing delivery fleet by 2025.

Even as this delivery business-fuelled shift is underway, the lack of vehicle charging stations has been a major concern. Magenta Power, a Navi Mumbai-based startup, has been working with state governments, local authorities and e-commerce firms to find a viable fix. The startup that started as a solar power generator has now pivoted towards deploying electric vehicles that are used for last-mile services.

“We are targeting the large electric vehicle OEMs (original equipment manufacturers) to support their vehicles on the road," said Maxson Lewis, managing director, Magenta Power. “On the buyer side, there are Flipkart, Amazon and others and discussions are already on. We are providing them an end-to-end solution—from setting up the solar panels on the rooftops to setting up charging infra and then deploying the electric vehicle fleet."

In 2019, Hindustan Petroleum Corp. Ltd (HPCL), one of the country’s largest fuel retailers, invested in Magenta as part of its strategy to invest in renewable energy and reduce dependence on its conventional oil retailing business. Magenta, in collaboration with HPCL, will soon install 1,000 fast EV chargers across the country.

The firm is also in the process of creating micro-charging hubs at the warehouses of e-commerce players, which would facilitate vehicle charging while loading and unloading goods. “Last mile delivery will occupy 50% of the EV ecosystem," Lewis said.

Another major hurdle with regard to the adoption of electric vehicles has been the unavailability of affordable credit from traditional banks. RevFin, founded by Sameer Aggarwal, is trying to fill the void left by the traditional financial institutions and aims to offer credit to two- and three-wheeler drivers who want to shift to electric vehicles for commercial purposes.

According to Sameer Aggarwal, there will be a huge demand for electric two- and three-wheelers in cities with companies such as Zomato and others planning to build an electric fleet. “The biggest constraint remains financing. The need for financing is two-fold: one is the aggregator needs money to buy vehicles; two, the individual driver needs finance. As a company, we want to focus on funding the end user and not just get into wholesale funding. For drivers, the funding options are still less and very few companies are in this space," he added.

The potential

According to a recent note released by credit ratings agency Icra Ltd, electric two-wheelers are expected to grab a market share of 8-10% by the 2025, while electric three-wheelers would comprise almost 30% of the total sales in the segment.

According to Samsher Dewan, vice president and group head of corporate sector ratings at Icra, segments like scooters, electric-three wheelers and small commercial vehicles have already achieved parity in terms of the total life cycle cost of ownership when compared to conventional vehicles. “The development of local manufacturing of batteries, critical components and charging infrastructure would remain critical for incentivizing the local EV ecosystem, which is currently weak," added Dewan.

To push the sales of EVs in the commercial segment, the Indian government recently announced a 50% increase in incentives for electric two-wheelers under the Faster Adoption and Manufacturing of Hybrid and Electric vehicle (FAME) scheme. The Union ministry of heavy industries has also mandated the Energy Efficiency Services Ltd (EESL) to procure 300,000 electric three-wheelers for use by different authorities.

These measures along with additional incentives from various state governments have led to a substantial drop in the price of electric two-wheelers over the past two months.

“I think there is an opportunity for EVs to get to 40-50% of the overall two-wheeler market, especially in the scooter segment," said Tarun Mehta of Ather.

“When you look at small commercial electric vehicles or electric two wheelers that are used for delivery and three-wheelers that are used as passenger carriers, in the next 5-6 years, we can see a significant shift to EVs. By 2030, we can see a 100% shift in this segment," said Aggarwal of RevFin.

The legacy players

Despite the big investments and grand announcements, however, the current sales of electric vehicles are not particularly encouraging. The lack of adequate charging infrastructure and the steep upfront price are key challenges. EV sales in the domestic market decreased by 19.9% to 236,802 units in FY20-21, according to the Society of Manufacturers of Electric Vehicles (SMEV).

Meanwhile, legacy manufacturers such as Hero MotoCorp, Bajaj Auto Ltd and Mahindra and Mahindra Ltd are not sitting by idly either. Many have the necessary capital and distribution networks to mount a serious challenge for the startups. So, a late start may not be a problem for them.

Hero, on its part, has already partnered with Taiwanese EV scooter maker Gogoro Inc. It also owns a 38% stake in Ather Energy. A close collaboration on products as well as other aspects is on the cards in the months ahead.

Two other legacy auto giants—Bajaj Auto Ltd and TVS Motor Co. Ltd—have also launched their respective products: Chetak and iQube. Both firms are, however, yet to scale production. Chennai-based TVS plans to invest ₹1,000 crore in EV manufacturing. Pune-based Bajaj has set up a new subsidiary for its electric business in 2021. “We are aggressively working on multiple EV programs and platforms, and also on various other modular mobility solutions," said Pawan Munjal, chairman and managing director of Hero MotoCorp, in the company’s annual report. He also said that the partnership with Gogoro Inc. will be key to the propagation of electric vehicle charging technology.

But despite these early forays, the approach of the legacy automakers has by and large been measured and circumspect. The startups would be betting big on that not changing any time soon.

“As new entrants coming into the market, we will bring a fresh start and a fresh approach," said Varun Dubey of Ola Electric. “We don’t have the legacy challenges that many others face. It allows us to fundamentally re-imagine the sector and the product."