The uncertain ties between the two countries is leaving investors jittery
Most of the low-speed electric scooters and three-wheelers sold in India have localization levels of less than 20% as they are made mostly of parts from either China or Taiwan
Indian startups of electric vehicles (EVs) and their components that depend heavily on Chinese imports may find it difficult to raise funds from private equity and venture capital investors in future, said three people directly aware of the developments.
The bleak scenario follows tensions between India and China that escalated after a deadly border clash between the two armies. India, in retaliation, imposed a ban last week on 59 Chinese apps and also began manual inspections of Chinese imports at ports, causing a logjam.
The uncertain ties between the two countries is leaving investors jittery and forcing them to put money in startups that rely less on China.
In the past two years, startups in the electric mobility space such as Ather Energy, Magenta PowerGrid, Ola Electric, Yulu and Lithium Urban Technologies have raised funds from diverse sources, including Tiger Global Management LLC and SoftBank Group, among private equity (PE) firms, industrialists like Tata Sons’ chairman emeritus Rata Tata and Hero MotoCorp promoter Pawan Munjal, and state-run Hindustan Petroleum Corp. Ltd.
This followed the Indian government’s efforts to promote eco-friendly modes of transportation with various incentives in a bid to reduce high levels of pollution in most of its major cities.
The first person cited above said PE and VC investors have in the last few months become apprehensive of startups that have a substantial exposure to China. They fear that with rising pressures from the Indian government, these startups can face disruption in supply chain whenever bilateral ties take a hit, the person said.
Maxson Lewis, managing director of Magenta ChargeGrid, an electric vehicle (EV) charging station developing and manufacturing startup in India, said there are about 500-600 startups in the EV ecosystem currently and almost half are at risk because of their high exposure to Chinese parts. “Investors these days are looking to eliminate any external risk on supply chain, and exposure to China is now considered a long-term risk. Any startup that is assembling vehicles by importing components from China is 100% at risk now," Lewis said.
Most of the low-speed electric scooters and three-wheelers sold in India have localization levels of less than 20% as they are made mostly of parts from either China or Taiwan.
Components such as lithium-ion cells, battery packs and electric motors are mostly imported by these manufacturers, in addition to plastic spare parts and headlights, which are also available in India.
To boost local manufacturing, the Union government has been trying to curb imports of electric vehicle parts from China in the last two years, mandating companies and startups to develop and manufacture parts of zero-emission vehicles in a phased manner to avail subsidies under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme.
In 2019, the government earmarked ₹10,000 crore to encourage development, manufacturing and usage of EVs and components in the domestic market though the second phase of the scheme.
“Investors want to now back startups that can play a meaningful role in the evolving ecosystem for electric vehicles in India. The green funds are trying to make sure research and development is happening in India and only components like lithium-ion cells, which are not available in India are imported," said the founder of an electric mobility startup, which has plans to hit the fundraising route next year. He spoke on the condition of anonymity.
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