Caution EV startups, funding to hit speed bump ahead but investors hopeful of returning to normalcy

India has seen a proliferation of startups in the EV space in the past few years on the back of government’s vision for 2030, improving charging infrastructure and reducing carbon emissions apart from increased investors’ interest.

Even as the government has taken measures to support the targets projected for the incipient electric vehicle (EV) segment in the country, the startups in the EV space are likely to face challenges around fundraising, at least for the short term, according to experts. India has seen a proliferation of startups in the EV space in the past few years on the back of government’s vision for 2030, improving charging infrastructure and reducing carbon emissions apart from increased investors’ interest to back emerging EV startups. As a result, Tiger Global-backed Ather Energy, Yulu, Okinawa, Ratan Tata-backed Tork Motors, Revolt Intellicorp, ION Energy, Zypp, Euler Motors along with Ola’s unicorn subsidiary Ola Electric have been part of the young EV startup ecosystem in India.

“Three-six months of extreme short term funding will be a bit depressed because people are figuring out what will work while capital has flown to certain areas which are relatively safer. However, in the long term or by end of this year, mobility startup funding will become closer to normal,” Arpit Agarwal, Principal, Blume Ventures told Financial Express Online. Agarwal had backed Delhi-based Euler Motors that is developing commercial electric vehicles including three-wheeler. The startup had raised Rs 20 crore in May this year.

According to a recent Deloitte report as well, startups in the mobility and battery compound segment might see fundraising challenges in the short term. However, in the medium and long term, M&A and fundraising activity are likely to pick up. “To reduce dependence on China for imports, Indian auto firms are expected to set up local manufacturing facilities thus, leading to enhanced requirement of funds and opening up opportunities for investors,” according to the report titled Indian Electric Vehicle Segment Might Continue to Draw Investments. “There will be challenges particularly, in the short term including due to COVID-19, as some of these start-ups will face liquidity issues on account of the current stress resulting in delay/deferment of the development of EV infrastructure,” Dilip Dusija, Partner, Deloitte India told Financial Express Online.

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While China has been the global manufacturing hub over the past two decades, its significance has taken a hit due to the US-China trade war, increasing labour cost and most recently the Covid spread. Consequently, manufacturers globally are focusing on cutting down their supply chain dependence on China, the report added. “Large manufacturers are already thinking about the dependency and taking actions in EV and non EV areas while the supply chain is still dependent on China for a few things. What happened in case of Covid, this risk of dependency, which otherwise is not considered to be a big risk, came to the fore,” an investor in the EV space told Financial Express Online.

Due to Covid, there could be a shift from public transport and shared mobility to the personal vehicle including electric vehicles. However, in the long term, buyers might not switch to EVs unless the upfront cost is reduced. “We need to make sure that the EV industry is competitive as anywhere in the world. You can put artificial barriers like customs duty and others but it is probably not the right thing to do for industry and customers in India,” said Agarwal.

Among some of the measures adopted by the government to encourage EV adoption was the introduction of Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India (FAME) – II scheme to incentivise EV buying. The government had also cut GST on EVs to 5 per cent from 12 per cent and had exempted them from registration fees, odd-even scheme etc. NITI Aayog has targeted 80 per cent electrification for two and three-wheelers, 30 per cent for four-wheelers and 45 per cent for buses by 2030 along with reducing energy consumption and carbon emissions by 64 per cent and 37 per cent, respectively.

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