Will mobility startups keep fueling EV growth despite India’s fluctuating stance?

All stakeholders are onboard for a wild EV ride, but New Delhi seems to have put its feet on the brake.

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As India’s auto industry faces its worst slowdown, the interest towards electric vehicles (EV) from all stake-holders—consumers, manufacturers, investors, vehicle rental startups, and government—is at an all-time high.

On the one hand, the shifted interests have given birth to a bevy of aspirational young startups, including Bengaluru-based Ather Energy and Hyderabad-based Gayam Motor Works, which manufacture electric two- and three-wheelers. On the other hand, traditional auto manufacturers, as well, are gearing up to ride on the Indian EV push that is set to grow into a USD 2 billion industry by 2023.

Earlier this month, Bajaj Auto, a Pune-based 80-year-old auto manufacturer, announced the re-launch of ‘Chetak’ scooters, after stopping production 14 years ago. Only this time, it will launch an electric scooter in January 2020. The company is hoping to cash in on the sentiment around Chetak scooters, once a preferred mode of transportation for India’s middle-class families.

Mainstream auto manufacturers that are suffering from the country’s economic slowdown are not only launching their own EVs but are also putting in dough in Indian EV startups.

Ratan Tata, chairman emeritus at Tata Sons, has decided to invest an undisclosed amount in Pune-based EV startup Tork Motors, according to a report by local media ET.

“In the last few years, there has been a sea of changes in the attitude towards electric vehicles. This industry is changing rapidly and I place good value on the sound logic and the approach that the team at Tork Motors has taken,” Tata, an industrialist and investor, said in a statement.

Foreign automobile makers are also hopping on the bandwagon. South Korean auto manufacturers Hyundai and Kia acquired a minority stake in ride-hailer Ola’s EV unit Ola Electric through an undisclosed sum of investment, following a fresh strategic investment of USD 300 million the Korean automobile duo invested into Ola.

Attracted by the flamboyant trend, investors are also joining auto manufacturers, although with a pinch of salt, in providing the push to EV companies in their own capacity. Biggest among them is Japanese telecom giant SoftBank, which invested USD 250 million in Ola Electric in July this year, making it a unicorn company valued at over USD 1 billion.

In August this year, SoftBank held talks with self-driving car rental startup Drivezy along with two-wheeler rental startups Vogo and Bounce for possible investment.

“SoftBank’s normal procedure is to look at all the companies in the sector. If they’ve looked at us, they’ve also looked at Zoomcar or Bounce,” Drivezy co-founder and CEO, Ashwarya Singh, told KrASIA in an interview.

Bengaluru-based two-wheeler rental company Bounce recently raised USD 72 million in a Series C round, and said it would use the funds to introduce more than 50,000 electric scooters by the end of this year. The two-year-old rental startup claims a fleet of 7,000 dockless scooters.

Given India’s still-nascent rental industry, Singh believes it is an open playing field right now. “We have 35% market share right now and once we cross 50% or have a significant lead over a significant time, that’s when SoftBank may come in,” he said.

Rental startups: the next flag bearers of EV

As Indian roads are clogged by over 230 million motor vehiclesthe majority of which are two-wheelers—shared mobility in the form of vehicle renting model has found multiple takers, especially in metro cities. Two-wheeler rental startups that started with capitalizing on commuters’ traffic woes, have thrown electric vehicles into the mix for environment-savvy riders. Put the two together, and travelers are presented with an improved alternative: rental e-scooters.

Bengaluru-based Drivezy, that has 14,000 fuel-based two-wheelers on its platform, has pledged to introduce 5,000 electric scooters and wants to convert 10-15% of its fleet to electric over the next two years. EC-05, the model of e-scooter that Drivezy has on its platform, was developed in collaboration between Yamaha Motor and Taiwan’s Gogoro Inc. which has a swappable battery that is compatible with Kawasaki, Suzuki, and Honda’s e-scooters.

Drivezy will create a separate subsidiary as a joint venture with a bigger international player by October-end, he said.

India’s two- and three-wheeler rental startups, which operate under the Rent a Motor Cycle Scheme (1997), currently lack a dedicated framework to address the lack of parking space and increasing car ownership. The business model has also been deemed somewhat unsustainable. For one, the volatile petrol market has taken a toll on the startups offering petrol or diesel-based scooters.

Singh from Drivezy believes that EV has a much better opportunity since “it has better unit economics than a gasoline run vehicle. In a company’s value aspect we can pass on certain margins to consumers.”

The maintenance costs of gasoline run bikes and scooters are also relatively higher. For the large part, the difference in unit economics between petrol and electric scooters has influenced startups to carry out pilot projects with EVs.

Two-wheeler rental startup Vogo is experimenting with 200 electric scooters in Bengaluru’s HSR Layout, a suburb located in the city’s southeast part, on a pilot basis and is priced almost 1.5x lower than petrol-run scooters. Last year, Bengaluru-based Vogo raised USD 100 million from Ola to add 100,000 scooters to its current fleet of 4,000. Vogo co-founder Anand Ayyadurai told KrASIA that the company wants to add more electric scooters to its fleet starting late 2020.

“Today the acquisition cost of an electric scooter is two times higher than a petrol scooter. The per-kilometer cost including acquisition is lower in electric if the cost of the electric scooter is below Rs 100,000 [about USD 1,400] … This is where shared electric mobility can play a key role by giving people access to electric scooters without the cost of ownership,” Ayyadurai said.

Challenges ahead

Bengaluru-based Yulu Bike, that started with non-electric bikes, launched e-scooters in February this year and currently has over 2,500 dockless e-scooters on the road. The company estimates that the electric scooters cost only 25% of a petrol-run bike. The user has to pay Rs 10 (US 14 cents) to unlock the bikes, and Rs 10 (US 14 cents) for every 10 minutes of usage.

“Lack of infrastructure in India will make the adoption cycle of e-bikes in India to be slower than that of China. While there are 850 cars for every 1,000 people in the US, India has only around 22 cars per 1,000 people. Hence, micro-mobility has a bright future in India,” Yulu co-founder Amit Gupta had earlier told KrASIA in an interview.

But a sustainable EV ecosystem needs better regulation, more charging stations, battery standards and an affordable solution to meet the needs of a price-sensitive market, believes Vogo’s Ayyadurai.

However, when it comes to investment in EV-related technology, some investors are still reluctant, says Saket Mehra, partner, Grant Thornton India. According to him, most seed funding has been focused on the technology around EV—ecosystem of charging stations, lithium-ion based swappable battery, among others—and not OEMs (Original Equipment Manufacturers) of EV in particular. Private equity investors have been all the more skittish, given that creating an ecosystem around EVs are a capital intensive business.

Hyundai and Kia’s investment of USD 300 million in Ola Electric earlier this year entails exactly this as both the South Korean auto manufacturers along with Ola, will create infrastructure around EV that will include charging, battery technology, and electric vehicles suited for Indian roads.

But as long as there is no charging and battery infrastructure, Yulu co-founder RK Misra has a recommendation. “Bengaluru has five million vehicles. If Indian car manufacturers can make cars that can travel 200 kilometers on clutch at a reasonable price point, we would not need charging infrastructure—nobody drives more than 200 km in a city,” he explains. “People can charge at their homes all night for a whole day of driving. Else, the government doesn’t have that much land to provide charging infrastructure for 500 cars.”

For the most part, Indian bike and scooter rental startups are dependent on partnerships for the supply of vehicles and expansion in other cities.

Drivezy’s Singh said, due to the lack of infrastructure around EV, its adoption is at a nascent stage in India. “People are scared of being stranded in a place with no charging point nearby. This is precisely why we are working on swappable battery. As the infrastructure around petrol and diesel has grown in the last 25 years it needs to happen in this space as well,” he said.

India’s fluctuating stance on EV

Investors’ reluctance to put down their money for EV technologies isn’t the only factor that would impede the south Asian country’s EV prospect, though. India government’s wavering stance, a result of the pressure from the traditional automobile makers, might reverse some progress the industry has achieved so far.

Earlier this year, government think tank Niti Aayog had proposed a ban on all fuel-based automobiles by 2030 to curb pollution, decrease fuel import and boost EV adoption. Reuters had also reported that Uber and Ola may likely be required to convert 40% of their fleet into EVs by April 2026.

In July this year, the Indian government announced a bunch of incentives for users who wish to buy an EV. However, auto manufacturers met Indian finance minister Nirmala Sitharaman, a week later, to register their protest amidst the staggering slowdown that the Indian auto industry is going through. Sitharaman pacified the automakers and announced in August that India will go slow on its EV commitment.

“Manufacturers have been resisting [EV adoption] saying that it is too drastic, but that is not the right approach. Manufacturers also need to realize that EV adoption will not happen as a direct sale to the consumer. Adoption will happen through shared mobility,” says Yulu’s Misra. “Two-wheeler and car sales have gone down, and they will not go up because people are not buying cars. People are going for shared mobility.”

“Owing to the government’s fluctuating EV policy, manufacturers are unable to visualize their EV plans. Investors want to multiply their investments quickly and they are unlikely to invest if manufacturers cannot present a tangible and sustainable business plan,” says Mehra from Grant Thornton.

Even though investors want to wait and watch the direction in which India’s EV policy turns to, entrepreneurs are not keen on waiting. They believe the government will make space for EVs once they see the impact.

People in the industry believe the government’s decision to go slow with EV push is temporary, and once the auto-makers realize the current generation doesn’t want to own vehicles they will also jump into the EV battleground.

“To customers, it doesn’t matter if it’s an EV vehicle or a combustion vehicle. I think the government has decided this due to the pressure of job loss in the auto sector that contributes a lot to the GDP. Once that smoothes out and people realize that this is a fact, and that the sales are not going to go up now, the government will get back to its EV agenda,” Singh said.