Business Standard: April 29, 2019
Chennai: The country’s electric vehicle (EV) industry is expected to see higher interest from private equity and venture capital (PE, VC) investors.
Venture Intelligence, that tracks these things, says PE, VC investment in the EV space was $23 million (~160 crore) in 2018, in two deals, compared to $3 million (~21 crore) from three deals in 2017. The 2018 money was led by Alpha Capital and others investing around $22 million in Hero Electric last December.
There were other notable investments. Twenty Two Motors raised $65 million from Kwang Yang Motor in October 2018; Hero MotoCorp invested $19 million into Ather Energy in July. Also, in 2016, Hero invested $31 million in Ather Energy, says Venture Intelligence.
In March 2015, around $12 million was infused by Tiger Global into Ather Energy. S Gopalakrishnan and others invested around $1 million in Ampere Vehicles, which later saw a major share acquired by Greaves Cotton.
In 2019 till date, PE, VC investment in the sector has been $300,000 (~2.1 crore), in one deal. Tarun Mehta, co-founder at Ather Energy, said when they started, it was difficult for product-led start-ups to raise investments. The requirement of a lot of upfront capital expenditure in the initial stages, products’ long journey from conception to market readiness, and absence of immediate return on investment proved detrimental.
However, in the recent past, the government’s support and incumbents’ active interest in the EV eco-system has bolstered consumer interest. Firm business plans, the long-term outlook for electrification of mobility and increased investment in the industry has reinforced PE, VC faith in the growth potential.
"We believe there is mass awareness about opportunities in the EV industry and that has primarily contributed to simplification of the fund-raising process,” said Mehta. Ather is investing in improving its products and Ather Grid, its charging eco-system, is working on expanding to 30 cities in a couple of years, he said.
Initially, the investments would be more towards usage in shared services and logistics, rather than private vehicles, as it would make business sense to investors, say both investors and consultants. Original equipment makers (OEMs) might be looking at investing in end-to-end solution providers such as Ather Energy or Ampere Vehicles. However, VC investments might need time to pick up here, since identifying a solution and the start of manufacturing could need larger investment. A second round of funding would be critical.
"It is too early for the investment community to make large bets on that, though there are exceptions. There could be a lot of smaller investment in a larger number of sub-system kind of companies. The larger bet seems to be from existing OEMs and such players into end-to-end players. VC money will follow that," said Anand Ganapathy Chennira, chief operating officer of Micelio Fund. This is a seed fund focused solely on clean mobility, led by Shreyas Shibulal, son of Infosys co-founder S D Shibulal.
Micelio, with a corpus of ~140 crore, also has a discovery studio along with works on a last-mile logistics business. It is interested in investing in sub-systems as part of larger solutions, such as motor technology, powertrain and electric parts or firms that have a lot of intellectual property on a particular area. It is more focused on the impact the investment can create; return on investment is not the most important thing, he said.
Electric two-wheelers would be a particular attraction for investors, said Aswin Kumar, programme manager for the mobility practice at Frost & Sullivan. "Shared e-scooter service providers across the world got $4 billion funding during 2017-18. The entire PE focus will shift towards India and they will cast their nets as widely as possible and invest in start-ups that have promising technology, to see if we can have a Tesla for two-wheelers in India, another unicorn for the market. The only thing they would look at is whether they have a scaleable model to reach at least 10-15 per cent of the potential," he said.
An earlier report by Asian Venture Philanthropy Network India and IIM-Ahmedabad's Centre for Innovation Incubation and Entrepreneurship, in collaboration with Shell Foundation, detailed the challenge in attracting investment. Such as the lack of policy support, a weak eco-system and charging infra for EVs, lack of synergy with the power sector, possible backlash from the auto sector and competition from the international market. According to the Automotive Component Manufacturers Association, the ICE powertrain contributes to 60 per cent of employment generation in their sector. A full switch to EVs could impact up to 5.6 million jobs by 2025-26, it said. However, the potential is huge in the segment, it said.
"NITI Aayog predicts India’s vision of mass conversion to EVs can create a $300 billion potential domestic market for EV batteries by 2030. This could be around two-fifth of global battery demand and 25-40 per cent of this market can be captured through ‘Make in India’, aimed at encouraging manufacturing and attracting foreign investment to India. Apart from government and corporate funding, VC funding hasn’t got any successes in this space," says the report.
The government’s recent announcement of Faster Adoption and Manufacturing of Electric (FAME-II), to take effect from this April has lack of clarity but once the business model and government policies are in place, there will be more PE activity in the sector, said Kumar. “Regulatory uncertainty is probably to come to an end soon but we do not see that as a big challenge because the OEMs themselves will fill the space," he added.
Last week, TVS Motor announced it had acquired a minority stake in a US-based industrial Internet of Things (IoT) firm, Altizon and Altizon Systems. It invested $2.5 million. Altizon helps enterprises use machine data to drive business decisions, beside helping on digital transformation and new models for service delivery. “We will,” said TVS Motor, “utilise the strong roster of global industrial majors who are customers of Altizon and gain from enhanced technology offerings.”
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.