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Fire Incidents, Supply Chain Challenges Have No Major Impact On Investors’ Optimism For EV Ecosystem

Fire Incidents, Supply Chain Challenges Have No Major Impact On Investors’ Optimism For EV Ecosystem

Some of the top investors in the EV ecosystem of the country continue to be bullish about the segment

Most investors believe that there are huge opportunities across sub-segments of the EV ecosystem

Investors believe that issues like the recent fire incidents involving two-wheeler EVs and supply chain disruptions are transitory in nature, but the overall EV market will continue to grow

The multiple challenges being faced by the electric vehicle (EV) industry in the country, including safety concerns due to fire incidents with two-wheeler EVs and a persisting crunch of battery and semiconductors due to disruptions in the global supply chain, have failed to dampen investors’ sentiment.

Some of the top investors with investments in the EV ecosystem of the country are bullish about the segment. The investors believe that the EV segment, which includes sub-segments such as original equipment manufacturers (OEMs), public EV mobility solutions, and infrastructure players, has good long-term growth potential.

Amid the ongoing Russia-Ukraine war, rising inflation and tightening monetary policies, there are whispers of a ‘funding winter’ in the country’s startup ecosystem. The funding raised by Indian startups declined 53% month-on-month (MoM) to $1.6 Bn across 117 deals in May, as per an Inc42 report.

On the other hand, the overall EV sales also dropped in India during the last three months, led by decline in two-wheeler sales. The total number of EVs sold in India in May across vehicle segments witnessed an over 9% decline MoM decline to 65,818 units, as per Vahan data.

However, investors believe that the issues are short-term in nature and expect the overall EV market to grow in the long-term. In May, the Indian startups in the EV space reportedly raised over $170 Mn of funding. 

As per a Colliers report, the EV ecosystem in India is likely to see investments of INR 94,000 Cr ($12.6 Bn) across the automotive value chain over the next five years.

Commenting on investments in the EV segment, Rudra Dalmia, managing partner at green tech-focused venture capital (VC) firm Green Frontier Capital, said, “The world is going through a difficult time right now. We will see challenges in terms of capital. But you will see a lot of positive investments in the EV space in the very near future. This is the one sector that will be the least affected or remain bullish throughout recession because there is a bigger climate issue to solve.” 

Investors Take Long-Term View

“The challenges that you see in the short-term, especially from the OEM perspective, whether the safety issues or supply chain problems, are transitory factors. As a country, industry and economy, we will outgrow them quickly,” said Arpit Agarwal, Director at Blume Ventures.

Blume Ventures is among the major venture capitalist (VC) firms in the country to have invested in multiple EV players across segments including Yulu, Euler, ElectricPe, and Battery Smart.

Cedrick Tandong, CEO and cofounder of Three Wheels United, a fintech company for financing EV three-wheelers, said that there was a time when investors used to be cautious about funding EV players.

“The primary hypothesis was whether batteries are going to last 3 years, whether vehicle life is going to be what the manufacturers say. But we already have enough data to show that vehicles are going past those 3 years without any battery replacement,” said Tandong. “From our perspective, we have validated all the things we needed to validate.”

Tandong asserted that the time for taking a cautious approach has passed and now is the time to scale up. “From an investing perspective, we are not holding back and a few safety incidents happening across the country is not enough reason for us to hold back on enabling a greater change,” he added.

According to Tandong,  the larger goal of decreasing reliance on fossil fuels is too important to be put off by sporadic safety issues.

Three Wheels United claims to have either financed or managed finance for over 4,000 electric three-wheeler and two-wheeler owners so far. 

Echoing a similar tone, Dalmia said, “We are not conservative but most optimistic about the space.”

In May, EV ride-sharing company BluSmart raised $25 Mn in its latest funding round, co-led by Green Frontier Capital and BP Ventures. 

Earlier, Green Frontier Capital also funded battery swapping solutions provider Battery Smart’s $7 Mn pre-seed round along with Blume Ventures and others.

All Sub-Segments to See Growth?

Almost all the investors Inc42 interacted with believe that all the sub-segments of the EV ecosystem have scope for growth, and the best players across the segments would keep getting the funding from the right investors.

“There is definite value across the chain. Innovation, distribution, manufacturing all these are going to play out in a very significant way,” said Dalmia.

Swapna Gupta, partner at Avaana Capital, said that currently there is a significant opportunity in small commercial vehicles. However, she also pointed out there are opportunities across the board in the OEM categories as the secular trend for EV adoption is very positive in all of them.

Speaking about the investor’s focus in other sub-segments, Gupta said, “There will be investor interest across all segments but there will be different types of investors.”

The charging infrastructure space has recently received some interest from the VCs but there is also a sense in the industry that the segment requires a large capital inflow. Hence, eventually charging stations would either be owned by the power distribution companies or petrol station operators, Gupta explained.

“Battery manufacturing definitely continues to be an area of focus. It is a deep science, technology investment play and more deeptech investors are looking at it in India and globally,” she added. 

Meanwhile, Agarwal said that while Blume Ventures’ investments so far have been across the EV sub-segments, going ahead, it would look at specific sub-sectors. However, he also added that the firm is equally excited about all the sub-segments. 

The Road Ahead

The overall optimistic view of the investor community about the EV segment notwithstanding, the recent fire incidents can create doubts among investors in the short-term.

As Puneet Jain, founder of Natural Battery Technologies, a manufacturer of EV battery packs, said, now the investments for EV startups will not come based on branding and marketing but will depend on technology.

Ankur Bansal, cofounder and director of BlackSoil, said that due to the challenges being faced by the overall EV ecosystem, it will see considerable changes, and a major part of the ecosystem would need to be rebuilt, reskilled and enhanced to tackle future requirements of EVs.

“Since EV is still at a nascent stage and an evolving industry in India, we at BlackSoil have taken a conservative approach and invested in just one EV deal,” said Bansal. “Having said that, we are cautiously optimistic on this sector and undertaking further evaluation of only those companies which we believe are serious contenders.”

BlackSoil was one of the participants in BluSmart’s $25 Mn fundraise in May, along with Green Frontier Capital and others. 

On the fire incidents, Bansal said that the “mushrooming growth” of EV startups is fuelled by government incentives and the seemingly “diluted norms for EVs” have led to players without any domain knowledge entering the industry.

Last week, Bajaj Auto’s Rajiv Bajaj had also slammed the mushrooming EV startups in the country for the series of fire incidents related to EVs in the past few months, raising questions about the manufacturing process of these startups.

There have been nearly 30 fire incidents involving two-wheeler EVs in the country. Following this, the government stepped in the matter, and is looking at introducing a battery safety standard through the Bureau of Indian Standards (BIS).

“Thus, to scale EV adoption, countries like India need to mitigate customer pain points, set up in-house capabilities and ensure adequate reserves are at its disposal for creating a comprehensive EV ecosystem,” Bansal added.

Agarwal, on the other hand, said that the EV segment is very complicated and dynamic, and the performance of one sub-segment affects other sub-segments. 

Explaining further, he said that the performance of OEMs will determine the performance of sub-segments like charging/swapping and impact financing. In turn, financing will also impact OEMs, which will in turn impact charging. Thus, the situation is so dynamic that the decision tree becomes “mind bogglingly complex”, he said.   

Hence, if some investors are getting deeper into the EV ecosystem, they have chosen to make a few safe assumptions. Despite the complexities and some doubts, cleantech solutions overall, and the EV ecosystem in particular, is among one of the focus areas of investors globally. Investors in India seem to be following the same path.

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