While it’s debatable if it was the government's ambiguity while issuing subsidies or the EV makers' failure to comply with the localisation norms, the country’s EV industry needs to come out of the subsidy turmoil at the earliest
With FAME-III yet to be announced and industry leaders already standing divided on the need for subsidies, it is vital to note that demand subsidies have played a crucial role in giving a boost to the country’s EV adoption journey
As a fund, we have always believed that as EV adoption happens at a mass scale, the transition from ICE to EV will happen faster in B2B or commercial areas than personal mobility, said Kunal Khattar
In the last one year, the EV sector in India has faced significant challenges on the subsidy front. The reduction in subsidies has hurt many electric two-wheeler companies and slowed down the overall EV adoption in the country.
While it’s debatable if it was the government’s ambiguity while issuing subsidies or the EV makers’ failure to comply with the localisation norms, the country needs to come out of this turmoil at the earliest to lead the global EV revolution.
Nevertheless, this upheaval might be leading to a new phase in vehicle electrification for the country. For starters, talks around the importance of EV financing have started getting increased focus, and new startups are entering this space to ensure a seamless adoption of EVs, especially for commercial use cases.
Meanwhile, the sector is also making noteworthy improvements in battery technology, faster charging, and solutions for B2B needs like last-mile delivery have been driving adoption — all thanks to the electrification happening at a mass scale.
As of now, with FAME-III yet to be announced and industry leaders already standing divided on the need for subsidies, it is vital to note that demand subsidies have played a crucial role in giving a boost to the country’s EV adoption journey.
To get better clarity into the current state of the Indian EV space on World EV Day, we spoke with Kunal Khattar, founding partner, AdvantEdge, a mobility-focussed early-stage VC firm. It has also backed EV startups, including Exponent Energy, Baaz Bikes, Park+, and Electrifi Mobility.
Not to mention, Khattar helped us decode the current challenges, complexities, and opportunities for the Indian EV industry. Notably, the industry leader believes that 100% EV adoption is inevitable because of the rising costs of internal combustion engine (ICE) vehicles and the deflationary nature of EVs.
However, while the 100% EV adoption dream currently feels far-fetched, where do we stand on the global pulpit? What kind of gaps need to be plugged in at the earliest? And most importantly, will subsidising users really help the Indian EV ecosystem in the long run? If not, then what will?
Here are the edited excerpts…
Inc42: As one of the top investors in the EV industry, how do you see the sector right now? Has some of the initial excitement died down? How are you assessing the current progress within the EV ecosystem?
Kunal Khattar: People have largely focussed on personal mobility, like Ather and Ola Electric, Tata Motors, MG, or BYDs. I think personal mobility (personal vehicles), or electrification of personal form factors, has always received more media attention because the readers are often potential customers. Now, with the FAME subsidy reducing dramatically, the numbers are fluctuating, and we are witnessing inconsistent growth.
As a fund, we have always believed that as EV adoption happens at a mass scale, the transition from ICE to EV will happen faster in B2B or commercial areas than personal mobility.
Our thesis is simple — let’s electrify the 10% commercial B2B vehicles, as it will save the largest portion of the $140-$150 Bn a year spent on importing crude oil.
To share an interesting data point, in India, we have about 380 Mn-400 Mn vehicles on the road. Of these, only 10% are commercial B2B form factors. However, they consume 70% of the country’s total energy. This category includes public transportation, vehicles used in logistics, last-mile deliveries, food delivery, quick commerce, trucks, and intercity buses, among others.
Unlike personal EVs where the payback period in comparison to the cost paid upfront is higher, EVs are 30%-40% cheaper for B2B commercial use cases from day one.
However, when I speak to the likes of Uber, Ola, Amazon or Flipkart, they say that they want to be 100% electric. But the issue is that there is no solid energy solution. The vehicles available are either low-speed food deliveries or too high-end. And then there is the challenge of high financing and insurance costs.
So, we are currently hearing about all of these missing pieces that are preventing an accelerated adoption of EVs for commercial B2B use. That’s the area we are broadly focussing on.
The good part is that the change in this direction is happening but this is not an aspect the mass is interested in.
Inc42: When you talk about these form factors that are missing, how do you think the existing players in the market – be it in battery or vehicle manufacturing — can play a role?
Kunal Khattar: Let’s break it down into three to four categories. If I start with three-wheelers, it’s largely a 100% B2B use case. Since it’s already 100% B2B, if you electrify it, it meets the needs of the end users. That’s why we’ve seen companies like Euler, Altigreen and Omega Seiki Mobility come up fast.
Now, the legacy guys are catching up. The Murugappa group is coming, Mahindra and Bajaj are entering this category. Hero MotoCorp is trying to enter the space by investing in Altigreen.
In the two-wheeler category, a majority of the funding and capital has gone towards consumer-focussed players like Ather and Ola Electric, and TVS. Very little capital has gone to companies that are solving for commercial use cases. Hence, a majority of the vehicles in the B2B space are typically Completely Knocked Down (CKD) kits coming from China and being assembled here in India.
In fact, many players solving for logistics did this as they wanted the cheapest options available but these vehicles fail to function well as per Indian conditions, including roads, infrastructure, and temperature, etc.
That’s where the likes of Yulu and Baaz have become the leaders in building local two-wheelers for last-mile delivery and logistics. However, these vehicles in commercial use cases require swapping or rapid charging solutions.
Now, the battery-swapping technology that Sun Mobility or Baaz are providing is solving this problem to an extent.
Meanwhile, Exponent Energy’s 15-minute charging is a game changer for three-wheeler cargos.
Coming to ebuses, the rapid adoption of EVs has mostly been at airports. For bus companies, like ZingBus or FreshBus, that need to ply their vehicles 600-800 km a day for intercity travel, it isn’t feasible if the buses take six hours to charge after every 300 km. This is where Exponent has now come up with 15-minute charging for ebuses.
In the electric car category, while players like BluSmart and Everest have emerged, the problem is they use EVs made by traditional OEMs like Tata Motors, which are made for consumer use cases, or are retrofitting traditional ICE vehicles to electric. So, we need players who would build EVs only for BluSmart or Everest.
The biggest gap right now is in heavy-duty commercial EVs for long distances. There is a need for strong energy distribution facilities on national highways, which will first be set up to cater to the needs of buses. Once they are set up, you’ll start seeing etrucks joining the fray.
Inc42: Does charging infra continue to be a major challenge? How do you think India is doing in terms of charging infrastructure and government policies?
Kunal Khattar: In many Western countries, 70-80% of EV charging is done at home or at work. The challenge with India is that our cities were not planned keeping EVs in mind, and garages at Indian homes are not a common sight.
Therefore, our dependence on public charging increases. Also, we don’t see a lot of charging options at work because real estate is too expensive.
A way to crack this is to increase battery swapping infra, which takes less space. This is also the reason why is why swapping is becoming increasingly popular among smaller form factors like two-wheelers and three-wheelers.
The real breakthrough will happen when an Indian Oil petrol pump has 10 electric charging points, along with diesel, petrol and CNG filling pumps.
But I see this happening 20 years from now.
As far as the Indian government’s stand on EVs is concerned, it has been very supportive in trying to accelerate the adoption. However, in FAME-I and FAME-II, we’ve roughly seen INR 10,000-12,000 Cr of subsidy given by the government to the overall EV sector, which is around $1.5 Bn.
For comparison, China has invested $230 Bn in its EV sector to date. I understand that we have a limited budget, but we also aspire to become world leaders in EVs.
Also, we would like to see more subsidies for manufacturing, which is why PLI is the true game changer over FAME which subsidises end consumers.
We would like to see the taxpayers’ money going into prioritising the infrastructure before end customers. If you build a robust charging network, infrastructure, build your own battery and cell technology, and set up a manufacturing plant that can manufacture at scale, the cost of EVs will automatically fall.
Therefore, I feel that the country needs to prioritise better, and we need a lot more support.
Inc42: Do you believe subsidies to end consumers via FAME are not needed anymore, especially since transport minister Nitin Gadkari recently said EV makers no longer need subsidies?
Kunal Khattar: While subsidies at the product level are fine, I believe we need capital inflow to make the manufacturing of EVs more competitive rather than continuously subsidising end users.
This means I would like to see the charging infrastructure becoming more competitive, so the government should focus on that and bring down the cost of the hardware required for charging.
It should encourage people to set up cell manufacturing plants through PLI, attract more global OEMs, encourage joint ventures, and support large-scale manufacturing funds for critical components like motors and controllers. Subsidies for land and energy will also help.
I think investing in infrastructure or B2B players will have more benefits in the long run.
Inc42: Are you planning to invest in any EV component makers or ESDM players building solutions, particularly for electric mobility?
Kunal Khattar: EVs require 70%-80% fewer parts than any internal combustion engine. Its four major components are the battery, battery management system (BMS), motor, and controller. The rest of the vehicle, comprising wheels, shock absorbers, and doors, is similar to ICE vehicles. So, the traditional suppliers will continue to be relevant even for EVs.
Hence, we are interested in component manufacturing, but the number of products that we need to build is very few. Unless somebody has a proprietary technology that’s mind-blowing, we will not invest. For instance, Exponent has impressed us with its innovative tech.
We met almost all startups out there building different components. We are keeping an eye on them for possible investment opportunities.
Further, semiconductors for electric mobility hasn’t been our main focus area. However, we are more interested in exploring how AI is going to impact electrification.
I think chips, autonomous driving, cell technology, battery warranty, alternate cell chemistries, expanding usage-based insurance, and usage-based finance have the potential to support the AI play in EVs.
We keep talking about AI as our smartphones on wheels. So, if AI in smartphones can make smartphones 10x more efficient, we are trying to understand how the technology will make an EV more efficient.
In addition to this, we are looking at autonomous vehicles, not necessarily EVs. Also, autonomous tractors make for a very interesting use case. We’re actually in the process of investing in an e-tractor company. Autonomous tractors are also on our radar, but maybe two to three years from now.
