With EV Sales Slowing, Can Startups Spark A Funding Comeback?

Private funding in the Indian startup ecosystem zoomed past $12 Bn across 993 deals in 2024, clocking a 20% surge over the previous year. Electric vehicle startups, however, failed to ride the rebound and funding decelerated nearly 31% to $624 Mn across 43 deals, according to Inc42’s ‘India’s Electric Vehicle Startup Report 2025’.

This was the second straight year when investors refrained from making heavy bets on EVs. Funding in EV startups had surged nearly 255% in 2021 before it scaled an all-time high of $1.08 Bn from 60 deals in 2022. A year on, investments began losing momentum and dipped to $901 Mn raised from 44 deals.

The EV startups, without fleet aggregators, mopped up over $3.7 Bn across 236 deals between 2014 and 2024. While late-stage startups raised $1.08 Bn from over 19 deals, their growth-stage peers charmed the investors to pump in $2.21 Bn through 89 deals in the last 10 years.

The year gone by saw Ather Energy become the second EV unicorn in India after it raised $71 Mn from existing investor National Investment and Infrastructure Fund (NIIF) at a post-money valuation of $1.3 Bn in August. A month before that, the IPO-bound startup had raised a debt of $7 Mn from InnoVen Capital.

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Ola Electric’s $50 Mn and Euler Motors’ $24 Mn funding came from venture debt rounds. The trend of raising debt seems to have spilled over to 2025 as well, with Euler Motor raising a $20 Mn debt from responsAbility in January.

Lighthouse Canton, a global investment institution offering wealth and asset management services, writes in its ‘Venture Debt Report’ that about 67% of EV startups rely on venture debt for more than half of their funding needs. “The electric vehicle sector, which is capital-intensive and faces unique challenges, has become heavily reliant on venture debt to drive its growth,” it says.

The VC highlights the central role played by venture debt in helping EV companies expand production, set up charging infrastructure, and invest in battery technologies that are crucial for expansion. “With traditional lenders like banks often viewing the EV sector as high-risk, venture debt makes for a vital alternative,” it says in a statement.

What’s Slowing Down The Funds Flow?

The downturn in EV-bound funding also saw a significant drop in the average ticket size. In 2024, the average slipped 39% to $14.5 Mn from $23.7 Mn a year back. There is also a noticeable loss of interest in homegrown EVs among end-consumers, also resulted in a decline in sales earlier in the year.

While the overall sales number picked up in the latter half of the year, the trends were headed on a downward trajectory during the first half of the year. This was also highlighted by Commerce Minister Piyush Goyal when he expressed “pain” on seeing the decline in EV sales in the April-June quarter last year.

A cautious investment climate, fostered by stricter regulatory scrutiny of EVs, lack of clarity over incentivisation, and profitability concerns of startups in the EV space, too dampened the investor interest in this segment.

Venture capitalist firm 3one4Capital was the most active EV investor in the Indian startup ecosystem in 2024, backing five startups, including The ePlane Company and Exponent Energy.

Despite a slowdown in funding, Sonal Saldanha, who is the vice president for investments at 3one4Capital, stays upbeat on innovation. “The view is that because of dropping costs in clean technologies, a more abundant energy future for India is really viable, but this does take an initial investment to propagate more broadly. We continue to see new attempts to build EV adoption-related ventures and are long-term bullish about the outcomes in this space,” he says.

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While interacting with Inc42, he recounts the challenges waiting to be resolved. “Fast charging is a limitation, financing needs to be innovated to improve TCO and get a better handle on depreciation, the supply chain has overseas dependencies, and so on.”

What Drives The Investor Interest In EV Space?

As part of its EV30@30 initiative, the government has set a target of 30% of private car sales, 70% of commercial vehicle sales, 40% of bus sales, and 80% of two-wheeler and three-wheeler sales to be electric by 2030.

Even though the EV sales staggered, penetration in the two-wheeler and three-wheeler segments stood at 40% across India. The Inc42 EV Startup report estimates that this will accelerate the EV market from $54.4 Bn in 2025 by 2.4 times to $132.2 Bn by 2030 and create 5 Cr jobs. Around the same time, India is likely to emerge as the third-largest automobile market in the world.

This rate of penetration has paved the way for EV makers and original equipment manufacturers (OEMs) to corner the majority of investments to date. The only two unicorns in the electric vehicle space are two-wheeler manufacturers Ather and Ola Electric. The unicorns have together raised over $1.8 Bn to date.

Both the OEM unicorns, however, ducked the general slowdown in funding last year. After raising over $1.3 Bn in private funding from investors like Tiger Global, Z47 (erstwhile Matrix Partners) and Softbank, Ola Electric went public in August 2024 with up to INR 5,500 Cr of fresh shares up for grabs and an offer-for-sale (OFS) of up to 8.49 Cr shares pegged at INR 645.6 Cr.

Its closest E2W startup competitor and the second most funded EV startup, Ather Energy, is also heading for a public listing. Its draft IPO papers filed last September says Ather plans to spend INR 750 Cr, or 25% of the fresh issue portion of the INR 3,100 Cr IPO, on research and development (R&D). According to market observers, Ather is eyeing a valuation of $2.4 Bn for its public issue. Hyderabad-based Pure EV too has queued up for listing in 2025.

There are only a handful of startups that manufacture two-wheeler EVs. Besides traditional ICE (internal combustion engine) vehicles, legacy players like Bajaj, TVS and Honda, too, step up the competition. Speculation over sustenance on this simmering turf leaves investors double-guessing their bets on EV makers.

“The proliferation of EV startups in India has created a crowded market, making it challenging for new entrants to differentiate themselves and attract investments. High production costs, supply chain disruptions, and intense competition have led investors to exercise caution as profitability looks like a distant future,” Brijesh Damodaran, cofounder and chief investment officer at Auxano Capital, says.

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How Does The Money Flow To EV Supply Chains?

Electric vehicles itself is a subset of the overall EV pie. The entire EV value chain, which stretches from electric motors, battery packs and cell chemistries to recycling, financing, resale, OEMs, charging and consumer experience, is still at a nascent stage in India.

Saldhana of 3one4Capital predicts a rebound in investments in these segments. Battery tech, charging infrastructure, fleet and mobility and battery as a service (BaaS) are among the key sub-segments that investors can potentially target moving forward.

Indian OEM startups have amassed $2.7 Bn in funding over the past decade, playing a pivotal role as front-end players, delivering vehicles to the market and driving EV adoption. Government support for OEMs has been instrumental in building the EV ecosystem, enhancing the vehicle cost-competitiveness and improving performance.

EV charging stations, despite being a key enabler of electrification on Indian roads, could secure only about $68 Mn in funding since 2014. Yet, that couldn’t dampen the hopes of Vishesh Rajaram about potential investment in this segment.

“India’s EV transition isn’t just about vehicles – it’s about the infrastructure that enables mass adoption. Charging networks present one of the most exciting investment opportunities in energy and mobility today. To scale effectively, we need a strategic mix of public-private partnerships, innovative financing models, and policy support,” says the managing partner at Speciale Invests.

Batteries constitute a major chunk of the overall investments that an OEM makes in getting their vehicles on the road. Yet the subsector has also been a laggard in terms of funding. Battery tech startups have raised a measly $37 Mn since 2014.

The battery startups drive advancements in performance and lifecycle, playing a critical role in evolving the EV ecosystem. Solid-state batteries, in particular, have grown significantly due to ongoing innovations. Auxano’s Damodaran says that companies innovating in solid-state batteries, fast-charging solutions, and sustainable materials are attracting substantial interest.

How’s The Road Ahead For EV-Bound Funds?

Indian EV startups have raised more than $3.7 Bn since 2014. The two unicorns in the sector are valued together in excess of $7.3 Bn and have a share of more than $1.8 Bn in this funding pie, while four soonicorns, worth around $1.4 Bn, have a $438 Mn stake in it, according to Inc42 analysis.

The slowdown in funding since 2023 has not been India-centric. A cautious investment climate, triggered by geopolitical and macroeconomic issues, has made it a global phenomenon setting cleantech funding on a downhill drive even in the West.

In India, where the EV space was rattled by the FAME-II fiasco in 2023 and a subsequent cutback in subsidies until the Centre unveiled the INR 10,900 Cr PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme last year to drive the businesses back on track.

The Union Budget this year announced a National Manufacturing Mission for MSMEs and large enterprises that will firm up the nation’s manufacturing capabilities in the cleantech space, in particular solar cells and the EV ecosystem.

The bumpy ride, however, doesn’t seem to be over for EV startups, especially when investors are giving little heft to the battery-swapping segment and avoiding manufacturing due to its capital-intensive nature.

Speaking with Inc42 late last year, Arpit Agarwal, the partner at Blume Ventures, gave a glimpse into the VC’s thesis. He said that Indian OEMs have become larger and more mature today, therefore they make little sense for early-stage investors. He also observed that there was no trend emerging in the battery-swapping segment that could lure the VC into investing.

Giving his rationale behind why EV funding slipped last year, Siddarth Pai, founding partner at 3one4 Capital, said many companies are reworking their pricing to factor in stronger unit economics. Besides, they have reduced their cash burns and relying more on debt. As a result, there are fewer but larger rounds happening in this space.

Come as it may, Pai is upbeat about the Ather IPO, which is slated to open this year, While he sees it as a bellwether moment for the Indian EV space, the blazing question is — Will EV funding continue to decline this year too?

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