The Future Of Electric Vehicles: A Big Bet For Investors & Startups

Mitesh Shah Sep 17, 2022

The future of mobility is centered around electrification as India is transitioning towards greener mobility technologies with the target to reduce carbon footprint by ~35 percent by 2030. There is a heavy dependence on fossil fuel for all mobility operations in India with transportation accounting for 95 percent of petrol consumption. The rising EV adoption is a step in the right direction.

The adoption of EVs has recently picked up pace in India, and 2W and 4W EVs are at the forefront of this adoption. Last year (FY21), registered EV sales were about 236,802 with 2W and 3W EVs dominating the market share (EY, 2022). In a country where 2-wheelers are the major transportation option for the larger population, the adoption of 2W EVs will help reduce pollution to a great extent. Apart from the carbon emission, relying on just fossil fuels has become, and will continue to be a monetary challenge as well. With both petrol and diesel prices skyrocketing, EVs do present a more viable and sustainable solution.

Both pollution and price are 2 major drivers of why both founders and investors are bullish on the future of EVs in India. There is a clearly defined increasing need for a solution like this in the market, and it is driven by constant tech innovation. And the VC industry has responded to the rising demand for EVs by fuelling a healthy funding momentum for the EV industry.

EV startups in their early stages rely heavily on funding to implement and execute their innovations. This is the reason why not only has the number of VC investments in the EV space grown but the round sizes have also seen a sharp rise. According to a study, the deal sizes have gone up from USD 4.8 Mil in 2016 to USD 18 Mil in 2021.

Following are the reasons why investors and startups are bullish on EVs in India –

1. Tapping into the opportunity at an early stage, at reasonable valuations

Investing in the current EV ecosystem in India will position both Startups and investors in those startups to gain an early mover advantage as the industry is at a very nascent stage right now. And as these startups grow and mature, they are poised to offer high returns to the investors

2. Large ecosystem with well-established players to integrate with

While some may feel that EV startups are competing with well-established Automotive companies in the country, they are in fact facilitating the transition for large players to transition into the EV ecosystem. Hence, players like Mahindra, Hero, Tata Motors, and so on are also investing heavily in the EV segment.

3. Expansion across value chains in the EV industry

Adoption of EVs will have to be coupled with infrastructural development, especially in a developing economy. Supply chain localisation, adequate charging infrastructure, and battery-led innovation will be key challenges in establishing the EV ecosystem in India.

Thus, the EV-related segments are also attracting a healthy amount of investor interest in the current times. Many charging infrastructure startups, and EV part manufacturing startups are being funded and will continue to be of interest to investors in the future. And as the adoption of EVs grows, startups related to batteries, part supply, and charging infrastructure are also bound to grow.

4. Fleet Models

A large factor in the adoption of EVs in India has been through the last-mile delivery fleets. And since EVs are positioned to solve existing challenges in last-mile delivery such as fuel efficiency and cost of service, the demand for EVs through this segment is large and well-established with multiple use cases. And the large demand for EVs is another reason for investors to bet big on EVs.

5. Backing sustainable and environmentally friendly innovation

While an important part of investing in startups is the possibility of generating high returns, unlike stocks and other asset classes startups also allow angel investors to be a part of innovations that impact the larger society. And EVs thus become a great investment opportunity for investors looking to create impact.

Though the last decade saw constantly increasing government support for the EV ecosystem in India, now private investors are taking on that role in extending support through investments and mentorship to relevant startups. The coming years hold ample opportunities for both startups and investors to create disruption in the mobility segment through innovative and green technology.