The buzz is EVerywhere!

Electric mobility will power a valuable new ecosystem.?        

These are electrifying times for the clean mobility space in India. It’s not about possibilities anymore, but powering ahead. As NASSCOM observes: “The Electric Vehicle industry revolution is a story of disruption. It is not just a change that is powering the wheels; it is the potential that is resetting the entire automobile industry.” The report adds that though Electric Vehicles (EVs) entered the market in 2022, 2023 will be the “momentous year” for the sector.

All charged up

Why such a positive buzz around EV right now? Data intelligence platform Tracxn states that EV startups in India recorded the highest funding in a decade in 2022. In its EV India March 2023 report, the company notes:

• The Indian EV space is the third-largest in terms of the number of companies, next to the US and China.
• In terms of funding, the Indian EV space is the fourth-highest after the US, China, and Sweden.
• EV startups in India raised a total of $1.66 billion in 2022, a jump of 117% from 2021.
• The sector recorded four $100 million+ investment rounds in 2022, compared to two in 2021.
• Late-stage funding in the sector rose 124% to $1.02 billion in 2022.

Post COVID-19, the EV market witnessed considerable traction, especially in the two- and three-wheeler segments.

• Growth and conversion from Internal Combustion Engine (ICE) vehicles to EVs tripled in 2022. (Autocar Professional/ Vahan)
• Annual sales of EV two-wheelers crossed 6 lakh units. (Autocar Professional/ Vahan)

• EV two-wheelers currently make up about 4-5% of the market, and are projected to cross 10% by FY2025-26 and 30% by FY2030-31. (JP Morgan: Indian Auto rEVolution monitor)
• Legacy and pure play electric players have entered this segment to ride the EV wave. Ola, Okinawa and Hero are currently the market leaders of this segment, which has over 30 Original Equipment Manufacturers (OEMs). (Autocar Professional/ Retail Sales)

The EV OEM market is estimated to be worth $31.6B by 2030 in just three categories – EV scooters, three-wheelers, and cars. The India Economic Survey predicts that India's domestic EV market will see a 49% CAGR between 2022 and 2030, with 10 million annual sales by 2030. Plus, the sector is projected to create around 50 million direct and indirect jobs by 2030.

What next?

In the medium to long term, the EV market is expected to move towards a smartphone model where the top 4-5 OEMs will own exclusive distribution channels alongside smaller players taking a multi-brand distribution approach. Government regulations and decreasing subsidies are expected to drive out pure importers and smaller OEMs.

Standardization has already started to take shape in the form of charging connectors for passenger vehicles. Scooter segments are likely to follow the same route with connectors and communication protocols being standardized, while battery size and weight are being left to the OEMs to support innovation.

On the infrastructure side, strategic tie-ups and JVs between OEMs and supporting companies will enable technology transfer and innovation. Battery swapping is probably the way forward for commercial vehicles, and for closed user groups, whereas for personal usage, increasing vehicle range is expected to minimise the need for additional charging infrastructure.

On the government agenda

The significant strides and subsequent successes achieved by the EV sector in India can be directly attributed to the government’s push towards Net Zero ‘Panchamrit’ by 2070. The Indian government has targeted 30% EV penetration by 2030 through the EV30@30 campaign, and is focusing on cleantech’s potential to catalyse climate action, and forge international partnerships around technological innovation, while advancing the COP27 agenda. ?

1.????Incentives: The Faster Adoption and Manufacturing of Electric Vehicles or the FAME II subsidy is provided on the condition that at least 50% of the EV components are locally made. While this is set to expire on?March 31, 2024, industry analysts believe it will be extended with a possible incentive reduction in a graded manner. The government has recently also indicated that EVs may be covered under Production Linked Incentives (PLIs), targeted towards Advanced Automotive Technologies (AAT) products to provide an incentive of up to 18% to encourage the EV industry to make fresh investments in the indigenous supply chain.

2.????Compliance and Safety Norms: OEMs have been instructed to get clearance from Automotive Research Association of India (ARAI) under the new AIS 0156 battery norms. The Ministry of Heavy Industries (MHI) recently also mandated automatic transfer of Domestic Value Addition (DVA) data directly to the PLI Auto Portal for monitoring.

3.????Regulations: Strict action will be taken against those taking undue advantage of benefits. In September-October 2022, ARAI audited a few industry players leading to the suspension of subsidies to two leading players for flouting localisation norms. Additionally, subsidies have not been released for most OEMs in the last 8-12 months, building a humongous backlog of over INR 11 billion, according to industry and media sources. The government has now roped in Ernst & Young for a financial audit of all companies that claimed subsidies under the scheme.

The power of opportunity: Stakeboat view

McKinsey predicts that India is likely to see more electric two- and three-wheeler penetration than four-wheelers and heavy vehicles. “The rise of electrification across vehicle segments could directly impact the bill of materials (BOM) of vehicles… Engines and associated powertrain components like fuel systems and exhaust systems will lead the transformation, and be replaced by battery, e-motor, e-axle/reducer and power electronics. Around 75% of the BOM in battery EVs consists of entirely new components,” the McKinsey report adds.

At Stakeboat Capital, that’s the aspect of the rEVolution we are watching very closely - the ecosystem in which several scalable, valuable and sustainable businesses will be built.

While on the one hand, vehicle manufacturers have seen unprecedented traction in electric mobility, there are also many attractive non-capex-oriented opportunities particularly from the EV support ecosystem.

Powertrain and Power Electronics products such as motors, especially Non-Permanent Magnet Motors, motor components, controllers, converters, onboard chargers, power distribution units and wiring harnesses are undergoing an array of innovations with emerging players like Altigreen Propulsion Labs, Entuple E-mobility, IPEC, Greenerg Mobility, Interface Microsystems, and Sedemac Mechatronics focusing on this segment.

Batteries and associated components are another interesting segment which will be a key focus area within the EV ecosystem, given the focus on reducing dependence on China. Components like battery packs, battery management systems, thermal management, connectors, and BaaS/swapping will be crucial to India’s emergence as a credible global EV hub.

In addition, re-purposing and recycling of batteries will become critical over the next couple of years, given the considerable amount of waste generated by the sector. Players like Grinntech, Napino, Lohum, Cygni Energy, Lithion Power, and VoltUp are trying to solve some complex problems in this area.

Finally, Connectivity and Control Systems is another interesting space witnessing high levels of innovation. Areas like software and solution providers, communication aggregation, telematics, infotainment, powertrain, chassis and body control will play a key role in providing differentiation to OEMs going forward. Zeliot, iTriangle, Holisol, Sensorise, and Loconav are a few key players emerging in this space.

At Stakeboat Capital, we believe that the mainstreaming of EVs will transform the mobility landscape. But the true opportunity lies in the vibrant ecosystem of businesses that will arise to support this transformation – providing different value-adds to consumers and manufacturers alike. These SMEs will contribute significantly to the expansion and growth of the EV space in India, creating an amplifier effect for the industry as a whole.

Our focus is on low investment, yet scalable businesses, such as components and battery technologies, and we are watching this nascent ecosystem extremely closely.