Could the next Tesla be an Indian company?

In just over 5 years, Mamaearth, a direct-to-consumer sustainable personal care products company, went from a seed round to a public listing, earning a 10x+ return for venture investors. The company’s $230M of TTM revenue (growing at ~30% p.a.) is now quickly approaching the Honest Company’s $350M (~5% CAGR), a company founded 5 years earlier.

EV charging firm Exicom Tele-Systems, among the recent crop of over-subscribed public offerings, has rallied 230% from its IPO price in <6 months. Ather Energy, an electric two-wheeler manufacturer backed by Tiger Global, is among the top next anticipated listings.

All these point to green shoots for India’s climatetech sector, which has long been buoyed by demographic and market tailwinds but overlooked because of lagging performance for investors.

India has a fundamentally advantaged demographic position, which powers both a growing labor force and consuming class. People under 25 are 40% of India’s population, and a staggering 1 in 5 people globally who are under 25 live in India. On the other end of the pyramid, adults over 65 are only 7% of India’s population, and will not reach the share seen in the US or China until after 2050. This young population is also hungry: India’s consumer market is on pace to be the 3rd largest in the world by 2027.

Buoyed by a decade-long ambitious government program of digital identification and financial infrastructure, India has leapfrogged in the adoption of digital payments. While in 2016 96% of transactions in India were still conducted with banknotes, by 2023, the volume of digital transactions was equivalent to 1/3 of India’s GDP. Today, India accounts for 46% of global digital transactions.

Geopolitical shifts have also benefitted India, and sparked the expansion of its export and industrial base. From 2018 through 2022, US goods imports rose by 44% from India as companies looked to diversify critical supply chains. India is now the 2nd largest producer of mobile phones globally, producing 98% of domestic phone demand. Venture-backed companies like Zetwerk rode this megatrend, enabling global companies to access Indian suppliers and manufacturing capacity.

These factors all create a fertile environment for India’s climatetech sector. Mobility has been one of the most dynamic sectors, with several - including some homegrown - $10k ASP passenger EVs driving adoption. Considerable foreign investment is also coming into the sector, driven by global OEMs like VinFast and Hyundai. Solar panel manufacturer Waaree Renewables reached >$100M in topline from virtually zero in 2021, 10xed its market cap just this year, and is expanding its footprint beyond India.

Capital flows are following these opportunities: per Sightline Climate, $4B has been invested in climatetech at the venture stage since 2020 across 214 deals, largely in mobility and agtech. However, the “missing middle” challenge is even more pronounced in a market where late-stage private markets are still deepening, promising attractive investment opportunities for growth investors ahead.

As the industry moves to the next stage of the S-curve, winners are likely to emerge on the application layer (building on this wave of “infrastructure” of solar / EVs / digital payments). For example, as electric two-wheelers reach a tipping point of adoption and manufacturing scale, the industry will be able to support large companies across its value chain, e.g. T1s (Vecmocon), charging applications (Bolt), retail platforms (ElectricPe).

The path ahead will not be without challenges. India’s stark inequality means the consuming class is largely limited to 10% of the population (~30M households, per Blume Ventures), requiring companies to grow beyond India’s borders in order to get to substantial scale. Despite its deep technical talent pool, which has yielded many of the leaders of the largest technology companies in the world, India underinvests in innovation, with just 0.7% of GDP spent on R&D (vs 3.5% in the US). Generational companies persist through continuous innovation and invention, and for India to produce the next Tesla, SpaceX, or Enphase, there will need to be more company creation around fundamental “deeptech” innovations.

As a climate growth investor who spent the majority of her childhood in India I am deeply optimistic and hopeful about the companies that are being built today and will be built over the next decades. We cannot solve the climate challenge without India, and must not ignore the opportunity to create enormous economic and geopolitical value along the way.