EV race: The battle for dominance looks set to intensify as start-ups sniff new territory

New entrants in the automobile space are keen to pull off a repeat of their two-wheeler success in four-wheelers

India’s EV market is going through a churn. Even as a silent battle rages on between manufacturers behind the scenes in the two-wheeler segment, the four-wheeler segment is showing signs of heating up. Despite the low share of EV sales as compared to conventional vehicles, doubts around the technology are rapidly evaporating.

And the new kids on the block have taken note. After successfully shaking up the two-wheeler market and catching established brands by surprise, new entrants in the automobile space are keen to pull off a repeat in four-wheelers. In August last year, two mobility start-ups announced within a week of each other that they plan to manufacture and on-road their debut electric car models within the next couple of years. 

The $5 billion privately held Ola Electric—seemingly unaffected by a delayed launch of its first electric scooter and dogged by reports of these scooters spontaneously catching fire—announced that its first electric car would hit Indian roads in 2024. 

Exactly a week later, Ahmedabad-based Gensol Engineering, a recently listed company that primarily provides engineering and construction services to solar power plant owners and electric vehicle leasing services, announced it would create a new vertical that would manufacture electric vehicles at Chakan, India’s auto manufacturing Mecca located just outside Pune. The Gensol group has other unlisted businesses, including the Delhi-NCR electric cab-hailing start-up Blu Smart, but chose to enter the fairly fraught business of car manufacturing through its single listed subsidiary. On the BSE, Gensol Engineering’s share price has risen steadily since the start of 2022. Following the announcement of the EV manufacturing, company shares briefly spiked almost 1800% from the price at the start of 2022 before coming back down. Currently, Gensol Engineering shares are priced at around ₹890, about 800% higher than a year ago. 

Playing with the big boys 

When it comes to the manufacturing of electric vehicles (EVs) in India, the story so far is a mix between the brazen confidence of recent upstarts and a prolonged reluctance to engage from established original equipment manufacturers (OEMs) with decades of engineering experience behind them. India’s transport minister Nitin Gadkari made note of this, too, in a recent interaction with the media. “I had the founder of India’s largest two-wheeler company admitting that they didn’t take my prophecy seriously three years ago and made the mistake to assume that EVs won’t work in India, due to multiple challenges,” recalled Gadkari.

The reluctance on the part of established manufacturers, whether due to disbelief in the technology or the enormous institutional heft that hindered the nimbleness required for a swift pivot, opened wide a window of opportunity for new entrants in the two-wheeler automotive space. And start-ups have not looked back since.

A report by global consultancy firm Arthur D Little found that India has 592 start-ups in the EV industry, as of March 2022, spread across battery manufacturing, charging infrastructure, and battery recycling. But the big guns, like Ola Electric, Okinawa Autotech, Ather Energy and Tork Motors, are choosing to go down the manufacturing route, hoping to displace incumbents such as Bajaj Auto, TVS Motor, Tata Motors, Maruti Suzuki, and Hyundai in a future where everything will be electric. 

“The advantage that start-ups have over legacy OEMs now is the backing of private investors and venture capital firms willing to risk big on untested technology and new products,” Suraj Ghosh, director – Mobility, S&P Global, told CarbonCopy. “Legacy automakers who have been in the business for decades have to focus primarily on their traditional businesses (vehicles with internal combustion engines) since they need these profits to plough some back into R&D. Besides, racing to the market with new EV technology that is not thoroughly tested is a giant reputational risk they can’t afford.”  

This explains why companies like Okinawa, Ola Electric, Pure EV and Ather Energy can continue to announce new launches despite their electric scooters being in the news through 2022 for catching fire. In fact, the Ministry of Road Transport and Highways has said that the first three companies had to recall up to 6,700 defective scooters from the market last year.

“No business being in EV”

“I am amazed; I know of some people, they have no R&D, no engineering, no purchase function; nothing more than just a half assembly facility; they are importing stuff, which has not been validated for the marketplace, and are putting it out. That is perhaps why you see fires, mishaps and accidents.” 

Last June, Rajiv Bajaj, managing director of one of India’s largest two-wheeler manufacturers Bajaj Auto, made the above comments, throwing down the gauntlet to the new kids on the EV block. He was inaugurating the company’s maiden EV manufacturing factory at Akurdi, also outside Pune.

“Why are people who have no business being in the EV business trying to be in the EV business? It is partly because of the incentives,” Bajaj said. 

Bajaj’s charge might hold some merit. Under the central government’s first phase of the Faster Adoption and Manufacturing of Electric Vehicles scheme, the eligibility requirements and product specifications were so lax that there were not enough quality checks on who was manufacturing or selling what product, Ghosh of S&P said. 

“There were new players coming to the market every day and choosing vehicles from a catalogue of options they could import,” Ghosh said. “This is why there were so many fly-by-night operators selling e-rickshaws in India. On the one hand, the bulk of EVs on India’s roads today are e-rickshaws and they’ve driven the acceptance for electric mobility. But on the other hand, many of these brands are not reliable.”

Last year, the Indian government put a halt on FAME payouts to two-wheeler EV manufacturers, alleging that several manufacturers were misappropriating the subsidies for products that did not meet requisite conditions. In January, The Economic Times reported that the central government plans to recover some of these wrongly claimed subsidies by manufacturers who didn’t meet the quality and localisation requirements under FAME.

Gold rush 

The subsidies offered to the electric mobility industry are numerous and generous, distributed to both manufacturers and consumers. Data compiled in a July 2022 research report by Climate Trends-JMK Research found that in addition to the central government’s incentives under the FAME programme, 19 states in India have rolled out their EV policies in the last three to four years, and a few more are in draft stage. “They have stated targets for EV adoption in these policies with varying timelines, either as a percentage of new vehicle registrations (ranging from 10-30% by 2025), or absolute number of EVs to be added on roads (ranging from 2-10 lakh).  

Many states have also established clear targets for the procurement of EVs for government-owned vehicle fleets, either as cars for government officials or buses for public transport. Some states are offering OEMs reimbursement on state goods and services tax (GST), exemptions from road tax and registration charges, and capital interest subsidies ranging from 15% (Tamil Nadu) to 50% (Punjab) for setting up EV manufacturing units locally while Andhra Pradesh and Uttar Pradesh are pushing for the development of industrial parks that operate exclusively within electric mobility, manufacturing cars, battery management systems, etc. 

Motorists in the market for a new ride receive government-supported discounts at the showroom. In July, the GST on EVs was cut to 5%, the lowest indirect tax slab. The lowest GST rate for an ICE (internal combustion engine) vehicle starts at 28% and can go up to 50% for the luxury segment. 

How long these benefits will continue though is anyone’s guess. Gadkari, last month, opined that subsidies granted to the EV industry might not be needed before long. Although the statement was attached to the expectation of falling battery prices, the recent halt on FAME subsidy payouts to EV manufacturers might be giving us a teaser of what this future might look like. The halt has had an immediate impact on sales. With manufacturers forced to raise prices, demand for EV two-wheelers has slowed.

The short-term pain from this, however, might prove to be an equaliser as far as competition in the segment goes, giving legacy two-wheeler manufacturers much needed time to catch up.

EVs and a price-sensitive market

Despite the many advantages heaped on EVs at both central and state levels, the price gap between ICE and EVs is hard to bridge. The Honda Activa, one of the most popular motorcycle lines in India, has a starting price of ₹72,000; the electric Ola S1 comes at an introductory price of ₹99,999 while the Ather 450 Plus costs ₹1.17 lakh (all prices at ex-showroom in Delhi). 

The difference is even more stark when it comes to four-wheelers. The Nexon EV, from Tata Motors, is the most popular electric car in India. The basic manual transmission Nexon in its petrol variant costs ₹7,60,000, while the diesel variant costs ₹9,90,000. The Nexon EV costs close to ₹16 lakh. (All prices are ex-showroom in New Delhi.) 

These price differences influenced India’s largest car seller, Maruti Suzuki’s reticence so far about offering an electric product line for its faithful customers. Maruti knows its customer base unlike any other auto manufacturer and believes that an entry-level electric car needs to be priced at par with its ICE counterparts, in the ₹7 lakh-8 lakh segment, to mount a serious challenge to the dominance of cars burning fossil fuels. 

In this context, Gensol’s recent announcement to start manufacturing EVs gains significance. Anmol Jaggi, the group’s founder, said in a conversation with Carbon Copy that his EVs that will launch in 2024 will be priced in the ₹5-6 lakh segment. Maruti first delayed, and then shelved plans to launch the electric WagonR by 2020. It has now said it will launch its first EV only in 2025. By then, if the Gensol launch succeeds, it will have to fight to protect its turf in the entry level personal vehicle segment. 

Piecemeal policy push 

In her Union Budget speech earlier in February in Parliament, finance minister Nirmala Sitharaman dismantled the Custom duty on capital goods used to locally manufacture lithium-ion cells for EV batteries. She also announced a greater outlay for the FAME-II subsidy scheme (up from ₹2,898 crore to ₹5,172 crore) and a scrappage policy for ageing combustion vehicles.  

“While the focus on EV manufacturing and adoption is commendable, a larger green industrial policy strategy is missing as research and development investments to develop indigenous capabilities to climb the EV value chain are non-existent,” Dr. Easwaran Narassimhan, associate professor at the New Delhi-based public policy think tank Centre for Policy Research said.  

Tech on wheels

An electric vehicle is, in essence, a computer on wheels. Designing these vehicles and building them demands more of software and less of automotive engineering abilities. For instance, an ICE car’s drivetrain (the transmission, axles, driveshaft etc that interact with the engine and propel the car into motion) can have as many as 2000 moving parts, compared to its electric counterpart’s 20. 

For companies building purely electric vehicles, the need to perfect the software platform that supports their EVs is far more imperative. And this is far easier for a start-up to do without the legacy burdens of multiple existing ICE models that need to be retrofitted to turn electric. Some of the largest pure electric automakers globally, think Tesla or Rivian, have stolen a march over legacy ICE firms with precisely this advantage. 

Securing supply lines

The other, of course, is soothing the EV convert’s range anxiety. Luxury EVs in India, like the Mercedes EQS and the Kia6, are already offering ranges comfortably over 600 km on a single charge. The future EV market will belong to those who can bring these batteries to the mass market models. 

Again, this gets tricky for legacy auto makers of ICE vehicles who have traditionally outsourced battery making to third party suppliers. They are now scrambling to readjust to modern mobility where batteries will be a core competency.  

Automakers in India are trying to secure these supply lines in-house, mimicking how global powerhouses like Ford, General Motors and Volkswagen are shifting to build EV capabilities. This February, Ola Electric signed a memorandum of understanding with the Tamil Nadu government to build a 20 gigawatt battery manufacturing unit, ahead of its 2024 four-wheeler launch. 

A couple of years ago, the Japanese automaker Suzuki Motor Corp started producing lithium-ion batteries for electric cars in Gujarat in a joint venture with Denso Corp and Toshiba. Last year, Suzuki announced it would build a second battery plant adjacent to its auto manufacturing plant in Hansalpur, Gujarat. 

Competition for capital 

As it stands, who pulls ahead in the EV race depends a lot on how deep the coffers are. Indian EV start-ups raised $1.6 billion in 2023, a 117% rise over 2021, the market intelligence platform Tracxn reported. While this fund-raising drive is across the spectrum, from manufacturing to components and auto financing, OEMs are getting the biggest share of the pie. 

Softbank-backed Ola Electric raised $200 million last year from Tekne Private Ventures, Edelweiss, and Alpine Opportunity Fund in Series-C, valuing itself at $5 billion. Ampere Vehicles raised $220 million in a Series-B fund and Ather Energy raised $128 million in Series-E. 

The legacy players are looking to build their own partnerships too, although at a slower pace. In 2022, Tata Motors raised a billion dollars for its EV subsidiary from private equity financing by TPG Capital and the Abu Dhabi Development Holding Company. Recent news reports suggest it’s in the market for more PE infusion this year. Also last year, Mahindra and Mahindra and British International Investment agreed to jointly pool $500 million into the former’s new EV unit to launch its “born electric” line of sports utility vehicles. TVS Motors, India’s third largest two-wheeler company by sales, is in the market as well this year to raise up to $350 million for its electric mobility subsidiary. 

Hare and tortoise races

“How the EV industry is positioned in India at the moment, with delayed entry from legacy players and several missteps by start-ups, I think the future can belong to either,” Ghosh of S&P said. “The wait-and-watch phase by the legacy players is over; we’re seeing Bajaj, TVS starting manufacturing lines, the car OEMs are ramping up performance and safety testing, getting supply chains for batteries in place, and launching electric-ICE hybrids to make the transition easier for their customers.”

The overhaul for a legacy OEM is far more complex than a blank state at a start-up. For all we know, new EV manufacturers are probably praying that their older established competitors will keep selling petrol and diesel models. Government revenues from the sales of these vehicles cross-subsidise the tax breaks propping up private investments in EV technology. And nobody is willing to give these up just yet. 

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Tanya Thomas

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