Charged up: PEs & VCs pump big money into electric vehicles

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Private equity firms and venture capitalists are betting big on the electric vehicle (EV) and allied sectors, on expected higher traction for alternative fuels and a demand upswing in the country.

Investment activity in the EV space jumped after Japan’s SoftBank Vision Fund said in 2019 that it would invest $265 million in Ola Electric, ride hailing company Ola’s EV arm that is setting up an EV manufacturing facility in Krishnagiri, Tamil Nadu.

PEs and VCs pumped in around $672 million between 2019 and 2021 in the EV sector, compared with the $200 million they invested in the preceding three years, data compiled by consultancy EY showed.

The increased funding came despite nationwide lockdowns due to the Covid-19 pandemic through much of last year, which significantly hurt investment sentiment and demand in the auto and ancillary segments. Industry experts said the EV ecosystem in India is at an inflection point and has emerged as an attractive investment proposition.

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“In the last 12-18 months, there has been heightened fundraising activity across the EV value chain, with participation across different investor classes including VC/PE and strategics,” said Randhir Kochhar, partner, investment banking advisory – automotive, EY India.

Startups in the EV space used to face constraints in raising capital earlier, but a spate of attractive incentives — including subsidies — by various state governments, lower battery prices and increasing cost of operating a conventional vehicle due to rising fossil fuel rates, have made investors bullish about the EV sector, especially its two- and three-wheeler segments.

“India’s mobility market is entering a transformational phase led by electric vehicles across both commercial and private ownership segments,” said Manoj Kohli, country head, India, SoftBank Group, adding that the Japanese conglomerate – the world’s largest technology investor — would continue to back the adoption of clean energy transportation and support portfolio companies.

Valuations of EV Startups Outside India

The valuations of a dozen EV startups outside India — including Israel’s REE, China’s Nio, US-based Lordstown Motors (based in Ohio) and Rivian (from Detroit) — have skyrocketed in the recent past.

Many investors are looking for such highly valued startups in India too, indicating that the EV industry is ready to take off, said Pawan Goenka, the former managing director of automotive leader Mahindra & Mahindra and now an advisor to a PE fund.

“The sector holds huge promise for growth as consumers show more willingness to buy an electric two-wheeler, leading to faster EV adoption,” said Anjali Rattan, promoter of Rattan India Enterprises, which has invested Rs 150 crore in electric motorcycle maker Revolt Intellicorp — founded by Micromax co-founder Rahul Sharma — for a 43% stake.

Hero Electric earlier this month raised Rs 220 crore as part of its Series B round, led by Gulf Islamic Investments and participation from existing investor OAKS.

The funds will be primarily used to expand its production capacity, invest in R&D and future technologies, and grow its footprint across India-like markets, said Naveen Munjal, managing director of Hero Electric. The investment is expected to push Hero to achieve its ambition of putting over 1 million EV two-wheelers on the road over the next few years. The company is looking to invest more than ₹700 crore, Munjal said.

According to industry estimates, nearly 10% of the overall two-wheeler market is likely to turn electric by 2025, which works out to 2 million units annually from the current levels of 150,000 units.

Mumbai-based EV solutions provider Magenta, which is planning to set up 4,000 charging stations by March next year, recently closed its Series A funding round of Rs 120 crore from American philanthropist Kiran Patel. The government has chalked out a plan to set up 400,000 charging stations for two million EVs by 2026.

Euler Motors, an automotive technology company focused on electric commercial vehicles, recently closed its $9.5 million Series A funding round, raising $2.6 million from new investor ADB Ventures, the investing arm of Asian Development Bank, the multilateral lender’s first investment in an EV company. Existing investors Inventus Capital and Jetty Ventures also infused $4 million.

With this, Euler has raised a total of $11.6 million since 2018. Euler will use the funds for upcoming launches and expanding into the three-wheeler cargo vehicle segment. “ADB Ventures’ investment in Euler Motors signals a growing market readiness for EV in India. This also reaffirms our belief that indigenous innovation from India will fast forward the market transition to electric mobility both in India and across the world,” said Saurav Kumar, founder and CEO of Euler Motors, whose other investors include Blume Ventures and B2B ecommerce startup Udaan.

Recently, many states including Gujarat and Tamil Nadu, announced incentives for the sector to accelerate the mass adoption of EVs in the country. This has led to a number of electric two-wheeler companies saying they would launch bikes and scooters in the sub-Rs 70,000 price point.

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