As an analyst covering the EV sector for one and a half years, I have witnessed the shift from investors questioning the VC as a source of funding the industry to discussing the scope of sub sectors that can be looked at for funding. This massive shift in perspective facilitated by the first wave of VC investing led by some of the bravest funds in the space included investments in fundamental players of the ecosystem i.e OEM’s, Charging and Swapping, EV Financing, Shared Mobility (EV Fleets) and lesser extent in battery assembly — which played a crucial role in the initial adoption wave of EV’s witnessed since 2020. As the industry moves towards achieving critical mass of adoption setting the pace of an accelerated growth, investment in some key areas of the sector becomes crucial. These key areas bring in innovation, efficiency and execution addressing the safety, cost and range issues of EV’s, helping them go mainstream.
1. Circular economy — As the no. of EV’s increase on the roads and move towards end of life, there will be a need for right disposal infrastructure. While some of the existing infrastructure of ICE vehicle scrapping can be used i.e vehicle crushing, spare parts separation, electronics recycling — the facilities to recycle/ dispose the most valuable part of EV’s — the batteries — is lacking. Similar to other non-renewable materials/ metal recycling, the metals used in cells (depends on chemistry) like lithium, nickel, cobalt and magnesium can be recovered to be reused for new cell production. Most of the European Nations, where EV adoption is higher, have policy’s in place making it mandatory to use a percentage of recycled metals to produce new cells. The logistics involved in aggregating the batteries, infrastructure and machinery required for recycling and R&D required to increase recoverability of metals form the black mass (obtained from crushing e-waste/ cells) are all areas which will have multiple new businesses crop up.
2. Powered by Hydrogen — Although at pre-commercialisation stage at present, hydrogen powered vehicles are a strong contender in the long haul road transportation. Batteries — in their current form — are less suitable for long haul trucking due to long charging requirement and negative effect on the speed and payload of the vehicle compared to ICE effecting the TCO’s to the operators. The industry at large in concentrating on developing hydrogen powered vehicles — both fuel cells and engines — to address the issues of long haul trucking. Apart from commercialization of fuel cells technology and hydrogen powered engines, innovations in green hydrogen production, storage and transport of infrastructure are all once in a generation business opportunities.
3. Components — The cliched sentence of EV ecosystem — the battery forms 40 to 50% of the entire vehicles BOM, hence the imperative to consistently improve and innovate it. But in recent times, the concentration has expanded to improvements in rest of components that form the 60% of vehicle. Similar to the ICE industry, we are seeing early offshoots of a robust supplier ecosystem for other EV components — specifically built to handle and consistently learn from the usage behaviour (smart components) of the riders. The components of power train — include motor, motor controller, ADAS system, BMS, wiring and harness — are all undergoing innovation from first principle basis resulting in products that are resilient, smarter, up gradable to suite the use case and sometimes built form alternative materials resulting in indigenization of supply chain.
4. Tech (Analytics) — Even after being dubbed as the software on wheels, the efficiencies and improvements enabled by technology in the EV space is underestimated by many. The opportunity through sheer amount of data collected, processed (on and off premise), automated to consistently improve performance on the go and providing analytics to different stakeholders in the ecosystem for different use cases is big and highly valuable.
5. New battery packaging and cell chemistry — Highly debated on whether this segment qualifies as even private investment as it would require both international, national government coordination to establish supply chains for cell production and achieve parity with import product quality and pricing. But opportunity does lie in solving for usage of locally available metals and rare earth materials for cell production to make supply chain resilient. Opportunity also lies in better battery pack design addressing the safety concerns and robust supply chain for battery assembly.
6. Residual value estimation — Although could be part of the circular economy, the requirement for independent players to underwrite the residual value of EV batteries, value add to be deployed for second life usage and ultimate pass over for recycling and the arbitrage involved in the entire process and use of technology for constant monitoring with interesting business model is another near-term space where one can expect funding activity.
We at Capital A are constantly looking for increasing our knowledge in these areas. If you are an operator, founder, investor or enthusiast in the EV space — we would love to chat. Please reach out to snehitha@capital-a.in, sarath@capital-a.in.
