The Thesis
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The Thesis

Electric Vehicles in India: the evolution

image courtesy: https://bit.ly/30MtZ4x

Introduction

India sells ~20M 2w and ~4M 4w annually, of which, <1% sales are Electric Vehicles (EV). While familiar roadblocks like the “charging infra chicken and egg” and “range anxiety” remain as critical issues to solve before mass-adoption, the shift to EV is imminent sooner or later. Especially as technology improvements make the cost of owning and operating an EV more attractive compared to the IC engine and as more environmentally-friendly regulations emerge.

In this article, I will examine how this evolution will play out, and what markets and business models within the ecosystem might present themselves as attractive investment opportunities. I won’t go into details of sizing any market — and will leave that perhaps, to a later article about a specific slice of the EV market.

Potential Evolution of EV adoption

Before we crystal-ball gaze into the potential evolution of the industry, it is important to outline the key challenges currently faced in EV acceleration. These include (a) High upfront cost (b) TCO only feasible for heavy usage © lack of competent on-the-go charging options (d) fear of tech obsolescence.

A. ~40–50% of the cost of the EV is the battery, making the upfront cost of EV at least 20–30% higher than IC-vehicle; thus creating barrier for adoption by commercial drivers/ fleets

B. The TCO only becomes feasible at min 80–100Km driving per day

C. DC fast charging still takes ~20–30 mins for 80% charge — at least 2–3X more time than petrol/diesel refill. In addition, regular fast charging might have an adverse impact on battery’s integrity and life. This means home-charging is the advisable mode of charging (~80% of EV charging in USA happens at home), creating a barrier due to lack of charging infra at home/ fleet parking spots.

D. As battery technology is ever-evolving customers are wary of buying EV automobiles which might get outdated very soon.

To borrow Pip Coburn’s formula for adoption of new technologies, EV adoption won’t pick up until

Pain of adoption (charging infra, waiting time for on-the-go charging, upfront cost, …) >> Crisis it is solving (significant savings, much lower maintenance hassle, …)

To give you an example, EV 3w rickshaws saw a huge surge in adoption in Delhi, because

Pain (battery swapping by hand, upfront cost) >> Crisis (need to stand in queue for hours to refill fuel, constant PUC checks)

However, a few use-cases might be amenable to EV in the near future despite these challenges. The use-cases and predicted series of mass-adoption is as follows. The numbers (I, II, III, ..) indicate the order of mass-adoption.

Phases of EV evolution in India

2w Commercial:

  • This need not be an overengineered product (need to solve for basic features and performance). But what is non negotiable is a high-quality and durable battery. Experts say that most affordable options available today break-down/ deteriorate significantly in 6 months worth of riding.
  • Need to at least provide min 100 Km (a full-day’s driving) in a single charge
  • Upfront costs, while declining, are still higher than IC-engine scooters, and will need wide-range of creative financing options or need to be company-financed and leased for mass adoption.
  • Easy access to charge-points will be critical. Will likely be provided by fleet-operators in parking spots initially. A manual swapping model might also work here, if assisted by the scooter’s form factor.
  • Since most available options are either poor quality or overengineered and at much premium pricing (Ather, Okinawa, Tork) there is a rare window of opportunity for a new OEM to build an India-specific durable economy EV scooter. Companies like Ola Electric, or even Bounce might be well positioned to take on this opportunity.

2w Personal:

  • Several challenges to widespread adoption currently, the largest one being economics. The 5-year TCO comes out to be 25% higher than IC engine at 30–40Km per day usage
  • Also, access to home-charging opportunities is a critical gap. Companies like Kirana Charzer and StatiQ are trying to plug this gap by creating a charging ecosystem, but this is unlikely to flourish given the high chare times (min 2 hours to 80% charge).

3w Commercial (eRickshaws):

  • eRickshaws have seen tremendous uptake in Delhi, driven by lower adoption barriers (ample space to keep battery, form-factor being amenable for easy battery swapping, predictable routes) and a key relief for auto-drivers (long queues to refill CNG)
  • Most of the eRickshaws are assembled locally from imported/local parts, and I do not see the industry consolidating for a large OEM play.
  • Adoption highly dependent on regulatory incentives and push at state level. Encouraging movements in Bengaluru as well

4w Commercial & Personal:

  • Given the adverse effects of prolonged fast-charging on long-term battery integrity; slow-charging (5+ hrs) will be the norm. Hence access to a charging point at their place of parking will be a critical factor for mass-adoption. Assuming this is true for <20% of the car-buyers, this severely restricts the market.
  • For commercial fleets, this issue could be partially resolved by fleet-owners installing charging points near parking spaces. However, a wide majority of these fleets park on the street.
  • In addition, the high upfront price point (MG and Hyundai both at Rs24L+ on-road) and the risk of tech-obsolescence would dissuade many buyers from purchasing at this time.
  • Adoption here will be slow, and will largely be driven by the OEM giants (Tesla, Hyundai, MG, Nissan) who have shown significant interest in the India market.

Trucks/ Buses/ heavy vehicles:

  • Various aspects favour EV operations for Buses & Trucks. (a) Ample space for a liquid cooled battery, (b) predictable routes helping with range anxiety and © heavy usage which improves TCO massively
  • Many Chinese players (BYD, SKYWELL) are attempting to enter the Indian market, but regulations and government interventions are keeping them at bay for some time. We should expect a 2–3 years headstart to build a strong OEM product, after which the government might not be able to protect the sector.

Battery Charging vs Swapping

Before we go any further, let’s address the trillion (?) dollar question that everyone has been asking: Swapping or Charging?

This table summarizes the key variables at play across the two battery replenishment methods.

Evaluating Charging & Swapping

Charging definitely seems like the more favourable play in the long run, with swapping only viable in few high-density use-cases and limited circles. While NIO in China is a successful example of offering BaaS, swapping is still only one of the FOUR ways of replenishing battery charge: A. Fast charger B. Slow charger C. Swapping D. Mobile Charger

In India, for 4w to take-off in a big way will need (a) lower battery costs (b) fast charger technology that maintains integrity of car or © massive upfront investments in battery swapping-stations.

I foresee a combination of (a) and (b) playing out with a minimum 2-year horizon for mass-adoption to begin.

Now let’s look at elements of the EV ecosystem to see if any interesting opportunities emerge.

Value Chain elements of EV ecosystem and potential investment opportunities

Let us look at the key EV Value Chain elements and our thesis on where VC funding opportunities might lie.

India EV value chain and opportunities

Key players in the India EV ecosystem

The below chart outlines the top players in the India ecosystem.

Indian EV ecosystem players

A note on the future

While we have discussed the potential EV evolution, it’s critical to see if any disruptive forces in the future of mobility impact our thesis significantly. Currently, majority of the visible trends in the future of mobility are favourable towards EVs:

  • Ownership vs Shared Mobility: While COVID might have temporarily skewed it, there is a trend towards higher reliance on shared mobility options compared to owning an automobile. Ceteris Paribus, this will accelerate the push to EV, as TCO works out very well for fleet use-cases where usage is high.
  • “Smart” vehicles: While we are far away from seeing self-driving cars on our main roads in India, assisted driving might be a strong force in the near future. EVs with their connected internal controls lend themselves well to such smart-features, and both should complement each other.

While currently there aren’t any “clear bets” in the Indian EV ecosystem, this space is too big to be written off, and I will constantly be tracking it.

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