The automotive industry is amongst the fastest growing industries globally and because of its forward and backward linkages with other industries, it has a strong multiplier effect and drives economic growth.
By 2030, global energy consumption is likely to rise by around 53% and the transportation sector, particularly, road transport, would account for most of it.
Even for emerging economies like India, rapid economic development is accelerating the demand for transportation, and it is expected to become the world's third-largest energy consumer by 2030.
Further, the vehicle ownership per 1,000 population has increased from 53 in 2001 to 197 in 2017 and the annual demand for various vehicles in India has risen to around 47 million units.
This increase in vehicular population has rocketed the demand for fossil fuels, their prices and created an undesirable impact on the environment. These concerns are driving the government and industry to divert attention and investment toward sustainable (electric) mobility solutions.
The Indian automotive industry which produces a wide variety of vehicles is mainly dominated by two-wheelers and economy four-wheelers which account for around 80% and 12% of the total vehicles sold in the country.
The predominance of such small Electric Vehicles (EVs) is unique and there seems to be an opportunity to lead in this category. India should thus focus on the development of technological & industrial expertise and capabilities in the production of small EVs to meet present and potential demand.
The outbreak of the concept of shared mobility in India has changed travelling in the country. Many business models are offering shared mobility solutions with the prominent ones being Ola and Uber cabs which have increased their rides manifold and greatly managed the market.
This may further increase vehicle utilisation and consequent purchase demand for EVs to keep the shared mobility business sustainable in every way.
For the ease of EVs adoption, it became very important to unleash the potential of new technology, provide a head-start and expand the clean fuel-based automotive industry, for which, various conducive policies and regulatory measures taken collaboratively by several ministries under the Central/State government have played a key role.
Some of them are the National Electric Mobility Mission Plan, Phase I & II of Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India scheme, individual states policies, the Production Linked Incentive Scheme, and various other relaxations granted by the Ministry of Power, Ministry of Road Transport and Highways, etc.
From an overall industry size perspective, India is the 5th largest car producer in the world, and in 2020, the EV Market was valued at $5 billion and was expected to reach $47 billion by 2026.
India's 2030 vision of electric mobility translates into 102 million EV units with an estimated revenue of $206 billion and an investment opportunity of $192 billion ($177 billion for original equipment manufacturers, $2.9 billion for the charging infrastructure, $12.3 billion in battery manufacturing).
Currently, the Indian EV market is consolidated and dominated by few players such as Mahindra, TATA, Ashok Leyland, Hyundai, Hero, etc.
However, with the government promoting various initiatives to boost the market growth, other automotive players have also entered, this would attract more investment and competitiveness in the market.
Apart from the traditional automobile players and Tesla's and Olas making investments in India, we are also seeing Private Equity (PE) investors increasing their bets in this space, funding rounds in Ather Energy, Magenta PowerGrid, Lithium Urban Technologies, etc. being the case in point.
PE funds are also looking for opportunities in the vast infrastructure network needed for charging the EVs and EV allied sector and other investors are likely to follow the suit.
Despite the pandemic and its economic damage, investors did not deter from lapping up opportunities.
In the past couple of months, there has been heightened investment and fundraising activity with participation across different investor classes including PE/VCs.
Some investment activities include investment in Oye! Rikshaw for around USD 496.6 million, Hyundai for approx. $429.5 million, Mahindra for around $402.68 million, Triton for around $281.88 million, Ashok Leyland for $187.92 million, etc.
Further, some of the fund-raising rounds in this space include raising by various EV entities like Ola Electric for around $99.73 million, Hero Electric for approx. $29.53 million, Revolt Motors by around $20.13 million, Magenta EV Solutions for approx. $16.11 million, etc.
The government has targeted 30% EV penetration by 2030. Electric mobility transition in India is still in a nascent stage and some transformational changes and sizable investments are required in research & product development, both on the automobile and battery technology platforms.
While funding from various players has started charging the EV industry in India, much turbo power is required to achieve the vision laid out for 2030.
(Samir Sheth, Partner & Head - Deal Advisory Services, BDO India, Poonam Shah, Consultant | M&A Tax and Regulatory, Deal Advisory Services, BDO India.)