close-up of the hands of an electric car motor factory worker working on an electric car motor located on an assembly line
Supporting E-Mobility Startups in India
As e-mobility accelerates in India, we offer suggestions on how the increasing number of startups can stay competitive with legacy companies that are shifting to electric vehicles.
Many of us can recall a time not long ago when the same few names dominated vehicle sales. Whether we wanted to buy a two-wheeler or car, or whether we rode an auto-rickshaw or a bus, we would see a handful of brand names that had a firm presence in the market. Today, this picture is slowly changing — it is becoming common to come across new brands on the road. This is especially true with electric vehicles (EVs), which are exceeding 10 percent of all sales in many major Indian cities. Many of these are startups which have emerged in the auto manufacturing landscape in the past four to five years.
In fact, the e-mobility startup boom in India is not limited to manufacturing, but includes batteries, charging infrastructure, logistics, services, and other niche areas. Estimates suggest 535 EV or EV-related startups are presently registered in India.
In parallel to the startup boom, the past two to three years have witnessed interesting investment and strategy shifts by legacy companies that originally pioneered petrol and diesel vehicles. Electric models are being announced and launched by many household brands almost every month. In just the electric car segment, between October 2021 and October 2022, the number of models offered by legacy companies has increased from 9 to 15.
This brings up a natural question about the dynamic between new-age and legacy businesses going forward. As the ecosystem moves from early deployment to scale, how can startups stay competitive with legacy companies shifting towards EV products and services?
Although Driving Innovation, Startups Face Challenges
Startups in India have undoubtedly been at the forefront of innovation, be it in production, infrastructure, or end-use applications. These first movers are creating new products and services, kickstarting the market on many fronts. For one, they represent the lion’s share of sales in electric two- and three-wheeler and goods carrier segments; four of the top five highest-selling electric two-wheeler brands sold are startups. EV leasing and financing products are being tested predominantly by startups. Mass consumer awareness and advertising on EVs is coming more from startups; for example, two EV startups are key sponsors in the Indian Premier League. Delivery and ridehailing startups have been taking bets on EVs and proving the economics of electrifying fleets. Charging and battery swapping networks are likewise being expanded by startups.
While startups are taking the lead and driving the early adoption of EV products and services, several challenges persist as they attempt to move from early ideation to commercialization of their product or service:
- High innovation expenses and complexity: Hardware startups need to invest in prototyping, testing, certification, and homologation, all of which are expensive and complex. For example, renting tracks for testing could cost several lakhs of rupees a day, depending on the track. Many existing labs lack technology and staff expertise to support startups in prototyping EVs and components.
- Supply chain constraints: For EV startups at the early deployment stage, convincing component manufacturers to operate at a smaller scale is a challenge. Supply chain risks also affect startups most. When commodity prices rise, the unit economics of startups are the most affected, as larger OEMs have the ability to procure at scale or accommodate for an increase in production costs.
- Staffing and training: The specialized skillsets required for R&D and innovation at all levels are scarce, given the number of interacting disciplines (automotive, materials chemistry, mechatronics, and more) where expertise is required to work on EV products. Standardised training for skills is lacking. While legacy companies can afford custom upskilling programs for existing staff, startups struggle to invest in the same.
- Limited innovation support: Government innovation support for EV startups has been time-bound. FAME Scheme’s Phase I, for example, had provisioned R&D funds that were phased out in Phase II of the scheme. Also, manufacturing incentives such as the Production-Linked Incentive (PLI) scheme primarily flow to established OEMs and component manufacturers as startups are unable to meet the high turnover eligibility requirements. When support is available, startups are not always aware of relevant schemes and nodal agencies.
- Funding asymmetry: Given the nascency of EVs, investors struggle to understand EV technologies and business models accurately, often pricing risk on the higher end. Consequently, funding (especially debt) is not always affordable and ease of access to capital at key product development stages varies.
Public and Private Stakeholders Can Play a Role
The financial and non-financial strain felt by startups can be reduced, in part, by government support. Governments can offer Incentives for e-mobility R&D, in addition to equipping government labs across the country for prototyping and testing in the domain. Schemes supporting manufacturing (e.g., the auto PLI scheme and the advanced chemistry cell PLI scheme, especially its niche battery chemistry component) can be evolved to partially focus on startups. Both public and private stakeholders can set up shared manufacturing facilities to allow innovators to learn from each other and pool resources where possible. For example, Telangana recently collaborated with manufacturer MG on a plug-and-play EV Park housing manufacturing infrastructure and a startup incubation centre.
Furthermore, skill development councils and educational institutions have a role to play in training and upskilling the automotive workforce. The Delhi EV Policy is taking steps in this direction through vocational training on after-sales in its world-class skill centres. Tata Power-DDL’s pact with the Central Board of Irrigation and Power is aiming for the same on charging infrastructure at a professional level for power sector staff across India. Universities have also slowly begun adapting their curricula for e-mobility. Such initiatives that invest in talent for the industry can trickle down to benefit startups, enabling better product development and quality assurance.
Finally, the industry will have to recognize and leverage the complementarity that can be created by strategic collaborations between legacy players and startups, for several reasons. First, innovation at legacy players happens at higher costs despite their years of expertise, so startups can re-energize the efforts of legacy OEMs to create breakthrough products. Second, the purchasing power and historical supplier relations built by established companies can help counter supply chain constraints. Third, while affordability is likely to be brought in at the unit level by bootstrapping startups, scaling product adoption is an area that legacy players excel in.
The Importance of Strategic Collaboration
At the start of the 19th century, when the automotive industry was kicking off in the United States, consumers were rife with choice: over 250 manufacturers had a market presence. As the industry matured, economic factors and technological innovations led to the whittling down to fewer than 50 in 1930. Eighty percent of all production was associated with just three companies that had merged with and acquired competitors. Such mergers and acquisitions have continued over the past few decades across all auto markets, including India.
It is clear why consolidation has been a recurring theme in the automotive industry: as new trends and techniques emerged, staying competitive meant exploring synergies with other companies and creating comprehensive, future-ready portfolios. Arguably, no industry transformation has been so rapid as the ongoing transition to EVs. Consolidation and coexistence will similarly be key here. Rather than startups and legacy companies competing for market share in the near future, it is likelier that more will begin leveraging each other’s’ strengths through strategic collaboration. And rightly so: market partnerships between legacy OEMs and startups can bring together the best of both worlds, priming the market for speed and scale.