Scooters dominate even today because they are based on standard templates and are easy and cheap to build, say industry insiders. However, building a full-scale EV company with branding and customer support is not that easy. It’s also very capital intensive. As one climate-tech investor, who is also funding a Silicon Carbide plant to make semiconductor devices for EVs, put it, “You put a powertrain, [imported from anywhere], four wheels, a battery, and the EV will run.” 

Incidentally, a good part of the Indian market is full of products that are merely smart assemblies. So while the market is growing, only a few electric vehicle OEMs are established and proven. And we lack historical data on product performance and service for most of them, which financing and insurance companies need to bet on this space. 

Established auto majors getting serious about EVs is good for the maturity of the Indian market. Already, globally, “the great sorting of electric-vehicle companies is under way in the stock market”. Auto analysts believe “it’s more a case of the battle between the traditional players” and the well-heeled “upstarts”.

Funding alert (✅); bubble alert (❓)

Both traditional players and upstarts raised money this week—India’s largest truck company Ashok Leyland and EV firm Ola Electric have raised US$200 million each; the former for its EV arm named Switch Mobility. On Tuesday, another traditional company, the Murugappa Group’s Tube Investments, infused Rs 350 crore (~US$47 million) into a new EV business. 

Still, astute analysts at Nomura Research Institute blew the bugle on a “bubble” in the Indian EV space last week, saying the announced production numbers by EV companies outpace the demand expected in the next few years. 

Going by the numbers, that may be true, but let’s not forget that in the case of private companies, those commitments could well mean commitments on paper—it’s between them and their private investors. And the way EV companies are valued today (3-4X of estimated revenues in 3-4 years), jumping on the hype gravy train and quoting impressive numbers is par for the course.

You can’t fault a founder for being over-optimistic. Such statements surely build up the hype and the valuation, but it isn’t quite as bad as earlier bubbles. To borrow a brilliant headline from The Financial Times: The EV bubble: nuts, but not quite as nutty as before. In India, large funding cheques are still going to early upstarts like Ola Electric or legacy companies like Tata Motors, Ashok Leyland, and probably to M&M in the near future. 

Electrification of transportation is surely here. Last week, Mumbai-based Convergence Energy Services (CESL), a subsidiary of Energy Efficiency Services (EESL) floated the world’s largest electric bus tender. The Rs 5,450 crore (~US$730 million) tender aims to deploy over 5,000 single- and double-decker buses. 

I’d argue we are not quite in the bubble yet. And it’s a sign of maturity that legacy players are putting their heft behind EVs which could address some of the thornier issues with customer adoption. 

The first order problems to overcome in India, according to consultants advising the government, are—technology cost, infrastructure availability, and consumer behaviour. The first two are being gradually addressed with favourable policies, financial incentives, rising sales (read: scale), and so on. 

As for consumer behaviour, convenience and cost matter more than any climate change compunction. (Who’d have thought 10-min grocery delivery would have takers in India?) 

The second order problems need concerted focus: financing, insurance, and secondary market development. The latter two certainly require established and/or serious players to step on increasing the residual value of EVs. Financing and insurance companies would need data on EV specifications, real-world drive cycles, actual charging costs, and operating expenditures. This will help them accurately assess risk and interest/insurance rates and design effective products.

For instance, since the government fixes the third-party insurance rates for vehicle insurance, it has kept a lower rate for EVs than comparable internal combustion engine vehicles. (Third party insurance is mandatory; it’s the bare minimum to meet the regulatory insurance requirement.) 

But the other component in vehicle insurance, the own damage part, is higher for EVs because the repair, battery warranty, and charging infrastructure are still works-in-progress. So the overall insurance cost for EVs is 10-20% higher, says Avinash Ramachandran, co-founder of a young startup called Perilwise Insurtech. 

The EV craze may be settling down in other markets. In India, it’s still on the upswing, and fluid. And while Hero MotoCorp may have tasted a surge after the Ather investment last week, the Jefferies report gives it a thumbs down in the long term, moving it from buy to neutral rating. 

Perhaps markets don’t know what investment bankers know.

So what do you think? Are EV companies heading towards a bubble? Write to me at [email protected]. Feedback and suggestions on what you think we should explore would also be welcome.

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