This is the second and concluding part of the analysis:
Today, we see which geographies have received the most investments. Why? What has made them attractive?
What are the patterns when looking at investments within the same geography?
The wins & losses, and scores as they stand today.
With the equalization in tech, the industry’s and investors’ focus is changing from technology and product development to deployment, asset management, and asset financing.
Do large investments in a few companies hurt the overall ecosystem?
Here is the first part of the analysis:
InsightEV – Global Electric Mobility
Things that have changed since last week
Before we start, let’s share the revised graphic from last week. We had to revise the graphic because Ather announced the magnitude of their IPO. The company is doing a USD 350m IPO on the Indian bourses.
This change means:
- Ola’s share of overall funding has declined somewhat to 23.62%.
- Ather’s share in the overall funding has increased sharply to 14.92%. It is in the second position now.
- Gogoro (13.1%), Zero Motorcycles (9.14%), and Livewire (6.15%) continue to round up the top five.
- The top five now account for 66.93% of all funding, up from our estimate of 65% last week.
Geographical Split of Funding
Low entry barriers, a technology that is (relatively) easy to work with, and a global supply chain to support make E2W/E3W mobility an immensely fertile ground. Since the worldwide ecosystem is still in its early stages, incumbents are also in their infancy, and startups dominate every geography. The number of products with a global reach is very small. Even popular products like the Gogoro S2, the Bajaj Chetak, or the Stark Varg are geographically concentrated. No Chetaks are sold in Europe, and no Vargs are sold in India. In fact, the Hondas (ICON e: and CUV e:) would be the first truly global products.
…if we do not consider the ubiquitous Chinese factory made scooter…
Looking at the global pie, India dominates the funding, attracting nearly 51% of all investments. There are two primary reasons for this: first, India is the largest two-wheeler market in the world, and second, China invested in electric two-wheelers two decades ago, data points that were not considered in this study.
India is followed by North America, which accounted for more than 22% of all funding. Taiwan accounted for 13% of all funding, and Gogoro all of it.
The surprise in the study is the ASEAN market. As a combined geography, ASEAN is third in the pecking order when it comes to two-wheeler sales. However, for E2W investments, ASEAN received only 2.41%. This is due to a late shift to electric mobility in the region. Most investments have started happening in the last five years, and there are still only a few start-ups that are working on E2Ws. The landscape is heavily dominated by Honda and Yamaha, both of which are also very politically active. Apart from Vietnam, none of the other economies has made a serious foray into self-created electric mobility. There are electric scooter sales, but the current market is dominated by importers, who bring Chinese scooters into their respective geographies.
Europe attracted 4.79% of the investments. This is not to say that there are not enough European startups. It’s just that investors haven’t found European startups attractive.
Then there is Africa, with a nearly 2.34% share in global funding. Africa is at the start of its journey in electric mobility. The start-ups are decent, the opportunities are promising, but most investments are still at the Series A or Series B levels, with investee companies in their early stages. This landscape may evolve to much larger in the next 10 years.
A deeper dive into the investments by geography reveals trends and highlights the different outlooks that investors have for the respective geographies.
India
Ola’s success in raising money is indicative of the overall Indian market. In our analysis, 15 manufacturers are from India, and they together raised USD 2.823 billion, 50.98% of the gross total. Of this, Ola Electric accounted for more than 46.3% of all funds raised in the country.
The Indian two-wheeler market is high-quality, with the world’s highest two-wheeler sales volumes and a healthy penetration of electric two-wheelers. On the ICE side, it is heavily concentrated, with 6-7 players accounting for nearly 20 million unit sales.
That may seem like a huge opportunity or a big challenge, depending on how you read the above statement. Either way, there are likely millions of users willing and waiting to switch to electric. The Indian incumbent brands are huge, with Hero, Bajaj, and TVS all in the top ten of the global market. They have decades of experience in developing and manufacturing high-quality small-engine ICE machines. Each has billions of dollars of cash reserves and the engineering capabilities to produce very competitive electric scooters.
But when it came to choosing between teenage hot-headed gut feeling of changing the world and cold-blooded business sense of making profits, the ICE incumbents chose the latter.
That business sense has meant that ICE incumbents (smarter money) have been moving slowly with electric vehicles and not burning cash, unlike startups, which have been selling every scooter at a loss and burning investor money (smart money).
Almost all players struggle with margins, considering the high bill of materials (BoM) costs of electric scooters. Government direct subsidies have practically dried up, and making a profit is, and will be, a challenge. The difference is that ICE incumbents have an extensive and highly profitable ICE portfolio to support their E2W adventures. They can dig in their heels. Startups have to burn even more cash to gain traction.
What makes the Indian market extremely attractive to private capital is the fact that investee manufacturers can pursue scale, without profitability, for a long time. Private capital was in ample supply till 2023. And when that dried up the nature of the Indian public markets means that private investors (smart money) can ‘transfer’ their investees on to retail investors (dumb money) through an IPO.
After Ola, the next biggest capital raise was made by Ather Energy, which managed to attract 29.2% of all investments in India. That includes the USD 350m proceeds from the ongoing IPO at a USD 1.4bn valuation.
Between Ola, Ather, and others like River, Matter, Simple, Oben, Gravton, Tork, Orxa, and a few more, the theme has been the same – get a small share of the 20m units per year pie. Most business plans were written with aggressive adaptation models, assuming that the majority of the market would move to electric.
That hasn’t happened.
The other part of the business plan was assuming the incumbents would all roll over and die. That did not happen. Bajaj and TVS are both in the top three in terms of unit sales.
The biggest challenge for investors and their investees in the Indian market would be the rapid fragmentation of the market. This would be driven by the electric mobility market increasingly catering to utility, commerce, and the delivery economy.
In the five-year term, we see 35% of the overall two-wheeler market moving to EVs. But that 35% would be split between more than 25 players.
Indian startups have also garnered significant funding in the E3W space. Most of this was achieved in the last five years as e-commerce companies like Amazon transitioned their delivery fleets from ICE to electric. This was driven by economic, social, and governance (ESG) factors.
The biggest beneficiaries in the E3W sector have been Euler Motors, Greaves Electric, and Altigreen. Euler has raised USD 211m, accounting for nearly 6.66% of the Indian pie. Hero MotoCorp led the company’s latest round.
But when we talk about electric three-wheelers in India, there are two varieties. The first is the regular e-Auto. Bajaj Auto, Piaggio, and Atul Auto have dominated the ICE part of this industry. As the industry converted to electric, the incumbents managed to stay ahead, while the investee startups struggled with sales. Euler, Greaves, Omega Seiki, and Altigreen have significantly lower sales numbers compared to Mahindra and Bajaj Auto.
The second part of the industry is the e-rickshaw, a South Asian oddity used for shared last-mile transportation. Starting as Chinese imports about 15 years back, the e-ricks have never used ICE powertrains. The only change in recent times has been the move from Lead-acid to Li-ion batteries.
E-ricks are easy to construct, and a large, small-scale industry has mushroomed in the country, with more than 500 manufacturers. There was never any significant investor interest in this segment (they missed the bus). Importantly, the segment is profitable.
The trend in India
In both the E2W and E3W space in India, investors have largely followed a herd mentality of backing utility and mass market players. There have been very few outliers like the good guys spaces in India, investors have largely followed a herd mentality, Ultraviolette or Raptee Energy, but apart from one or two such cases, investors have largely played it safe.
North America
Unlike India, where investors have backed utility and mass mobility players, the American investment fraternity has been all over the place in backing very distinctive, non-mass market ideas. Each of the ideas, in isolation, would have seemed like a moonshot back in the day when they were first presented.
For example:
Zero: The sports, adventure, and lifestyle motorcycle buyers would choose the environment, overlooking the shortcomings of present-day electric performance motorcycles.
Livewire: The next generation of Harley buyers would all choose electric.
Damon: Running circles around Ducatis while earning carbon credits.
Arcimoto: Everyone would dump their small cars to get into an Arcimoto because, why not?
Volcon: Every rancher would need one.
As is evident, all these ideas looked great. They were moonshots, aimed at changing habits and creating a new world.
None of them has worked out till now.
Zero and Livewire corner more than 68% of the USD 1.41 billion investment in the North American electric mobility segment. However, we can excuse Zero and Livewire here, as both are propped up mainly by single investors.
Saying that, it would need a radical shift in strategy to turn things around in either case.
The trend in North America
The recent funding round in Infinite Machine indicates that North American investors will continue to back projects that may not align with the core idea of electric mobility – mobility for the masses. The US remains a high-cost manufacturing location, and smaller startups planning to produce rational products in the US will continue to struggle to raise any meaningful funding.
Then there are companies like Arcimoto, Alta, and Damon, which raised significant capital in backing ideas that may have been terrific but were let down by execution and circumstances.
The key takeaway from North American data is that realistic motorcycle companies like Land Moto and Ryvid have not been able to raise significant investment. Of the investee companies considered in the study, Sondors and Alta are dead, while Damon is struggling badly.
Europe
Europe is much smaller in size when it comes to investments in the electric mobility area (E2Ws and L-category vehicles). The cumulative investments in European startups have been less than USD 220m. The high costs of manufacturing mean that local startups face a challenge, and Chinese imports dominate the market.
Similar to other geographies, a few startups have managed to attract most of the investment in Europe. Cake, Unu, Zapp EV, and Stark Future together account for more than 85% of all investments in Europe. The next two, Energica and Govecs, together account for another 9.5% of all investments in Europe.
Out of the above, Govecs, Energica, Unu, and Cake have been bankrupt, though Cake as a brand survives. Energica may be resurrected. Zapp EV is struggling as well with a dwindling market cap and a possible delisting from the Nasdaq.
But Stark Future is doing well, thanks to a strategic investment from India-based Royal Enfield. It is a success story for other startups to emulate. The Spanish brand’s success is also a sign that E2W startups have a future in Europe, as long as they target the right niche.
The trend in Europe
Unlike North America, Europe backs startups with mass-market products. However, the high cost of manufacturing and a heavily fragmented market (1,500 brands with 3 million sales) mean that funding remains scarce. Most European startups come up with very small-scale plans, making them unattractive for investors.
What is further muddying the waters is that every distributor has started their own brands thanks to whitelabeling Chinese products. This means that really innovative startups face competition and a scarcity of funding.
ASEAN
ASEAN is a large two-wheeler market, but the move to electric mobility has been led by companies importing Chinese two-wheelers into various markets. In the last few years, we have seen homegrown startups finally making a move. All the startups considered here have raised funding within the last five years and are still in the early stages.
The overall funding pie of USD 150m is split between Scorpio Electric, DAT Bike, ION Mobility, Alva, Onion Mobility, and Selex. Of these, ION Mobility is already out of consideration as the lead investor – the India-based TVS Motor has acquired select assets of the company, and ION’s CEO has joined TVS as an employee.
The trend in ASEAN
While the early E2W entrants were all Chinese importers, some startups have started mushrooming in Indonesia and Vietnam. We conveniently leave Vinfast out of the discussion here as there is no plausible quantification of the group’s investment in its two wheeler operations. We expect to see more investment in ASEAN as the region electrifies.
Africa
Africa is an emerging story, and the overall investment of just over USD 145 million is not indicative of the level of activity that is happening there. We think Africa may see significantly higher investments in a few years.
InsightEV – Global Electric Mobility
InsightEV – Global Electric Mobility
Of the USD 145m, the biggest beneficiaries have been Ampersand and Max.NG, Spiro, and Roam. Spiro’s share in this can be much higher, looking at the magnitude of their operations, but since Equitane now controls the company, it isn’t easy to estimate how much capital the fund has invested in Spiro recently.
The trend in Africa
The African story is starting and the common theme seems to be electrifying the Bodas. Considering there are millions of them, this is a long-term story that should attract more investment. However, the story would increasingly be of batteries and fleet deployment, over product development.
Where would investments be moving to?
We are in a funding winter. Vehicle development is no longer a hot investment topic. Many years ago, an electric moped/scooter was an exciting proposition. There were plenty of startups raising money for developing and productionising electric two-wheelers. Most of those products have been misses, and a sense of caution has crept into the industry and the investor community.
Over the last five years, the industry has also reached a level of maturity where a vehicle platform is no longer considered the holy grail. Several things happened:
- The development costs, from styling to integration, of an electric two-wheeler platform have decreased. Just five years back, European consultants would not hesitate to ask for double-digit million EUR amounts. The ask has come down to a very low single-digit million EUR.
- The ecosystem has reached a certain level of maturity, and development cycles are shorter.
- Numerous small startups have tinkered their way to products, and everyone has realised that a product can be built with small, motivated teams.
- The world has moved on from the times when one superstar product, like the Honda Cub, could sell millions of units and last forever. Today, products need a high rate of churn.
- Since electric motors and batteries can be ambiguous in terms of rider experience, reskinning the same components in multiple packages is becoming common.
- The Chinese learnt how to manufacture acceptable quality. Some brands, like Vmoto and Niu, extensively targeted the global audience with great brand flexibility and the prudence to white-label whenever needed.
As a result, not many startups would get support when they focus only on products. Instead, what is increasingly becoming more critical is product deployment. The product would be replaced by packages: vehicle, battery, riders, financing or leasing package, and deployment contracts. Investors would find cases attractive where the startup is developing a 25 kph moped (or a 55 kph scooter) around a battery swapping network with a deployment potential of 50,000 units for food delivery fleets across a major city in a single geography, with riders getting attractive terms from local financial institutions. The moped or scooter is now just a part of an overall compelling package.
What is also getting traction is investments in core technology areas. So, startups developing more power-dense, cheaper, lighter, rare-earth-free motors or batteries with exotic chemistries are getting investor interest. This is because it has the potential to be deployed across the entire industry.
Did Concentrated Investment in Some Startups Damage the Overall Industry?
Arguably, yes. However, it isn’t easy to draw direct inferences. Did Invus investing heavily in Zero mean that it did not invest in other E2W startups? That is never fair – most investors would invest in a single player irrespective of the magnitude of the cheque written.
The right way to look at this is that Invus and Harley-Davidson have strongly supported two startups – Zero and LiveWire, respectively, with a lot of money. The investees may not be doing well, but they keep getting propped up. This damages the entire ecosystem, as the very finite market for electric performance bikes in North America has been cornered by loss-making yet well-funded companies, leaving no space for innovative startups to disrupt with a better product.
The concentrated funding also means that the well-funded startups have created a benchmark, good or bad, in terms of product, quality, and customer service, that the customers now associate with the entire industry. Say, Ola has had problems with product quality and customer service. Their dominance in the Indian market means that customers will subconsciously associate questionable customer service with the entire E2W industry.
That damages the industry.
