China-reliant EV firms face funding hurdles
The uncertain ties between the two countries are leaving investors jittery and forcing them to put money in startups that have a low reliance on China.Updated: Jul 09, 2020 23:52 IST
Indian startups of electric vehicles (EVs) and their components that depend heavily on Chinese imports may find it difficult to raise funds from private equity and venture capital investors in the future, said three people directly aware of the developments.
The bleak scenario follows tensions between India and China that escalated after a border clash between the two armies that led to the killing of 20 Indian Army personnel. India, in retaliation, imposed a ban last week on 59 Chinese apps and also began manual inspections of Chinese imports at ports, causing a logjam.
The uncertain ties between the two countries are leaving investors jittery and forcing them to put money in startups that have a low reliance on China. In the last two years, startups in the electric mobility space such as Ather Energy, Magenta PowerGrid, Ola Electric, Yulu and Lithium Urban Technologies have raised funds from diverse sources like Tiger Global Management LLC and SoftBank Group among private equity (PE) firms, industrialists like Rata Tata, chairman emeritus, Tata Sons; and Hero MotoCorp promoter Pawan Munjal, and state-run Hindustan Petroleum Corporation Ltd.
This followed the Indian government’s efforts to promote eco-friendly modes of transportation with various incentives in a bid to control high levels of pollution in most of its major cities.
The first person cited above said PE and VC investors have in the last few months become apprehensive of startups that have a substantial exposure to China. They fear that with rising pressures from the Indian government, these start ups can face disruption in supply chain whenever bilateral ties take a hit, the person said.
Maxxon Lewis, founder, Magenta PowerGrid, an electric vehicle (EV) charging station developing and manufacturing startup in India, said there are about 500-600 startups in the EV ecosystem currently and almost half are at risk because of their high exposure to Chinese parts.
Most of the low-speed electric scooters and three-wheelers sold in India have localisation levels of less than 20% as they are made mostly of parts from either China or Taiwan.
Components like lithium-ion cells, battery packs and electric motors are mostly imported by these manufacturers in addition to plastic spare parts and headlights, which are also available in India.