While electric three-wheelers have emerged as the face of EV adoption in India, startups engaged in their retail need increased access to finance for scaling up. Will the market become more challenging for such startups as heavyweights like Mahindra, Piaggio, and Bajaj leverage their captive finance arms to offer financing options?
Three-wheelers impact a vast population, with over 400 million people relying on them daily. They serve as a primary mode of transportation across numerous states, cities, provinces, and districts, notably being the largest diesel consumers. Transitioning this segment to electric can make a significant environmental difference.
There is an undeniable need for electric three-wheelers in primarily semi-urban and semi-rural scenarios, regardless of whether these areas are labelled as tier 1 or tier 2.
While infrastructure may be lacking in some areas, targeting regions with a reliable power supply is feasible. Offering month-long trials allows consumers to experience the benefits firsthand, such as ease of use without gear changes and quieter operation. Recognizing that beyond the product itself, supporting customers with financing solutions and considering their credit histories is crucial for facilitating their transition to EVs.
Financing a massive problem for EV startups
Financing poses a significant challenge, and credit is due to the larger OEMs. Major OEMs like Mahindra, Bajaj, and Tata have commendably navigated these waters, establishing financing arms that give them a strategic advantage in making financial decisions more effortlessly than external financiers.
For startups like ours, convincing the financial ecosystem of the viability and reliability of our vehicles is a formidable task. It’s a gradual process, demanding irrefutable proof of the vehicle’s quality, not merely relying on novelty. The three-wheeler segment has struggled with securing finance, often resorting to high-interest ad hoc solutions. In contrast to the more ‘luxurious’ two and four-wheelers, three-wheelers, integral to many people’s livelihoods, have suffered from exorbitant interest rates, sometimes reaching 28-32%.
Recognizing the imperative need for change, our approach involves presenting our vehicles as dependable assets to financers, backed by real-time data on vehicle usage to mitigate payment risks. We understand that financiers are averse to repossessing vehicles; they need reliable information to collaborate with clients and adapt payment structures if necessary. It’s not just about accessing finance; it’s about securing it at sustainable interest rates.
Financing is indeed pivotal. With a fully engineered vehicle prepared and a dealer network established, the focus shifts to deployment. Both wholesale and retail financing emerge as crucial elements in this phase.
Younger companies stimulate the entire sector
Whether small or large, every player has a vital role in the electric vehicle (EV) industry. Younger companies often can take more significant risks and act more aggressively, stimulating the entire sector. Their willingness to innovate has a catalytic effect, encouraging others to adopt new ways of thinking.
These risk-taking companies, especially new fintech firms, introduce novel business models. For instance, vehicles and batteries are now being financed separately, with some components available for rent while others are leased. These innovative approaches were unheard of, but they’ve materialized because startups dared to take risks, unleashing creativity and the willingness to experiment with new models.
These ventures are the harbingers of new products and service packages, drawing the attention of established companies. Their extensive data and fresh business models make young companies increasingly appealing to larger entities. This dynamic will likely drive rapid growth in the sector, and undoubtedly, such evolution is imminent.
Diversity in the EV ecosystem
It’s not going to be one size fits all. It doesn’t happen in a democracy and will not happen in the EV ecosystem. The approach toward adopting alternative fuels in the electric vehicle (EV) ecosystem will inevitably be diverse. No solution will fit every context—different regions may find certain fuels like CNG, biodiesel, or hydrogen more accessible depending on local availability and specific applications.
Based on the first episode of MOVES Ecosystem Dialogues, the above piece is by Amitabh Saran, CEO & Co-founder of Altigreen.
