Month: February 2024

Introduction

In recent years, the global automotive industry has witnessed a paradigm shift with the rapid rise of electric vehicles (EVs). As nations worldwide commit to reducing carbon emissions and combating climate change, EVs have emerged as a pivotal solution towards a sustainable future. However, amidst this transformative journey, ensuring the success and longevity of the EV revolution demands meticulous attention to technical due diligence.

Growing Global Investments in EV Sector

• In 2022, Venture Capital (VC) investments in early-stage battery technology start-ups increased by 15% to nearly USD 850 million
• VC investments in vehicle and charging technology start-ups rose by 50% to USD 1.2 billion in 2022
• Notably, the charging segment saw a record high in early-stage funding, reaching USD 730 million
• Funding for battery recycling and reuse experienced an eightfold increase from 2021, reaching USD 200 million
• From 2018 to 2022, China dominated VC investments in electric car start-ups, accounting for 70%. The United States led in investments for charging, trucks, and battery components during this period
• Funding for battery manufacturing start-ups was evenly distributed across China, Europe, and the United States
• India emerged as a significant player in the global EV VC space, particularly in two-wheelers, alongside China

Technical due diligence serves as the cornerstone of evaluating the feasibility, reliability, and safety of EV technologies and infrastructure.

• Performance and Efficiency: Technical due diligence assesses the performance metrics and efficiency of EV components such as batteries, motors, and charging systems. This scrutiny ensures that EVs meet or exceed the performance benchmarks set by traditional internal combustion engine vehicles, thereby instilling confidence among consumers and investors.
• Safety Standards Compliance: EVs involve intricate electrical systems and high-voltage components, necessitating adherence to rigorous safety standards. Technical due diligence verifies compliance with regulatory requirements and industry standards, mitigating risks associated with potential hazards such as battery fires or electrical malfunctions.
• Supply Chain Resilience: The EV ecosystem relies on a complex global supply chain encompassing critical raw materials, components, and manufacturing processes. Thorough technical due diligence evaluates the robustness and resilience of the supply chain, identifying vulnerabilities and mitigating supply chain risks to ensure uninterrupted production and distribution of EVs.
• Innovation and Technology Integration: EVs continue to evolve with advancements in battery technology, autonomous driving capabilities, and vehicle-to-grid integration. Technical due diligence facilitates the assessment of emerging technologies, and the evaluation of their feasibility, scalability, and compatibility with existing EV platforms.
• Infrastructure Development: The widespread adoption of EVs hinges upon the availability of robust charging infrastructure. Technical due diligence scrutinizes the design, implementation, and scalability of charging networks, ensuring seamless integration with grid infrastructure and optimizing charging efficiency.
• Investment Decision-Making: For investors and stakeholders, technical due diligence provides invaluable insights into the viability and potential risks associated with EV projects. By conducting comprehensive assessments of technological, operational, and financial aspects, due diligence enables informed investment decisions, thereby fostering confidence and accelerating the flow of capital into the EV sector.

“The essence of technical due diligence lies in uncovering the hidden intricacies of technology, illuminating the path towards innovation, resilience, and sustainable growth.” – Vikrant Vaidya, Senior Partner, pManifold Group

pManifold works extensively in the eMobility sector providing technical due diligence support enhancing investment impact, market positioning, and development efficiency for various stakeholders as shown below:

Read more pManifold on technical due diligence –

Importance of ‘Measurements based’ Technical Due Diligence

Leveraging Customer Perspective for a stronger Onsite, Local Due-Diligence in Pre-Bid phase

India, with its robust economic growth, is emerging as a pivotal global player across various sectors, including the transportation sector. The nation has set an ambitious target of achieving net-zero emissions by 2070. To achieve this goal, an important step involves the decarbonization of the transportation sector, with a specific focus on transitioning to electric vehicles (EVs) to mitigate Greenhouse Gas (GHG) emissions. There are ambitious targets set to increase the share of EV sales to 30% in private cars, 70% in commercial vehicles, 40% in buses, and 80% in two-wheelers and three-wheelers by 2030. In absolute numbers, this is estimated to translate into an impressive target of 80 million EVs on Indian roads by 2030.

The Indian automotive market is expected to be the third-largest by 2030, considering volume, underscores the anticipated growth and significance of the industry on a global scale. The strategic transition to EVs in India comes with diverse advantages. The country possesses a pool of skilled manpower in the technology and manufacturing sectors, established industry players, and new stakeholders exploring multiple pathways to R&D and commercial production of vehicles and auto components. This transformation is geared towards meeting the increasing EV demands both domestically and globally. According to an independent study by the CEEW Centre for Energy Finance (CEEW-CEF), the EV market in India will be a US$206 billion opportunity by 2030 if India maintains steady progress to meet its ambitious 2030 target. This would require a cumulative investment of around US$175 billion in vehicle production.

Policy Backing for Indigenous Manufacturing

The Indian government has approved initiatives like the Production Linked Incentive (PLI)scheme for the Auto and the Auto Component to drive and enhance local production capabilities and achieve its goal. This scheme intends to incentivize high-value advanced automotive technology vehicles and products, including ‘green automotive manufacturing’.It is open to existing automotive companies as well as new investors who are currently not in the automobile or auto component manufacturing business. It comprises two main components:

1. Champion OEM Incentive Scheme: This is a ‘sales value linked’ scheme, applicable to battery electric vehicles, and hydrogen fuel cell vehicles of all segments.
2. Component Champion Incentive Scheme: This is a ‘sales value linked’ scheme, applicable to advanced automotive technology components of vehicles, completely knocked down (CKD)/ semi knocked down (SKD) kits, vehicle aggregates of 2-wheelers, 3-wheelers, passenger vehicles, commercial vehicles, and tractors, etc.

The scheme has been successful in attracting a proposed investment of ₹ 74,850 crore (USD ~9 billion) against the target estimate of investment of ₹ 42,500 crore (USD ~5 billion)over a period of five years. The proposed investment of ₹ 45,016 crore (USD ~5 billion) is from approved applicants under Champion OEM Incentive Scheme and ₹ 29,834 (USD 3.5 billion) crore from approved applicants under Component Champion Incentive Scheme[1].

This PLI Scheme for the automotive sector along with the already launched PLI scheme for Advanced Chemistry Cell with a budget outlay of ₹18,100 crore (USD 2.1 billion) and Faster Adaption of Manufacturing of Electric Vehicles (FAME) Scheme of ₹10,000 crore(USD 1.2 billion) will give a big boost to manufacturing of EVs in India.

Growing EV Market and Industry Commitments

In the first nine months of 2023, the sale of passenger EV cars in the country surged to 75,000, more than doubling the volume from the same period the previous year. Notably, 86% of all-electric cars sold this year were priced under $20,000. Several new models were introduced, including the most economical one, MG’s Comet mini car, retailing for less than $10,000. Tata Motors’ popular Tiago compact EV, priced around $10,500, accounted for 39% of EV shipments[2].

[1]India’s EV Market Takes-off

[2]Ministry of Heavy Industries, Press Release

India exported on average over half a million cars over the past 5 years[3]. According to industry insiders, exports from India are poised to surpass the annual threshold of ~1 million units within the next four to five years. During this period, it is anticipated that EV exports will constitute 25-30 percent of all vehicles shipped from the country, despite domestic EV penetration possibly reaching only 10-15 percent.

The surge in demand and the growing EV market has prompted commitments from automakers to enhance local EV production. According to data from BloombergNEF, these companies have pledged nearly $5.4 billion in investments to establish new or expand existing EV manufacturing facilities in India. These include commitments not only by domestic companies such as Tata Motors and Mahindra & Mahindra but also by Korean automakers Hyundai and Kia. The other notable developments from prominent automakers in this sector are as follows:

• Maruti Suzuki plans to produce over 2.5 lakh units of EVs by 2027, of which almost 60-70 percent will be exported to key global markets including Japan
• Honda Cars India, in preparation for its upcoming EV based on the new mid-size SUV platform, is internally developing a project called Asian Compact Electric (ACE-EV). Anticipated to commence in 2026-2027, the automaker aims to export approximately 30,000-50,000 units of its EVs to Japan and other global markets.
• Vietnamese EV start-upVinFast has recently disclosed its intentions to establish an EV manufacturing facility in India by 2026, with an overall investment of USD 2 billion (over ₹16,000 crore)

[3]Car Exports in last 5 years

To support this capacity expansion, the government plans to provide subsidies, aligning with its broader initiatives to decrease India’s dependence on imports for EV components. The government is considering reducing import duties on fully assembled units for companies like Tesla in the initial stages. A policy framework is also in the works for technologically advanced vehicle manufacturers, mandating local sourcing. The import duty on green/eco-friendly vehicles may be significantly lowered, potentially from 100 percent to 15-30 percent[4], with the condition that Indian carmakers initiate local production and source components locally. Furthermore, the government will seek assurances from these companies regarding the development of a supplier ecosystem, with an initial requirement of sourcing about 20 percent of the parts locally within the first two years. This percentage is expected to increase to 40 percent by the fourth year of the agreement.

In addition to vehicle manufacturing commitments, local battery plants have also expanded, supported in part by government subsidies. Companies including Tata Group, Amara Raja, Exide Industries, and Ola Electric – all local players – have announced a total of 12.6 gigawatt-hours of cell manufacturing capacity. More announcements are expected in the coming months once the government awards the remaining capacity under its aid program.

It is evident that India is embarking on the next stage of its automotive evolution. The Indian government has declared its commitment to establishing the country as a robust hub for EV domestic and export needs, supported by proactive policies. This intention is swiftly transforming into tangible actions on the ground, prompting national as well as global vehicle manufacturers to make pivotal commitments. This trajectory positions India as a formidable contender in the global EV competition.

(Views are personal, consolidated from various sources including articles, blogs, etc.)

[4]EV Sector in India: Production Capacity, Government Targets, and Market Performance