Why Are Traditional Automobile Companies Investing In EVs?

Traditional fuel-run automakers are looking to join the EV bandwagon by diversifying their own portfolio or investing in EV companies
Why Are Traditional Automobile Companies Investing In EVs?
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A CCI (Competition Commission of India) filing revealed that South Korea-based Hyundai and its subsidiary Kia is planning to acquire a minority stake in Ola Electric Mobility. This move comes in six months after both the automobile giants invested $300 million in Ola Electric with an aim to "develop India-specific electric vehicles, infrastructure and mobility solutions", according to Hyundai.

Owing to the increasing pollution and depleting natural resources, the central and state government has been bullish on achieving 30% e-mobility by 2030. Matching up with the government’s pace, traditional fuel-run automotive companies are looking to join the EV bandwagon by diversifying their own portfolio or investing in EV companies. 

Why invest?

As the market moves towards EV adaptation, the question remains as to why would traditional automakers invest in EV companies rather than diversifying their own portfolio?

Amit Gupta, cofounder and CEO of Yulu Bikes, explained that existing automakers will be needed to “change their business strategy in order to innovate”. In this case, investing in an EV company becomes easier as it helps them to “strategically align” themselves with the new-age tech companies. Apart from this, the company will also be able to create a bond with the startups, which can eventually help them to “co-create products in future”.

He also explained that two-wheelers companies may also be interested in investing in micro-mobility companies such as VOGO, Bounce or Yulu Bikes to tap into their user base and also deploy their manufactured vehicle for the ride sharing services.

Speaking on the same lines, SMEV (Society Of Manufacturers Of Electric Vehicles), director general, Sohinder Gill also explained that it would be beneficial for the traditiona automakers to be a part of the experiments undertaken by companies who are working in this space than experiment using their own resources.

List of traditional companies investing in EV startups

Some of the deals that took place in between traditional automobile companies and EV startups are:

  1. Hyundai invested in Ola Electric:  In March, Hyundai and its subsidiary Kia had invested $300 million in Ola Electric to manufacture India-specific cars and mobility solutions.

  2. Hero MotoCorp’s investment in Ather Energy: In May, Hero MotoCorp had converted its convertible debt of $19 million to equity and also invested $8 million in venture debt in Ather, reported ET.

  3. Ola’s investment in Vogo: Cab-hailing giant Ola had invested $100 million in dockless scooter sharing platform in December 2018. The investment was used to add 1 Lakh (lakh) scooter in Vogo’s fleet. Apart from this, Ola users would also get the option to book rides on Vogo as a part of this deal, reported Business Standard.

Government’s plans to boost EV

Reduced duty on EV components:  According to reportsthe Central (central) government has reduced custom’s duty on EV components to 5% (per cent) according to reports. In other words, a pre-assemble electric vehicle will be liable for 15% (per cent) tax while the one assembled in India will pay 10 per cent tax. The Central Board of Indirect Taxes (CBIT) had also withdrawn exemption of customs duty for EV batteries to encourage EV production.  

Govt to invest INR 40,000 Cr: The central government is also planning to invest INR 40,000 crore for subsidies to EV and its component manufacturers. 

Sale of only electric two and three wheelers: NITI Aayog had proposed that only electric vehicles should be sold in India by 2030 to boost EV adoption. According to reports, NITI Aayog moved a cabinet note directing that responsibilities should be assigned to different ministries. It also directed the Transport and Highways Ministry to prepare a framework to reduce the sale of fuel-run vehicles.

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