VCs Capitalize on Booming EV Component Market Amid Global Sales Surge According to the IEA, global electric car sales reached almost 14 million, which represented a 35 per cent increase from 2022. This growth meant that the global electric fleet rose to 40 million in 2023.
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
As the electric vehicle market is experiencing rapid growth which is creating opportunities for component makers, who supply critical parts and technologies needed in EV production, venture capital firms in the industry are keen to invest in companies that develop cutting-edge solutions to improve efficiency, range, and performance of electric vehicles.
Amit Sharma, General Partner, cactus Partners said that given the national and global demand surge for electronic vehicles, this is the optimal time to invest in EV component manufacturing companies.
According to the IEA, global electric car sales reached almost 14 million, which represented a 35 per cent increase from 2022. This growth meant that the global electric fleet rose to 40 million in 2023.
"This surge in demand for EVs boosts the need for high-quality components, presenting significant growth opportunities for investors. Furthermore, innovations like solid-state batteries are improving efficiency and range. Investing in companies at the forefront of these innovations offers high returns and contributes to sustainable technology development," Sharma added.
With governments worldwide pushing for electric vehicle adoption through incentives and regulations, there is a growing global market demand for EV components. Investment in these components is seen as strategically positioned to capitalize on the expanding market for electric vehicles.
As EV technology matures and production scales up, the cost of EV components such as batteries and motors is expected to decrease. This trend enhances the economic viability of EVs, making investments in component manufacturing more attractive to VCs looking for long-term growth opportunities.
Saji John, Research analyst, Geojit Financial Services said that the major benefit the VC enjoys is the growth in the industry, as the Indian government aims for 30 per cent EV penetration by 2030. Furthermore, the standard for releasing the 'Series A' fund is subject to certain criteria, such as validating the product design, product manufacturing capability, supply chain relationship, and potential to hit a benchmark revenue per month. Also, with rapid EV sales, these firms hope for a first-mover advantage, turning their investments into competitive moats.
"A higher demand for parts due to the government's push for localization, has allowed more companies to enter the market, which was once dominated by larger firms. New companies are supplying MCUs, vehicle control units, BMS, DC-DC converters, motors, and controllers. Established firms, which usually produce these parts in-house, are now relying more on supply chain partners as sales increase. Hence, OEMs are using smaller teams to produce new product versions more quickly without losing time or cost. This shift attracts venture capitalists due to the industry's growth potential and technical-commercial viability," he said.
Components such as batteries, power electronics, and electric drivetrains are crucial to the performance and cost-effectiveness of electric vehicles. VC investments in component makers can help these companies scale up production, improve technology, and establish themselves as key players in the EV ecosystem.
Meanwhile, Manas Pal, Co-founder, PedalStart said, "The EV component space is attracting significant venture capital interest due to the rapid growth in electric vehicle sales, the need for a diverse battery technology ecosystem, and the ability of smaller start-ups to innovate and adapt quickly. We are seeing a surge in investments into battery start-ups working on next-gen technologies like solid state and sodium-ion. At the same time, component makers supplying to the burgeoning EV supply chain are also attracting VC dollars."
He said that the agility and speed of execution of these smaller firms is a key factor that makes them attractive investments compared to traditional auto giants. With the EV market evolving rapidly, VCs are betting big on the innovation and growth potential of the EV component ecosystem.
