Warning sign for EV startups? Report says Ather, Ola witnessing tepid response from investors

Investors are turning cautious about India's electric scooter startups like Ather and Ola Electric due to hefty losses incurred by them and regulatory uncertainties, according to Asia Nikkei. The report said that industry executives view the lukewarm response to Ola and Ather's fundraising as a warning sign despite the startups' rapid growth.

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"Previous valuations are no longer a benchmark for new rounds of growth stage companies," an investor in Ather told Asia Nikkei. "Startups like Ather and Ola have an early mover advantage, but they have to massively improve gross margins and get on a path to profitability."

In the last fiscal year, Ather's revenue surged fourfold to $214 million but losses more than doubled to $104 million. Ola Electric is yet to file its latest financials, but posted revenue of $45 million and losses of $94 million in fiscal 2022.

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The investor said that "while smaller fundraises will keep them going for now, growth could be impacted if they don't manage to raise bigger rounds."

Ather Energy, which ranks third in terms of sales, resorted to a rights issue after potential investors balked at its ask of more than $200 million at a valuation of at least $1 billion, the report said.

Last month, the electric manufacturer announced that it had raised $108 million by issuing compulsory convertible preference shares to existing investors Hero MotoCorp and GIC. It was valued at $732 million after it raised $162 million in three tranches between January and October last year, according to data company Tracxn.

SoftBank-backed Ola Electric's valuation rose a mere 10 per cent to $5.5 billion after a $140 million funding round led by existing backer Temasek in September. Ola was valued at $3 billion in September 2021, a month after announcing its first scooter. Its valuation jumped to $5 billion in January 2022, when it sold 1,102 scooters.

The Bengaluru-headquartered startup has since become the country's largest electric two-wheeled vehicle maker, selling 18,628 scooters in August and laying claim to about one-third of the market.

India's electric scooter startups are also facing threats from the top three legacy automakers -- Hero MotoCorp, Bajaj Auto, and TVS Motors, that are cranking up their two-wheeler EV play after a slow start, the report said. Earlier this year, Hero MotoCorp in an analyst presentation said that it will sell EVs in more than 100 cities by fiscal 2024, up from three cities when their EVs first launched in December 2022.

Both startups and legacy automakers have seen a decline in sales but the pressure is far higher on startups. Harshvardhan Sharma, head of automotive retail practice at Nomura Research Institute, said that traditional companies are able to cross-subsidise to fund their EV verticals, but startups don't have anywhere to go.

Sharma further said that investments in the auto sector pay off over a longer horizon, so investors would typically prioritize high-growth sectors, and therefore, some of the funding rounds might come up a little short than what they used to be earlier. 

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