Financing the project

Assignment Taken

Proposal for fund raising and Market Analysis

Case Understanding

The objective is to study the present EV segment and develop strategies to launch a start-up focused around manufacturing and selling electric vehicles.

BCS Solution Summary

Considering the high cost of rate for start-ups, we suggest that going for equity investment is the most reasonable way of funding the project

Solution

Globally, and in India, the COVID-19 pandemic has briefly interfered with the solid development of the electric vehicles market. In the coming days, it will be essential to recapture this force to propel the decarbonization of transport.

The automobile sector is answerable for 24% of worldwide energy-related CO2 emanations, of which right around three-fourths is because of street transportation. At the nearby level, tailpipe emanations are critical wellsprings of air contamination killing an expected 7,000,000 individuals consistently. Electric vehicles assist with lessening these outflows, even more so as power networks overall move towards a more prominent portion of renewables for power age.

INDIA’S EV MARKET

India's anticipated change to electric vehicles is at last acquiring foothold. The expanded consideration on electric vehicles is to a great extent on account of two factors: to battle the rising hazard of air contamination, and to lessen India's over reliance on unrefined petroleum imports. In addition, backing to homegrown R&D, tax reductions, sponsorships on import of unrefined components and different motivators are acting as catalysts in this change.

According to Niti Aayog’s recent report titled ‘Mobalising Electric Vehicle Financing in India’, the EV financing sector is expected to grow at a tremendous pace in the next decade and is projected to be worth Rs. 3.7 Lakh crore in 2030. This is around 80% of the present retail vehicle finance sector.

As per an independent study conducted by India Energy Storage Alliance (IESA), the Indian EV market will potentially grow at a compounded annual growth rate of 36% for next 5 years. This is bound to fuel a growth in the EV battery market.

India offers the world’s largest untapped market. This is especially true for the two-wheeler segment. To support local production and adoption of EV vehicles, the government has announced certain production-linked incentive (PLI) schemes and has also implemented phase II of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) scheme. The objective is to reduce the cost of production and to make electric vehicles affordable.

FINANCING THE PROJECT

With Indian automobile market taking a turn towards sustainable future, the EV market has taken the center stage in the discussion. Considering the growth in the sector, it would not be difficult to get investors on-board to fund the project.

The consumer mindset has evolved over the past 1.5 years, and this has resulted in a demand surge for EVs. This is likely to grow even faster once the pandemic dissipates. Thus, it would not be difficult to get the venture capital firms excited about the project. Further, since the start-up is still in the nascent stage, any investment in the form of debt would attract a very high interest rate. Thus, at this stage it would only be rational to go for equity investment. Another reason why VC firms would be interested in making an investment, is the adoption and implementation of phase II of the Faster Adoption and Manufacturing of Electric Vehicles in India (FAME India) Scheme. The scheme is to be put into effect on the following verticals:

1. Demand Incentives
2. Publicity and marketing
3. Support for Infrastructure establishment

To ensure wider adoption of electric and hybrid vehicles, incentives such as reduced upfront purchase price would be made available to the consumers. The OEM would then be reimbursed by the Government of India under the Scheme. The cost of producing a BEV125 scooter is estimated to be around Rs. 185,000.[1] With the initial plan to produce and sell 500 units in the first quarter, the initial required investment comes out to be for Rs. 101.75 million ($ 1.36 million).[2]

 

---

[1] This includes the battery, assembly, and indirect costs.

[2] We have assumed the additional cost (initial set & marketing) to be around 10% for every unit.

Conclusion

We expect a cost of around $1.35 million to produce and sell the first 500 units of BEV125 scooters. This includes marketing and production cost. Considering the uncertainties with crowdfunding, the cheapest way to finance the start-up would be through equity investment.

Attached File Details