Ather’s IPO: Interesting gleanings on EV industry from its DRHP and how PM E-Drive can give a booster dose

With plans to go public, Ather Energy has sought to raise ₹3,100 crore through a combination of fresh capital and an offer for sale (OFS) from existing investors.

As per the company’s DRHP, in FY24, it reported revenues of around ₹1,700 crore but faced significant losses of approximately ₹1,000 crore.

These losses were partly attributed to the company’s dependence on the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, which resulted in financial setbacks due to delays, narrow gross profit margins, or increased costs that the subsidies did not fully offset.

Note: The total expenses are inclusive of employee benefit and material cost.

Electric two-wheeler sales in India surged from 30,000 units in FY19 to 9.4 lakh units in FY24, driven by the FAME scheme aimed at promoting EV adoption and infrastructure.

FAME II, launched in 2019 with a ₹10,000 crore budget, was aimed to support 15 lakh electric vehicles across categories. 

After the second scheme, which expired on July 31, the government has now launched the PM E-Drive scheme, effectively a rebranded version of the FAME III policy, with a budget of ₹10,900 crore over two years.

A mixed bag of outcomes

Despite earlier uncertainty about the continuation of subsidies, the government has decided to extend them under the new program, though the rationale behind this decision remains somewhat unclear.

Moreover, while FAME II had a five-year span, the PM E-Drive aims to achieve its targets in just two years, marking an ambitious timeline.

Interestingly, the scheme excludes electric cars from receiving subsidies, instead focusing on two-wheelers, three-wheelers, buses, trucks, and even ambulances.

A total of ₹3,679 crore is earmarked to incentivise the adoption of 25 lakh e-two-wheelers and over 3 lakh e-three-wheelers.

The broader impact of excluding electric cars from subsidies on the EV market remains uncertain.

A noteworthy observation from the DRHP was the divergence between the subsidy provided by the government and the actual revenue that companies are generating from the sale of electric vehicles. 

The subsidy per vehicle cost through the phase of FAME II actually reduced.

This was largely because under FAME II, subsidies were calculated based on battery capacity, and capped at 40 per cent of the vehicle’s cost, resulting in lower financial support compared to FAME I.

The PM E-Drive scheme could streamline this subsidy process by simplifying its structure, enhancing support for smaller vehicles, removing rigid caps, and improving the efficiency of application and disbursement.

Buyers will receive an Aadhaar-verified e-voucher at the time of purchase, clearly detailing the subsidy amount, which addresses a key challenge from previous schemes. This approach is expected to align subsidies more closely with market needs and reduce the gap between government support and the actual revenue generated from EV sales.

Amid these shifts in policy, Ather is heavily investing in expanding production capacities to tap into the market’s growing demand.

The funds raised through the IPO, according to the filing, will be used to increase production capacity, with a significant ₹2,000 crore investment already made in a third plant in Aurangabad.

While economies of scale can help reduce per-unit costs, making electric scooters more affordable, the absence of widespread charging networks and adequate facilities limits the industry’s potential for growth.

Charging infrastructure

In a price-sensitive market like India, where affordability drives sales, the need for robust infrastructure becomes even more crucial to foster consumer confidence and adoption.

As of 2024, the country has roughly 16,300 public charging stations, said a CareEdge Ratings report.

However, it is unclear how many of these stations cater to two-wheelers or whether all are operational.

Shift in sales and fuel choices

Another interesting trend is that the overall two-wheeler market has grown due to the rise in electric two-wheeler sales, despite a 4 per cent decline in petrol two-wheeler sales between FY19 and FY24.

In 2024, 50-55 per cent of two-wheeler purchases were made through financing, up from 40 per cent in 2019, indicating that the increased availability of financing has facilitated this growth.

According to the CareEdge Ratings report, alternative fuel vehicles, including CNG, LPG, EVs, and hybrids, experienced a 400 per cent increase in sales in CY23 compared to CY20, largely driven by electric vehicles.

Despite this substantial growth, electric two-wheelers still account for only 6-7 per cent of the total market.

Competitive landscape

The electric two-wheeler space in India has undergone significant changes since 2019. Back then, Hero Electric and Okinawa held more than 80 per cent of the market.

However, the market has diversified, with companies like TVS and Bajaj entering the fray, with Bajaj now holding a market share comparable to Ather.

Ola Electric officially entered the electric two-wheeler market in 2021 with the launch of its first scooter, the Ola S1, and has since captured the largest market share.

Note: The total expenses are inclusive of employee benefit and material cost.

With respect to sales, Ather sold 1.1 lakh scooters, while Ola recorded sales of 3.3 lakh scooters.

Ownership and affordability

A common question that often arises, among buyers, about electric vehicles (EVs) is whether they are affordable.

According to Ather’s DRHP, in India, lower-income households earning around ₹1.25 lakh annually have a 34 per cent two-wheeler ownership rate, and are constrained by the high upfront costs of electric vehicles. While wealthier households, with a 75 per cent ownership rate, are more inclined to invest in electric two-wheelers due to their lower long-term costs.

While electric two-wheelers currently cost about 40 per cent more upfront than petrol bikes, they are approximately 37 per cent cheaper to own over time for 8,000 kilometres of annual usage.

With subsidies, this cost advantage would rise to 52 per cent.

According to Ather, by 2031, electric two-wheelers will be 52 per cent cheaper than petrol bikes even without subsidies, highlighting their long-term cost efficiency despite higher initial costs.

Factors such as the potential decline in battery costs, increasing petrol prices, and continuous advancements in EV technology could enhance efficiency and durability, further lowering ownership expenses.