Consumer Tech

Electric Mobility: Why the pandemic won’t hurt the resilient EV demand in the global markets?

by Sandeep Kumar

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The nascent concept of Electric Mobility 

Electric mobility, or E-Mobility increasingly accounts for a large share of the global automotive industry and is changing the way the end-user comprehends mobility as a concept. Electric mobility, according to the definition of the German government and the National Development Plan for Electric Mobility (NEP) comprises all street vehicles that are powered by an electric motor and primarily get their energy from the power grid.

Drivers for adoption of this industry:

  • Minimized the use of traditional fuel
  • Reduced cost of high-capacity batteries
  • Shift in consumer preference towards EVs

Accessible market and impact of its growth

In 2019, electric mobility seemed poised to reach a tipping point. With more than two million electric vehicles (EVs) sold around the world, electric cars accounted for a record 2.5% of the global light-vehicle (LV) market. There were 10 million electric cars on the world’s roads at the end of 2020, following a decade of rapid growth. The global pandemic did cause a severe economic slowdown in the automobile industry. However, The EV market is much more likely to see a faster recovery and strong growth. EV charging infrastructure has also followed suit, last year it hit one of the biggest milestones by crossing the 1 million mark worldwide. Most of the new infrastructure has been built in China and Europe.  North America, with far less robust public subsidy and support, remains a distant third in the charging race.

 

Source: Bloomberg

New routes opening

Capital is the fuel for innovation and growth and the technological advance in the mobility tech has been able to attract it in abundance. Since 2010, venture investors have invested $148.4 Bn into mobility technology, with $44.7 Bn invested across 426 deals in 2018.This helped the capex heavy mobility businesses like Uber and Lyft in bringing innovations, and revolutionizing and disrupting the commercial transportation sector. Recent trends suggest that autonomous vehicles will be the next phase of disruptive mobility technology, with startups including Zoox and TuSimple poised to usher in a new era.

 

  • Regulatory policy: Governments have increased consumer incentives for EV purchases, often as part of stimulus. In Germany, for example, purchase-price subsidies for new EVs can amount to more than $10,000 per vehicle. In China, the purchase-price subsidy currently ranges from 16,200 to 22,500 RMB (approximately $2,350 to $3,265) by car.
  • Infrastructure Investment: In addition to subsidies and incentives, several governments and PE/VC firms have invested huge amounts in infrastructure and technology development projects.
  • Paradigm shift: In many countries the demand for EVs remained fairly stable during pandemic. EV manufacturers that offer online sales have seen particularly high demand since lockdown and social distancing measures kept people at home.

Miniscule presence of Electric Vehicles in India

Electric mobility was introduced in India in 2011 and over the last decade has been able to carve a space for itself in the mobility market, inevitably increasing its relevance in the lives of Indians. India is the fourth largest car market in the world and has the potential to become one of the top three in the near future – with about 400 million customers in need of mobility solutions by the year 2030.

Despite everything, EV industry in India is far behind, with less than 1% of the total vehicle sales. Currently, Indian roads are dominated by conventional vehicles and have approximately 0.4 million electric two-wheelers and a few thousand electric cars only.

 

The opportunities for Electric Mobility in the Indian Markets

Indian market has always prioritized mileage and upfront cost over all other factors. As a consequence, EVs were initially relegated to a very niche segment of the population. Another factor that contributed to this was lack of charging infrastructure.

However, recent technological development has attracted a plethora of entrepreneurs, ranging from budding start-ups to decades-old conglomerates. In addition to thisthey’re also creating new business opportunities for digital technologies like charging location finders and reservation applications, only on payments and ride-sharing services.

Ather Energy, a Bengaluru-based EV startup, develops and manufactures its own e-scooters, offers charging infrastructure through its Ather Grid, provides consumer services that include cloud software upgrades and new ownership models like subscription and leasing which are bound to attract customers. Backed by prominent names like Government of India’s Technology Development Board, Tiger Global Management and Hero Motocorp the company has attracted $166 Mn in funding.

Yulu,technology-driven startup, is solving the matter of first and last-mile connectivity. Yulu Miracle is a smart, dockless e-bike which is meant for urban traffic conditions. Yulu has collaborated with Delhi Metro Rail Corporation to supply their services in and around metro stations in Delhi. Mumbai Metro Region Development Authority has also signed an MoU with Yulu to supply e-bikes to Metro commuters at various metro stations within the city. The company is still in a nascent state and has managed to garner $54 Mn in venture funding from investors like Bajaj Auto, Binny Bansal and 3one4 Capital.

DOT, a Gurugram based EV logistics startup, supplies Electronic vehicles to major e-commerce and food-tech players like Walmart, Amazon, Grofers, Blue Dart, DHL, Lenskart, Swiggy and McDonald’s.

How the virus infected the industry?

The pandemic brought the fourth largest market to a screeching halt as operations were suspended due to government guidelines. China is one of the largest suppliers of EV components. Due to lockdown supply chains have been disrupted leaving a negative short-term impact delaying the adoption.

Another key risk is the falling crude oil prices. As social distancing norms and lockdown has forced people indoors the demand for crude oil has plunged. But this concern is much more valid in the shorter run.Oil prices in India are on a rise contrary to global prices which translates to higher running cost for traditional vehicles. In a price sensitive market like India this will encourage the shift towards Electronic Vehicles.

Significance and opportunities in an emerging market

A move to e-mobility can facilitate governments to go with international emissions targets (e.g., the Paris Climate Agreement). E-mobility can cut back the general energy needed by electrical vehicles and inside the transportation sector normally.

Benefits: Electrical vehicle makers (particularly in automotive) are always in the hunt to remain one step ahead than another. This often significantly results in immense numbers of innovations like improved energy potency, higher performance levels, and lighter vehicles, etc. To continue its widespread growth, the electrified vehicle should overcome vital challenges like battery autonomy, recharging networks, and its worth.

Challenges: Batteries area unit is one of the key challenges in automobile electrification. The problem lies within the raw materials from which the batteries area unit is made: carbon, lithium, and cobalt. Regions like Europe lack their sources of those minerals which is additionally dominated by China. Another challenge being the limited recharge points

Regulatory tailwinds to bring down cost and convenience hurdles

Considering the rise in congestion and the compelling need to reduce emissions, the governments have taken some decisive actions to encourage electric vehicles adoption. Countries like Germany and France have announced their plans to elevate the subsidies for electric vehicles. In an effort to boost electric mobility, the Chinese government has extended subsidies for electric vehicles until 2022 and created exemptions from purchase taxes.

China’s Ministry of Industry and Information Technology aims to augment the top line of electric vehicle sales, and has set a target for EVs to represent 25% of new vehicle sales by 2025. Tesla, BYD, NIO and Xpeng are amongst the major players in the EV market in China.

Many states in India are racing ahead through policy groundwork. Initiatives and campaigns like National Electric Mobility Mission Plan 2020, Scheme for Faster Adoption and Manufacturing of (Hybrid and) electric vehicles in India (FAME India), as well as [email protected] campaign are boosting the adoption of EVs.

Is the market open to adopting EV?

Yes, people are willing to make the sensible switch to EVs, provided there is a required infrastructure in place, policies that govern and support research development, charging infrastructure and skill development initiatives need to be undertaken. The provision of fiscal and non-fiscal incentives is often made, so as to increase the viability of EVs in the long run.These favorable policies are already having an impact on purchasing behavior and leading to more electric vehicle sales. Total electric vehicle registrations in Europe rose 127% YoY in July. Market forecast assumes electric vehicles achieve cost parity with gas-powered vehicles in 2025.

Does the performance justify cost?

Electric scooters are evidently more costly than their petrol counterparts and affordability comes at the price of shorter range, slower speed and inadequate service. However, an electric scooter will offer the same mileage as a petrol scooter at 15% of the cost of one liter of fuel, making it very pocket-friendly over the long-term. Relevance depends on the usage, they are a good option for short daily use, but they make little sense for long-distance rides with a limited number of charging stations.

The long-term route to Electric Mobility

Will the Electric Mobility market see continued growth worldwide? In addition to evaluating short-term changes, we should also understand long-term trends for EVs. Will regional differences continue to persist? If the current tailwinds for EVs in China and Europe continue, electric mobility could emerge from the COVID-19 crisis in an even stronger position than what was estimated pre-covid. In fact, regulations and incentives will likely propel EV market share in China to roughly 35 – 50 % and in Europe to 35% – 45%.

– – – – – 

This article has been co-authored by Ayush Dugar and Yogesh Lakhotiawho is in the Resarch and Insight team at Torre Capital.

 

Will Grab make money for its investors even post the massive $40Bn SPAC valuation?

by Sandeep Kumar

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Grab Holdings, Southeast Asia’s largest ride-hailing firm, plans to merge with Altimeter Growth Capital, based in the United States, in a deal worth approximately $40 Bn and allowing it to trade on the Nasdaq Stock Exchange.

If it goes through, this SPAC deal will be the largest ever U.S. equity offering by a South-East Asian firm, with the planned deals giving Grab a Pro-forma equity valuation of about $39.6 Bn. Grab will earn up to $4.5 Bn (SGD 6.05 Bn) in cash as part of the SPAC contract. BlackRock, T. Rowe Price, and Fidelity are among the large institutional investors who have poured money into the offer.

Can Grab justify its supercilious valuation?

We Know that Grab has a huge dominance over the South East Asian market and is also a fairly good company but the real thing to ask is that how justified it is to give a massive valuation of around $40 Bn? Is there anything for the investors to be happy about their investment in the company? If we go with the past history of Grab including the recent Private Investment in Public Equity round where it raised around $4 Bn. A total of around $17 Bn has been raised till date in 19 rounds which is way more than any other Southeast Asian startup which suggests that they have raised a huge amount from the market so far.

We believe there’s already a saturation with respect to the addressable market size. Grab has already conquered most of the market in the field with 66 concurrent rides in one second across seven countries, occupying 97% market share in the third-party taxi-hailing market and 72% in the private vehicle hailing market. This data suggests that the company already has attained a humongous market share. Despite this fact, inflating its valuation to $40 Bn seems difficult to digest making it too rich a stock.

The scale of its multi-faceted business model

Grab is Southeast Asia’s leading ride-hailing network, headquartered in Singapore with services including ride-sharing, food delivery, taxi booking, insurance, bill payment, and more. In 2018, Grab bought Uber’s entire Southeast Asia ride-hailing service in 2018.

Grab charges a 16% to 25% commission for using their services. It has around 3.5 million drivers in Malaysia, and the minimum ride cost is RM5. After a 25% cut (RM1.25), the company would gain around RM4 million if every driver gets a verified ride.

Any time the driver completes a booking, the credits deposited by the driver will be deducted in the same amount. In Singapore, Grab offered $4.30 to $5.70 for each ride last year; such offers could cost the company millions per month. Grab does not provide travelers with free or discounted rides.

Consider another example, the average gross earnings of a full-time (12 hours) driver in a month is $1435 — $1670. After a 25% commission cut, drivers will earn $1795 — $2088. Based on this, Grab would have gotten about $360 — $418 of commission from a single driver.

Scale and Leadership in South East Asia (Source: Grab S-1)

Dominance in the Southeast Asian Market

Since launching in 2012, Grab has evolved from a humble taxi-booking app to Southeast Asia’s largest land transport company, with over 200,000 drivers and over 11 Million mobile downloads.

Since mid-2015, GrabCar rides have increased by 35% on an average monthly basis, while GrabBike rides have increased by 75% on an average monthly basis. Ride-hailing services have become invaluable to Southeast Asia’s infrastructure, and the region’s industry has been shaken by the sudden emergence of now-dominant player Grab. With the departure of Uber Technologies of the United States, the sector is entering a new era of competition. Grab will not go unchallenged, and will need to prepare for competition from new corners and in new fields as it expands beyond its core business.

Stellar growth with no profitability

Though Grab currently is far off from achieving profitability in its financials, it has been growing tremendously in the past few years. Recently, the coronavirus pandemic has spurred growth in Grab’s food and grocery delivery business, turning them into some of the company’s biggest revenue streams.

Mobility segment profit and EBITDA (Source: Grab S-1)

Through the SPAC Merger, Grab will have hands-on cash proceeds namely, $4.0 Bn (SGD 5.37 Bn) in fully committed PIPE financing, led by $750 Mn (SGD 1.07 Bn) from Altimeter Capital Management, LP, the firm that owns Altimeter Growth Corp.

Snapshot of key financial metrics:

  • Revenue: $1.19 Bn in 2020, up from $455 Mn in 2019.
  • Loss: $2.7 Bn in 2020, which was $4 Bn in the year 2019.
  • Profits: The company is also expecting its earnings before interest, taxes, depreciation, and amortization to turn profitable by the year 2023.

Grab’s edge over its competitors

Grab has a lot of benefits, most of which include easy booking, insured drivers, rider ratings, and low or at least confirmed wait times.

Positioned as a forum for a variety of services; Grab offers:

  • Licensed and Insured Drivers: Grab drivers must register as a local business, convert their vehicle to a commercial vehicle, sign up in person at the Grab office, and buy commercial insurance to protect themselves and their property. If you use GrabTaxi, you will only be connected with licensed taxi drivers, not novice ones.
  • Flat rate fees: Grab charges a flat rate that you can see before you ride. This feature removes the element of surprise from many taxi fares and helps you to choose the best ride for your budget. Shorter wait times — With over 30,000 drivers in 30 cities, Grab rides are readily available.
  • Accessibility as a Super App: The network effects are one of the most important force multipliers for the business model of a super-app, which Grab is positioning itself as. i.e., as there are more rides available at any given time, more people can use services like ride-hailing from you, which makes it lucrative for drivers to register on your platform.

Concerns surrounding Grab’s SPAC merger route

Getting regulatory approvals for an IPO would have been difficult for a cash-burning business like Grab (where all the promised land of gold is in the forecasts and excels). Recent cases, such as WeWork’s failed IPO, are fresh in the minds of aspiring public companies. When there are no positive cash flows, it is easier to sell the forecasts to a SPAC rather than the general public. The markets are overflowing with the supply of cash-rich SPACs looking for big enough startups to invest in.

However, because of the SPAC’s nature, many aspects are inherently opaque, making it easier for big companies to dupe retail investors. In the case of a SPAC, unlike a conventional IPO, a company decides on the valuation, and if Grab had chosen a traditional approach, it would have been impossible for the company to achieve the same in such a short span of time.

SPACs are appealing to people who want to go public in a volatile market. IPOs are considered riskier because there is always a possibility that the papers will not be accepted until they are filed publicly. The same thing happened with WeWork’s IPO, which was canceled after the company’s details were made public and investors were forced to withdraw.

Some other relevant concerns that will arise post Grab’s SPAC Merger:

  • Disproportionate Voting Rights: The founder Anthony Tan will receive a voting share that is 30 times greater than his equity stake in the company as a result of this transaction.
  • Grab’s Cash Burn: Grab is at a point in its growth where it has a high valuation but is also cash flow negative. Shares in the SPAC that were purchased at the start of the company can be redeemed. If redemptions meet forecasts, cash availability becomes unpredictable, forcing SPACs to seek PIPE funding to make up the difference. Grab’s cash burn may be exacerbated by this contract.
  • Shareholding Dilution: SPAC sponsors usually hold a 20% stake in the SPAC in the form of founder stock, or “promote,” as well as warrants to buy more shares. They also benefit from an earn-out component, which allows them to gain more shares if share prices reach a certain level. This could result in more dilution, which could lead to mismanagement at Grab.

Should you invest?

Despite being Singapore’s largest unicorn, Grab, like many other startups, is still burning cash and isn’t expected to turn EBIDTA positive until 2023, according to Moody’s. Grab’s value has more than doubled to $39.6 Bn, up from $16 Bn in the last round of funding. Grab, on the other side, would have $4.5 Bn in cash on hand.

At more than 3 times its GMV, the company’s valuation leaves very little space for new investors, at least for the time being.

A lot would hinge on Grab’s ability to maintain its remarkable 96% CAGR in net sales over the last three years. The company may lose some of its moats in the long run as a result of legislation, market changes such as customers shifting away from ride-sharing, and competition from other regional players such as Gojek, Urge, and others.

A long way to go

SPAC Mergers are seen as a simple way to avoid the conventional IPO enforcement procedures. Many critics believe that the SPAC merger is used by low-performing companies that have no other way to get listed on the stock exchange. Even though the company has a positive outlook, it is still too rich, driving such a large valuation, encompassing negative returns (EBITDA), and generating negative emotions among many investors.

Grab’s valuation premium will take some time to catch up with the promised cash flows. However, the sheer potential of being in inherently high-growth markets with penetration levels in the single digits and lower double digits, combined with technology-enabled day-to-day services and Fintech solutions for markets with very low banking penetration (only 40% penetration), could eventually propel Grab to emerge from a long list of failed SPAC mergers. For the time being, the valuations are on the verge of becoming a bubble, and they are still pricing in a lot of stuff happening for Grab, making us cautious to dive deep into the Grab SPAC at the moment.

– – – – –

This article has been co-authored by Sargam Palod and Sayan Mitra, who is in the Research and Insights team of Torre Capital. 

The Pre-IPO Startup Equity Market

by tradmin

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“Listing gains are likely to be capped by reputational concerns around an otherwise enviable product stack”

Palantir IPO: Exercise extreme caution, may not be as smooth sailing as other recent tech IPOs

We believe that Palantir might continue to make winning bids for government contracts and maintain/increase its revenue share. However, future growth and share price will be driven by Palantir’s ability to acquire and grow large corporate customers, and not govt. contracts.
Palantir has not seen a single year of profits since inception 17 years ago. It is not clear to us how this situation will change in the coming year.

We firmly believe that their data mining software is industry leading. But we’re not convinced that this alone is enough for widespread corporate consumption.
Palantir has the first-mover advantage to offer specialised, customer-specific, use-case data analytics software. It needs to become price competitive to capture market share.
Given the negative public image and governance concerns, we don’t think Palantir would repeat the success of a Snowflake or Unity. Listing gains maybe limited, long term investors may want to back the company.

The success of Foundry- Palantir’s enterprise SaaS platform will be the primary driver of its growth. However, in the near term, it will be out shadowed by its negative public perception and unethical use of private data. The stock is likely to underperform, atleast compared to more straight forward SaaS companies. Download the report for an in-depth analysis of this tech giant.

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