When you think about Pakistani startups, you probably imagine a few fintechs, ride-hailing services, last-mile delivery apps, a well-known e-commerce platform, and maybe a couple of logistics companies.
The chances of considering an electric vehicle startup right off the bat are pretty low. This lack of immediate association is also reflected in the slow progress of electric mobility in the country, despite the evident potential and need for it.
Across the Indus
Before painting the picture of Pakistan’s Electric bikes market (the most relevant sub-segment for the country) let’s get your hopes high with the progress across the border. In India, the future looks promising for electric two-wheelers, including motorcycles and scooters. These vehicles, known for their accessibility and affordability, have been a significant component of India’s transportation landscape, representing over 70% of all vehicles. As per a McKinsey study, by 2030, it is anticipated that electric two-wheelers will make up 60 to 70% of new vehicle sales in India. Consumers are not just willing to adopt more electric two-wheelers but are also shifting towards embracing omnichannel purchasing experiences.
Source: Mckinsey
Take off, already
Pakistan, however, paints a contrasting picture when it comes to EV two-wheelers. You see it is easy to be overly cautious and also delusional when it comes to such technologies. However, the reality lies somewhere in between.
There are currently fewer than 15,000 EVs on the road in Pakistan. When you compare this number to the 26 million two-wheelers present on the roads, you can identify both an opportunity and a concern.
The opportunity is glaringly evident. The two-wheeler market is substantial, with sales consistently exceeding 1.5 million units annually for the past decade. Projections indicate that this figure will surpass 2 million units each year. Despite this, electric two-wheelers currently constitute only a negligible fraction of the market. However, recent developments have seen numerous companies entering this segment, with 30 of them receiving licenses from the Engineering Development Board (EDB).
The potential for rapid electrification and emission reduction within the two-wheeler industry is significant. By closely analyzing the electric two-wheeler market—considering growth trends, total cost of ownership (TCO), technological advancements, and consumer attitudes—we can pinpoint crucial factors that will drive the success of Original Equipment Manufacturers (OEMs) and other stakeholders in this domain.
While the opportunity is evident, there are also pressing concerns. Motorcycles, as mentioned before, dominate as the most popular privately owned means of transport in the country. Additionally, the nation boasts a substantial female population, for whom electric scooters and bikes could alleviate restricted mobility issues.
However, despite these favorable conditions, the adoption of electric vehicles (EVs) remains disappointingly low. This can be attributed to a combination of factors.
Firstly, let’s delve into the consumer perspective. Purchasing a vehicle is a significant decision in our country, influenced by various factors such as affordability, brand trust, convenience, and maintenance costs.
As the market evolves and consumers become more informed, brand trust can be established, gradually reducing reluctance towards adopting emerging technologies. However, a major obstacle on the consumer front remains affordability. The current fleet of EVs is notably more expensive than their internal combustion engine (ICE) counterparts due to heavy reliance on imported automotive components.
Notably, the battery—comprising half of an EV two-wheeler’s price—is exclusively imported. Additionally, the scarcity of ancillary infrastructure, particularly charging stations, exacerbates consumer range anxiety.
Moving to the supply side, we encounter several challenges. These include a heavy reliance on delays in component procurement, high import tariffs for specific parts, and disruptions in the supply chain can all hinder production and escalate costs for manufacturers.
Furthermore, the scarcity of a skilled workforce in the sector poses a significant obstacle to industrial growth. The absence of comprehensive training programs and educational opportunities restricts the availability of qualified personnel for manufacturing, maintenance, and repair purposes
A problem waiting for a solution
While there are several interventions that can be explored to revitalize the sector, two key areas warrant attention: financing and infrastructure development. Currently, the financing landscape of local banks largely overlooks consumer financing due to their risk-averse mindset.
Source: PRIED
This restricts the consumer financing opportunities available at the EV front and also plays into the affordability conundrum.
From the manufacturing perspective, it’s crucial to recognize that EVs are capital-intensive, with funding requirements exceeding those of conventional technology businesses. While local venture capitalists (VCs) are primarily interested in early-stage startups, their ability to provide funding is limited by ticket size. Moreover, participating in subsequent funding rounds—typically larger—becomes increasingly challenging for them.
As a result, there seems to be investor fatigue when it comes to EV startups.
This suggests that these businesses may seek funding from private equity sources because of the amount they plan to raise. However, due to the lack of product-market fit, the high risk associated with these investments may not align with the investment thesis of many local private equity investors.
One alternative option that remains is concessional and grant funding. The unique nature of the business and its sustainability impact contribute to the belief that grants could provide the essential support needed for the sector. There are already credit guarantee schemes established by multilateral donors to facilitate consumer financing for electric vehicles, and it appears that the government is also considering implementing similar mechanisms.
For startups, grants, and concessional loans can help fill the funding gap resulting from the limited availability of equity investment, as previously discussed.
As far as infrastructure is concerned, establishing battery charging and swapping stations would be a natural progression for this ecosystem. However, to execute this, there are multiple prerequisites that need to be met. This includes the commoditization of key parts of EVs, including the batteries, so that EV infrastructure can cater to all consumers utilizing the technology and can benefit from economies of scale.
Introducing smart batteries with trackers can also help mitigate banks’ fears about loan defaults, as non-payment can be penalized by disconnecting the vehicle.
Also, viewing the infrastructure around EVs from a different lens is essential. Battery charging stations could potentially leverage surplus capacity in the Pakistani electricity grid to reduce national tariffs. By exploring these additional benefits, there is a potential to attract greater interest from regulators and other stakeholders.
The future of EVs in the country appears promising, with favorable conditions already in place. What the industry needs is a final push to propel it forward.