Why do electric vehicle startups often fail to take off?
Despite the sustainability buzz why are Electric Vehicle (EV) startups failing? Let's explore the reasons behind this.
EV startup Fisker Inc. recently filed for bankruptcy. But it is not just new EV businesses that are struggling to survive, even Apple closed its 10-year-long self-driving car project. Even though electric vehicle (EV) startups have been a hot topic in recent years as being a sustainable transportation solution their market performance says otherwise.
So why is it that despite the buzz surrounding electric vehicles, many startups in this space often fail to take off? Let's decode a few key reasons why this is the case.
4 Key reasons why EV startups fail
On a global scale, it is not just US-based startups but even Chinese EV startups are struggling in the market. Despite having an attractive value proposition and agenda of sustainability, here's why EV startups are failing.
1. Lack of market demand
According to a study by CB Insights, 42% of startups often fail due to lack of market need but does this apply to electric vehicles-the answer is somewhat tricky. The adoption of EVs is slow but new businesses often tend to overestimate this growth.
Deloitte's 2024 Global Automotive Consumer Study revealed that Indians prefer Hybrid Electric Vehicles over gasoline-powered cars. However, on a global scale, consumers tend to prefer traditional internal combustion engine (ICE) cars despite rising fuel prices.
2. Battery cost and pricing
One of the primary reasons why EV startups struggle to succeed is the high upfront costs associated with developing and manufacturing electric vehicles. Unlike ICE cars, electric vehicles require expensive battery technology, which can significantly drive up production costs. This makes it difficult for startups to compete with established automakers (like Tesla) who have already invested heavily in Research and Development and have economies of scale on their side.
On the other hand, EV markets aim to replace ICE cars but their pricing is not easy on the pocket which does not make it an attractive choice for the common man.
3. Infrastructure hurdles
Another big challenge that electric vehicle (EV) startups face is the insufficient infrastructure to support electric vehicles. Despite the increasing demand for electric vehicles, there is still a lack of charging stations, particularly in developing countries such as India. This insufficient infrastructure may discourage potential buyers from buying electric vehicles, resulting in slower adoption rates and potentially impeding the success of EV startups.
4. Cut-throat competition
Competition in the electric vehicle (EV) market is intense, with well-established automakers like Tesla, Nissan, and BMW dominating the industry. These companies have significant resources and strong brand recognition, making it tough for new businesses to capture market share.
EV startups may find it difficult to distinguish themselves from big players like Tesla and persuade consumers to choose their products over more well-known brands. Additionally, the technology landscape is continuously evolving, with ongoing advancements in battery technology and autonomous driving. To stay competitive, EV startups need to stay ahead of the curve and continue innovating. However, this can be a challenge for smaller startups with limited R&D capabilities.
India's EV landscape
According to the website Niti Aayog, there are 399 electric vehicle startups in India. Popular names include , , , , etc. In a tricky market landscape and challenges, India's electric vehicle (EV) sector is demonstrating potential due to the government's support for electric mobility.
The Indian government has set ambitious targets, aiming for 30% of all vehicles to be electric by 2030. This has opened up opportunities for EV startups to enter the market and meet the increasing demand for electric vehicles. Moreover, a recent report by JMK Research & Analytics reveals that around 1.7 million EV sales were recorded in FY2024.
So, startups are making their marks in the complicated Indian market. To thrive in India's EV sector, startups will need to focus on innovation, establish partnerships with other industry players, and take advantage of government incentives to drive adoption. Creating affordable electric vehicles that meet the needs of Indian consumers will be crucial for the success of EV startups in the country.
The bottom line
Overall, while the road to success may be rocky for EV startups, there are many opportunities for growth in India's fast-evolving EV landscape. By addressing key challenges and staying ahead of the curve, EV startups in this space can carve out a niche for themselves and contribute to the shift towards sustainable transportation solutions.
