Corporate File

How Tamil Nadu powered up the EV-making ecosystem

Haripriya Sureban |Yatti Soni | Updated on: Mar 13, 2022
Scooting out of the assembly line: Ather Energy factory, Hosur 

Scooting out of the assembly line: Ather Energy factory, Hosur 

The Hosur, Dharmapuri and Krishnagiri belt in north-western TN has emerged as a hub for EVs. How did the State crack the code?

There’s an electric buzz around the north-western districts of Tamil Nadu. The sizzle is caused by the number of new-age EV companies such as Ola Electric, Simple Energy and Ather Energy, among others, which have set up electric vehicle manufacturing plants in and around the Hosur, Dharmapuri and Krishnagiri (HDK) belt, just across the Karnataka border from Bengaluru.

A combination of factors has helped the HDK belt zoom: key players in the investor ecosystem that have backed these companies; a competent ancillary supplier network; and the proximity to Bengaluru, which first gave Hosur the impetus as an industrial belt. These three districts are located within 150 km of Bengaluru, the headquarters for these new-age EV companies. If the cards are played right, this belt could emerge as a global player given the fast adoption of EVs, especially in the two-wheeler segment.

Sanjay Swamy, Managing Partner, Prime Venture Partners, says, “Amongst destinations near Bengaluru, the Hosur area has historically been very strong in the two-wheeler and automotive and electronics sectors, so it’s natural that this would be the first choice since consistent access to power, land and trained labour would be logical criteria, in addition to proximity.”

The growth in EV sales is due to government incentives, growing awareness and spiralling petrol prices. In January 2022, overall high-speed EV two-wheeler registrations rose to 27,563 units as compared to 24,725 units in December 2021, a 11 per cent growth month-on-month and five times the January 2021 volumes. Rising demand has been matched by the manufacturers also upping capacity. Ather Energy recently commissioned its second facility in Hosur to increase its capacity from 120,000 units to 400,000 units. Ola Electric has set out to build the world’s largest EV facility with an initial annual capacity of two million units.

Tamil Nadu also has an established automotive sector with global and domestic majors producing cars, trucks and two-wheelers.

“Hosur has developed as a major auto cluster with multiple auto component manufacturers having plants. In turn, TN has a ready-made EV ecosystem that attracts new players and also enables existing manufacturers of fossil-fuel vehicles to transition to EV manufacturing,” explains Praneet Gupta, Partner, Bain & Co India. Also, TN also has a skilled labour pool, with over 800 engineering colleges ensuring a steady stream for the workforce.

In 2018, Ather Energy began manufacturing from its facility located at Whitefield, Bengaluru. At that time, given the early phase of the company’s design and product development, the key requirement for the company was to have its manufacturing very close to the product and engineering teams. Hence, Bengaluru was an obvious choice, says Ravneet Phokela, Chief Business Officer.

But, as the company entered a high growth phase, one of the key factors driving choice of location for Ather’s second manufacturing facility was proximity to suppliers.

“After considering several options, we set up our plant in Hosur. Apart from proximity to suppliers, the location allowed us to be close to our HQ, a huge advantage,” elaborates Phokela.

Rich supplier ecosystem

Around 60 per cent of Ather’s supplier base is in and around Hosur. Other than cells, 99 per cent of Ather’s components are locally sourced, and that includes the battery pack which the company manufactures in its Hosur facility.

“We work very closely with our partners in their journey of taking a component from prototype to mass-production and to that end, having a partner located in Bengaluru would be an advantage,” says Phokela.

Ather had signed an MoU with the TN government for a 400,000 sq. ft. manufacturing facility in Hosur and started operation in January 2021. Ather also recently commissioned its second facility at Hosur that will take the company’s capacity of 400,000 units from the existing 120,000 units. Apart from the initial investment that Ather made while setting up the plant in 2021, the company has now committed to invest ₹650 crore in the next five years to enhance operational efficiency and capacity.

In December 2020, Ola Electric also signed an MoU with the TN government for an investment of ₹2,400 crore in setting up its first factory in the state. To be run entirely by women, Ola Future Factory, upon completion, is expected to create almost 10,000 jobs and have an annual capacity of two million units. In September 2021, Ola Electric raised over $200 million funding with plans to accelerate development of its other vehicle platforms including electric motorbike, mass market scooter and its electric car.

While several have gravitated to TN’s western belt, Ultraviolette has chosen to set up its plant in Electronics City, Bengaluru. Niraj Rajmohan, Founder and CTO, Ultraviolette, says the location is in close proximity to the company’s R&D facility so Electronics City became a natural choice for them.

“The region is equipped with a strong supply-chain ecosystem, making it easier for us to locally source components necessary for manufacturing and assembly. This, in turn, would help us in improving cost and time efficiencies,” he explains.

EV policy benefits

Analysing the policy benefits available to EV companies in various states, Rajmohan says that in Karnataka the tangible benefits include road tax exemption and no registration fees for EVs. Beyond these, the EV policy talks about more long-term focused measures such as capital subsidy for EV manufacturers and production-linked subsidies.

“While these are beneficial in the long run, the more competitive states offer further upfront benefits — for consumers in the form of financial subsidies for purchase of EVs; and for EV makers in the form of additional upfront capital and low-interest bearing long-term debt with repayment via SGST. This is one of the reasons we see many companies moving out of Bengaluru when it comes to setting up manufacturing,” he added.

Agreeing to this, Bain & Co’s Gupta said there exists a supportive and generous state policy for EV manufacturing. “TN has been an early mover, announcing an EV policy in 2019 with a target investment of about ₹50,000 crore. The policy offers significant incentives including full reimbursement of GST paid on the sale of vehicles, 100 per cent exemption on electricity tax and a subsidy on the cost of land,” said Gupta.

Another player, Simple Energy, has entered the fray and signed an MoU with the TN Government in December 2021 for an investment up to ₹2,500 crore for its EV two-wheeler plant in Dharmapuri. Suhas Rajkumar, CEO, says, “TN’s advanced infrastructure, manufacturing-centred policies and locational advantages facilitate its manufacturing ecosystem and easy exports.” Also, as he adds, TN is one of India’s fastest-growing automobile hubs that keep working on various EV policies that can further benefit the EV start-up industry. Clearly, TN’s policies have powered up the EV manufacturing ecosystem.

Published on March 13, 2022

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