Scaling E-mobility in East Africa
Across sub-Saharan Africa, innovators, governments, and entrepreneurs are driving a transportation revolution. Electric vehicles (EVs) hold the promise of cleaner, more affordable ways to travel and transport goods. Power Africa is advising funders on the exciting possibilities of electric mobility (e-mobility) and helping e-mobility businesses to meet investors’ expectations.
Ever more people in countries where private car ownership is common are adopting electric vehicles. Urbanizing and rapidly growing sub-Saharan Africa is on the verge of its own transition to electric public transportation and fleet vehicles. Electric vehicles are cleaner and promise to be more affordable than their fossil-fuel-powered counterparts, helping their owners reduce emissions and save money on fuel. Power Africa, through Open Capital Advisors, a consultant and advisory firm, has helped leading e-mobility businesses to raise funds and work with investors. With more investors understanding the value of e-mobility in Africa, the sector is poised to grow and offer economic benefit.
East Africa has become a hub for e-mobility innovation, with local companies creating business models that aim to fill gaps in transportation services without waiting for infrastructure and grid expansion to catch up. Investors have spotted the opportunity that e-mobility offers, raising $62 million in 2021 for e-mobility in Kenya, Rwanda, and Uganda. Interesting partnerships are emerging in which companies work together to build battery-swapping stations for electric motorbikes and commercial banks offer their customers credit for e-mobility products.
Successful and innovative business models in East Africa
Many e-mobility businesses in East Africa focus on supplying passenger buses and two-wheeled motorbikes, the region’s most widespread forms of motorized transport. Companies usually operate both kinds of transportation, sometimes at small scale, or individual owners rely on the vehicles for their income. Electric buses and motorbikes that are cheaper to run than those powered by fuel encourage business owners to adopt e-mobility as a cost-effective way to meet their transportation needs. Business models that enable drivers to swap their vehicles’ batteries at solar charging-stations solves the issue of limited grid coverage, and start-ups are rapidly testing new vehicle designs without investing in expensive assembly plants. To help more people afford EVs, companies are piloting new service models like flexible payments, pay-per-use, and group leasing, in which people own the same vehicle to use at different times.
East African e-mobility companies’ business models are different from those in the rest of the world.
e-Mobility market
More mature EV markets
- Designers, manufacturers, and assemblers: Focus on personal vehicles and production of new EVs
- Energy providers: Widespread and reliable electrical grids support dense charging networks
- Customer service and support: Incentives (e.g., tax credits) enable people to own EVs; companies help customers share rides, maintain their vehicles, and buy EVs on credit
East Africa EV market
- Designers, manufacturers, and assemblers: Focus on income-generating use and electrifying fuel-powered vehicles
- Energy providers: Limited grid coverage makes battery-swapping models attractive to drivers; pay-per-use models lower the costs for drivers
- Customer service and support: Flexible payment models like group leasing and pay-as-you-go (PAYGO) are growing the customer pool for e-mobility
Companies that offer battery swapping like Ampersand, ROAM, and Zembo have piloted ways to adapt technology and business models to their markets. New and established e-mobility businesses in this region are looking to secure funding to obtain capital and to research and develop products and services. Capital expenditure and innovation will be high-priority investment areas until the EV market matures.
Although range anxiety is a global phenomenon, East Africa presents its own set of difficulties such as uneven road quality and low rural population density. Charging networks may need to be mapped to the actual movement of riders independent of officially mapped roads, especially in more remote areas. Customers’ preferences may vary with use and context, too. Commercial motorbike riders, for example, may not be willing to take time out of their schedules to charge their vehicles’ batteries several times daily. Individual riders may find owning EVs to be more attractive than renting. Conversely, renting can be a practical option for fleet operators. Business models will likely vary even within one country, depending on the terrain, population density, and how the built environment evolves.
Investing in e-mobility: More data can spur more capital
In some respects, e-mobility in East Africa resembles the off-grid solar market of a decade ago. Off-grid solar technology emerged as a clean and innovative way to generate electricity in places where grid power fell short. The off-grid solar market also required more easily accessible financing to scale and mature. Business models such as PAYGO reduced the up-front cost for customers to acquire solar technology. As off-grid solar power has become more accessible, investment in this market has grown by an order of magnitude since 2012, reaching a value of more than $2.3 billion. The e-mobility market has similar potential.
In theory, financing e-mobility is easier than financing solar home systems because EVs can help people generate incomes and obvious secondary markets exist for vehicles. The clear market for EVs can make lenders like banks willing to finance e-mobility, especially because they can use the EVs to secure the loans. But because EV technology is new, no special set of criteria exists to assess how well the market performs. This common language to communicate EVs’ market performance should do more than just count the number of vehicles sold or leased, and should also measure revenues from battery charging and swapping, royalties from vehicle-technology patents, revenue per user, EVs’ prevalence in ride-hailing, and the level and quality of debt that e-mobility companies have on their books.
“We can be EBITDA-profitable at 450 units (for four-wheeled vehicles) and 5,000 units (for two-wheelers) sold.” — An e-mobility operator that assembles and distributes bus fleets and motorbikes
A few established companies in East Africa have attracted larger investments led by either development-finance institutions or strategic partners in their market. Asset-finance companies, manufacturers looking to expand to Africa, and U.S. technology firms have succeeded in their pilot projects and fundraising rounds by focusing on specific aspects of the EV market. Some companies that secured funding to scale their businesses are Ampersand (which obtained $9 million in debt from Power Africa partner U.S. International Development Finance Corporation), ARC Ride (from its partnership with Musashi Seimitsu and Watu), ROAM ($7.5 million in equity and grants led by At One Ventures), and Zembo ($3.4 million from Toyota, DOB Equity, and InfraCo). Such investments are likely to continue given e-mobility’s potential to scale. Collaboration between larger global companies and African innovators in particular will hasten EV adoption on the continent.
“We want to eventually expand our services through a franchise model, but we’re finding it hard to attract the needed capital. Investor appetite seems limited, as those who are interested have already made their investment bets.” — An e-motorbike retailer offering charging services for electric motorbike-taxis in Kenya
“We are already ahead of our e-mobility reservation targets, but the key hindrance in meeting demand is lack of capital.” — An e-mobility startup in East Africa offering EVs to public-transport owners
Although the $62 million raised in 2021 in Kenya, Uganda, and Rwanda is impressive, it falls short of the amount of investment required in Africa to scale consumer financing, build infrastructure for EVs, and enable businesses to afford capital. Shell Foundation estimates that investments worth $3.5 billion to $8.9 billion are needed to satisfy the market for electric two-wheelers in five African countries by 2030. Very few sources of such funding exist today. Investors like Factor[e] Ventures, InfraCo, Mobility 54, and Total Energies Ventures are providing early-stage capital; debt is available from development-finance institutions like the U.S. Development Finance Corporation. More impact investors and private equity funds should consider pursuing more deals with early-stage companies.
Scaling e-mobility through technical assistance and innovative financing
Businesses will continue to need help to meet investors’ requirements and strengthen their business operations. This demand will be particularly strong among emerging companies piloting business models and expanding in new markets.
To build business’ capacity and assist them to secure investments, Power Africa helps companies to:
- Communicate their growth plans
- Fulfill the role of a chief financial officer to enhance companies’ financial management
- Transact with funders
- Answer investors’ questions
- Draw up terms and conditions for business agreements
- Respond to investors’ needs like reducing currency risks
Specific challenges that e-mobility companies mention are aligning expectations between themselves and investors (e.g., finalizing amounts and repayment periods) for short- and long-term financing, limited understanding of unit economics (how a particular aspect of the business performs, like a product), and achieving profitability.
“We need more debt financing, but the banks right now are only offering collateralized loans or some form of personal guarantee, which is not [feasible].” — An e-mobility operator seeking $5 million in debt to finance batteries in East Africa
To channel funds toward e-mobility, investors, donors, and other interested parties can use a range of approaches:
- Grants and subsidies, including tax incentives, can help to develop unproven early-stage business models that need more research and development. Component manufacturing and vehicle assembly are extremely capital intensive and have supply chains running through multiple markets and firms. Many businesses are converting fossil-fuel-powered vehicles into EVs and forming partnerships to import components for local assembly. But certain EV components, such as batteries, currently have high tariff barriers in East Africa. Likewise, most fuel-powered vehicles in East Africa were manufactured and assembled abroad, meaning that e-mobility technology assembled locally can avoid incurring taxes and gain a price advantage over fuel-powered engines. Helpful incentives are those like Kenya’s reduction of consumer tax on EVs from 20 percent to ten percent in 2019, and Rwanda’s import-tax exemptions on EVs and related equipment and special tariff rates that are 50 percent cheaper for charging stations. Lessons about e-mobility from India show that it may not be practical for all EVs to be designed and built locally. This means that e-mobility companies in East Africa will need grant funding to experiment with products and sustainable business models, patient capital, and help to broker partnerships with vehicle manufacturers.
- Long-term investment (or “patient capital”) can support more mature business models and help such companies market themselves to new customers over the long term. Debt that financiers issue on favorable terms can enable more companies to obtain EV components and technology.
“We are mainly speaking to DFIs, as we have found other investors shy away from the small-ticket, early-stage nature of e-mobility businesses, where business models are still being refined and are bound to change.” — An e-mobility startup seeking less than $10 million in debt and equity to finance e-buses in East Africa
- Consumer finance is equally important, as demonstrated by companies that offer finance to drivers such as Power Africa partners Bboxx and M-KOPA, as well as Tugende and Watu. East African commercial banks like KCB, Family Bank, and NCBA have also introduced customer financing.
- Project financing can make cash available for businesses that want to develop battery-swapping and other services that rely on infrastructure by pegging repayment terms to future earnings. Companies can also seek pre-financing for carbon credits, given the carbon-emission savings from business models for e-mobility.
Investors will play a crucial role to help smaller e-mobility companies finance their growth and to satisfy the financial demands of larger companies. Investors can bring onboard other stakeholders — consumer-finance providers, commercial banks, and larger equity investors — and collect and share lessons with governments and donors to advocate for the growth of e-mobility in Africa.
