India’s expanding electric cab business runs into severe vehicle crunch

This article was originally published in Rest of World, which covers technology’s impact outside the West.

Rahul Mathur has sworn by BluSmart since its early days. The electric-taxi rideshare company was his preferred choice for the daily commute as a startup founder in Delhi two years ago, and it’s his top pick as an investor who closely follows the ride-hailing industry now. So much so that he is now a Prive member – part of an exclusive, invite-only group of BluSmart loyalists.

Recently, though, it’s been harder for Mathur to get rides.

“Despite being a BluSmart Prive member, which is the top tier, I still have some slots where I cannot find a pre-scheduled cab,” he told Rest of World.

In India, electric cab companies such as BluSmart are carving out a growing share of the ride-hailing market from the longstanding industry duopoly of Ola and Uber. BluSmart’s fully electric fleet appeals to environmentally conscious users as well as those drawn in by convenience: the app guarantees no canceled rides and no surge pricing. BluSmart cars are clean and well-maintained, with bottles of water and mints on offer. This has gained BluSmart a loyal customer base in New Delhi and Bengaluru, known as India’s Silicon Valley. The company plans to expand to Mumbai, the country’s financial hub, by the end of the year.

In 2022, BluSmart planned to put 100,000 electric cabs on the road by 2025. Last year, the company scaled down its goal to 10,000 EVs by early 2024 – presently, it has around 8,000. BluSmart declined to comment on its EV supply. Experts told Rest of World that there aren’t enough existing manufacturers for electric cabs to keep pace with rising demand. Growth has been slower than anticipated for most electric-cab companies, due to a shortage of vehicles.

There are “only one or two original equipment manufacturers [OEMs] in the market, and even they are not up to full capacity,” Shivani Palepu, a principal analyst at management consulting firm Gartner who covers transportation, told Rest of World. “So the supply is definitely going to be a problem, no matter how many MOUs [memorandums of understanding] you sign, no matter how many collaborations you make.”

Traditional ride-hailing companies typically depend on drivers who already own gas and diesel cars. Electric cab companies, on the other hand, must acquire new vehicles themselves, Pawan Mulukutla, executive program director of integrated transport at World Resources Institute India, told Rest of World. “No one is going to buy that asset, so you are actually creating a market,” he said.

The range of EV cars is 50%-60% lower than that of internal combustion engine models; their engine power is lower by around 30%. In India, EVs also cost roughly 50% more than similar gas-powered cars.

BluSmart and other EV ride-hailing companies circumvent this problem by maintaining their own fleets of cars. This offers some pricing advantages: volume discounts on orders and interest rate deductions on green loans. BluSmart owns 5,000 chargers and operates its own maintenance teams.

Ola and Uber are also introducing EV cabs, to meet climate goals and comply with government mandates. Ola’s plans for an electric fleet have not moved beyond failed pilots, but Uber has partnered with local commercial EV fleet operators including Lithium Urban Technologies, Everest Fleet, and Moove to deploy 25,000 EVs in the country by 2026. Rest of World reached out to Ola and Uber for comment; the companies had not responded by the time of publishing.

Last June, Uber invested $20 million in Everest, India’s largest commercial fleet operator with 19,000 EVs manufactured by Tata Motors.

Anirudh Damani, managing director at Artha Venture Fund, which has pumped $2 million into Everest Fleet, told Rest of World that supply will soon be more consistent, “especially with the strong support from the Indian government.” He predicted the emergence of the battery-as-a-service model, where car batteries are leased at a fixed cost per kilometre. “As one of the largest purchasers of EVs in India, EV manufacturers will be lining up to supply their vehicles to Everest, similar to the dynamics seen with Southwest Airlines in the aviation sector,” Damani said.

The consumer-facing EV cab industry is flush with investment money. BluSmart, valued at $245 million, raised $24 million in May from more than 20 investors, including SoftBank, according to data from market intelligence platform Tracxn. It plans to raise another $100 million soon, according to local media reports. In 2024, at least two other regional e-cab startups – Snap-E in Kolkata and Shoffr in Bengaluru – also raised funds.

Still, the low numbers of manufacturers, and the rising competition, have squeezed the supply of electric cabs. Tata Motors’ list of orders reportedly far exceeds capacity, and the lack of subsidies for commercial EVs limits the speed and volume of production.

“The Tatas of the world or just the OEMs are not primarily in the taxi business. They’re more moneymakers in the consumer market. And there is no regulation stating any of those related to the taxi market. So they are definitely not incentivised,” said Palepu, the Gartner analyst. Tata Motors declined to comment.

Some smaller companies rely on a single OEM fleet. For instance, the Kolkata-based Snap-E currently operates 600 vehicles, mostly Tata XPres-Ts, and is attempting to reach 10,000 in the next five years. Tata, already under contract with larger companies, is its sole supplier.

Shoffr launched in 2022 with just two cars from Chinese automaker BYD. Its fleet now has more than 100 cars – all BYD E6 models. Committing to a homogenous fleet is risky. A fault in a single model could take out an entire fleet at once, Mathur said. In Shoffr’s case, “there is a risk that BYD, given its shareholding structure, may not be permitted to set up a factory in India,” he said. “In which case, how do you guarantee your order book?”

Last July, the Indian government rejected BYD’s proposal to build a $1-billion factory in the country.

Kislay Verma, Shoffr’s co-founder, said the company has a good relationship with BYD and that Chinese manufacturers are core to the electric-cab industry, due to “the kind of role that China plays in the EV supply chain, with all their mineral reserves, the manufacturing capacities, and the carmakers.” Shoffr will continue to keep its options open with other suppliers. “We keep trying out other cars as they come into the market,” Verma said. Later this year, automaker Mahindra is rumored to be releasing an EV with a BYD battery, which Shoffr is keen to test.

BluSmart initially sourced its entire fleet from Tata. It has added a premium tier to include vehicles from Mahindra, Hyundai, and MG. Such diversification comes with its challenges, including adapting the infrastructure to each brand, familiarising maintenance staff with the models, and ensuring drivers are comfortable using them.

Mitesh Shah, former chief financial officer at Ola and the co-founder of Inflection Point Ventures, has backed both BluSmart and Snap-E. “This is never going to be a winner-take-all market,” he told Rest of World. He believes that several companies will succeed at a regional level, and remains undeterred by the slow growth of BluSmart. “It’s about utilising your existing fleet efficiently, making sure that that rate is never dropping,” he said.

“I do think for the next couple of years, we will still be supply-side constrained. But is there a promise that, at some point, you will have enough capacity to manufacture the EVs? Absolutely,” Mathur said. “You need to give it just some time.”

Ananya Bhattacharya is a reporter for Rest of World covering South Asia's tech scene. She is based in Mumbai, India.

This article was originally published in Rest of World, which covers technology’s impact outside the West.