It's a bumpy ride for e-mobility firms in bid to move past start-up phase

Local e-mobility companies in Kenya are facing a critical challenge of lack of capital. 

The industry players say they are picking up pace and in the sector’s next phase of growth, they will need to attract major financiers, with funds from venture capitalists and private equities drying up.

To attract these major financiers, they are asking the government to further forego tax revenues and provide incentives that they say would make the country a more attractive investment destination.

They also say there is a need to extend incentives to other players along the chain, including customer-facing players such as financiers.

They say due to the unique nature of Electric Vehicles (EVs) where the upfront costs are extremely high, some players finance EV buyers who also need consideration in the State’s bid to grow the sector.

BasiGo Chief Executive Jit Bhattacharya said the industry needs investments to help it move to the next stage and drive more change in the local transport industry, which he noted could serve as a model for other countries with the potential to become a beacon of sustainable transportation solutions.

He said most local e-mobility firms, including his own, are startups reliant on venture capital and private equity. 

Mr Bhattacharya emphasised the need for foreign direct investment (FDI) from commercial investors, urging policymakers to create a conducive environment for attracting such capital. 

“Most of the local companies in e-mobility are still startups, most of us are pre-profitability. We are financed by venture capital and private equity,” he said. “The industry requires FDI from commercial investors, and what we are asking for from policymakers is to lay that foundation for us to drive that investment.

“Because of the climate impact of what our industry can achieve we are a prime target for climate finance supporting the growth of the e-mobility industry in Kenya. We can be a lighthouse for so many other countries. We can make Kenya a leader in e-mobility globally.”

He said tax incentives have increased the uptake of electric vehicles in the country.

The government has in the recent past tried to incentivise Kenyans to transition to electric vehicles through such measures as reducing excise duty on EVs from 20 per cent to 10 per cent and exempting fully electric cars from Value Added Tax (VAT).

It also introduced an e-mobility tariff that offers EV owners cheaper rates to charge their cars.

According to the Energy and Petroleum Regulatory Authority (Epra), the number of registered electric vehicles rose 250 per cent in the six months to December 2023, increasing the number of EVs in the country to 3,753. This was due to the incentives the government implemented.

“During the review period 2,694 electric vehicles (EVs) were registered, bringing the cumulative number of registered EVs to 3,753. The increase in registered EVs may be attributed to government initiatives such as the introduction of the e-mobility tariff, and reduction (of taxes),” said Epra in a report covering July to December 2023.

“As of December 2023, EVs constituted 1.62 per cent of vehicles registered that year, with the country aiming to reach five per cent by 2025 as outlined in the Kenya National Energy Efficiency and Conservation Strategy, 2020.”

The e-mobility Association of Kenya (EMAK) noted that when e-bicycles are factored in, the number of EVs registered in the country would be upwards of 4,000 as of December 2023.

The Thika-based Kenya Vehicle Manufacturers (KVM) two weeks ago launched a dedicated electric bus assembly line, the first in Kenya, positioning it to tap into the expected surge in electric buses as more matatu owners continue ordering buses.

Mr Bhattacharya said Basigo has received orders for 500 buses, an indication that demand is growing.

He said the government now needs to give the industry another boost. He noted that with the high upfront cost for electric vehicles, there is a need for innovative financing for people looking to own EVs, including matatu owners.

These financing models are yet to be considered for incentives, which he noted, could be key to bringing access closer to many Kenyans.

“The fundamental problem is that our upfront cost is much higher but our operating cost is much lower because of the difference in cost between electricity and fossil fuel,” he said. 

“As a result, for our industry to compete, innovative finance models are at the core of everybody’s business models whether it is battery swapping for two-wheelers or battery leasing in the case of buses. VAT exemptions on the buses and other EVs are great but we need to extend into these alternative models otherwise it does not have as much impact as we might think.”

Infrastructure upgrades

He also noted that State-run utilities, including Kenya Power, have also left EV industry companies in some instances to undertake infrastructure upgrades on the grid.

“This is a capital-intensive industry, and a big part of that capital intensity is around charging. At the moment, much of the investment that goes into charging stations comes from the private sector companies,” said Mr Bhattacharya.

The new e-mobility tariff introduced by Epra when it reviewed the electricity tariffs last year enables players to pay an energy charge of Sh16 per unit of electricity during the daytime and Sh8 during the off-peak hours.

Epra also noted that the lower charges led to an increase in energy consumed by electric vehicles reaching 0.32 GWh, accounting for 0.01 per cent of the overall energy consumption during the period. 

To benefit from the tariff, an EV owner would have to charge your vehicle at the charging stations that EV companies and other players have set up. This has excluded those who when buying an EV also buy chagrin equipment and have it installed at it in their premises or homes.

Chief Finance Officer at Roam Electric Rajal Upadhyaya such customers do not benefit from the lower power costs offered by the e-mobility tariff.

Kenya's e-mobility revolution to start with boda bodas

“Since the fiscal incentives and the e-mobility tariff came in, we have seen an increase in the supply and demand for EVs in the country. More should be done, we would love for the tariffs to be extended more broadly,” he said, explaining that some of the EV firms give their consumers the capability to charge their vehicles or e-bikes but cannot benefit from the EV tariff that is only available to companies with charging stations.

“We give the power to charge the batteries to our consumers, which is in addition to the swap systems and our charging infrastructure. If there is a way to extend the benefits of the e-mobility tariff to the end consumer, we will see more charging and what this does is that it reduces the cost to the consumers and accelerates the uptake.”

The industry is pushing for the removal of VAT, excise and import duty on all EV categories as well as the reduction of the daytime electricity tariff to Sh12 per kilowatt hour from the current Sh16.

EMAK President Hezbon Mose termed such a situation where the government would forego all these taxes in supporting the EV industry as a “high support scenario” and one that could over the next five years transform the country.

“In a high support scenario, we expect over 800,000 electric vehicles could be on the road by the end of 2028. Notably, only in the high support scenario do we expect to hit the government’s target that five per cent of all new vehicle registrations in 2025 are electric vehicles (with 27,000 new registrations assumed, as opposed to 14,000 with moderate status quo policies and just 8,000 registrations in a low support scenario,” said Mr Mose.

“One of the primary benefits of EVs is the reduction of expenditure on imported fossil fuels. In the high support policy scenario, Kenya stands to avoid the importation of over one billion litres of oil over five years, resulting in a substantial saving of $680 million for the government in the next five years. The savings are particularly significant considering the prevailing fluctuations in the exchange rate, coupled with Kenya’s near-term Eurobond repayment obligations and recent inflation challenges.”

e-mobility conference

In a white paper that Mose presented last week at the e-mobility conference as the industry pitched for government support, EMAK notes that with high support from the government and in turn increased uptake of EVs, the sector could be consuming 1,000 gigawatt hours of electricity annually by 2028.

The sector could also create 325,000 jobs over the next four years. This is a substantial amount of electricity consumption, which at the moment consumption trends would amount to about 10 per cent of total total electricity Kenya Power sells. The firm sold 9,567 gigawatt-hours in the year to June 2023 to its consumers.

The flip side to this is that the government will have to take a hit in tax revenues.

Aside from the taxes foregone in waiving taxes on EVs, increased adoption will result in a significant reduction in taxes from fossil fuels, which have always been a guaranteed revenue source for the government and also among the products that have always been ripe for higher taxes.

Over the current pricing cycle that ends May 14, the government gets Sh76.57 shillings for every litre of petrol that will be consumed in the country. This translates into about 40 per cent of the retail price of Sh193.70 a litre in Nairobi. With the millions of litres of fuel, the government gets more than Sh250 billion in taxes from petroleum products annually, which is more than 10 per cent of tax revenues.

The EV industry, however, notes the opportunities created by the EV industry will more than make up for the losses that the government will experience in giving the industry tax breaks and also losses that will be experienced due to a drop in petroleum consumption.

“The government revenue generated from other means as a result of the growth in EVs more than makes up for the tax losses incurred in the high support scenario. Moreover, we advocate for this zero-rating to apply to assembly companies only through 2028, and thereafter only manufacturers shall be eligible, thus limiting the tax revenue loss to the period of five years only,” said EMAK.

Perhaps a more appealing argument for the state is the reduction in oil import bill that could come with the adoption of EVs. Kenya in 2022, according to data from the Kenya National Bureau of Statistics (KNBS), spent Sh630 billion in importing petroleum products.