A growing demand for affordable mobility means growing opportunities for investments in electric transportation.
The transport sector is a major greenhouse gas emitter, responsible for nearly a quarter of global emissions. Africa is projected to see an increase in demand for mobility as its population grows to double by 2050. This demand, along with growing urbanization rates, are driving adoption of electric vehicles – and a creating an investable opportunity in e-mobility across Africa.
Among the highlights from Africa E-mobility Week in Nairobi: Startups tapping carbon credits to overcome lingering financing challenges.
Carbon credits and battery securitization
Carbon credits are emerging as a way to finance EV startups.
Netherland’s-based startup Zeroca develops, aggregates and transacts carbon credits for e-mobility. The company is partnering with EcoKada, a Nigerian delivery platform that solely uses e-bikes. The startup aims to use carbon credit proceedings through Zeroca’s program to subsidize its operational costs, offering cheaper rates to its customers.
Joseph Wambugu of Swiss carbon market specialists Ecosecurities believes carbon credits can create additional revenue streams for EV startups to grow their operations and services. However, “if there’s no scale,” he says, “it will be difficult to build a viable business case.”
Battery securitization, which involves using EV batteries as collateral to secure financing, was also discussed as a newer approach in the African market that startups could leverage.
Jakob Hornbach of Ugandan e-mobility startup Gogo argued that companies should be able to raise funding based on the value of the EV batteries in its fleet. However, most entrepreneurs agreed that the lack of adequate familiarity by financial institutions in the e-mobility sector would be a challenge for funding mechanisms like securitization.
Circular opportunity
Africa, Eurasia and the Middle East account for less than 1% of global EV uptake. Adoption is increasing in some African markets like Kenya, driven in part by policy intervention.
One sign of the opportunity: Investors are lining up to back startups in the sector.
Nairobi-based Roam raised $7.5 million last year, to expand e-bike and e-bus manufacturing. BasiGo raised $6.6 million in 2022 and another $3 million this year, for e-bus production in Kenya and Rwanda. Rwandese e-bike manufacturer Ampersand raised $19.5 million in equity and debt last year and topped that up with another $2 million this year.
At the heart of sustainability is circularity. Maximizing the environmental benefits of EVs as the sector gains traction involves effective management of e-waste, especially used batteries.
“Batteries with lower capacity still have a huge potential for energy access in schools, hospitals and rural areas. That circularity is really important towards net zero, otherwise the clean proposition will not be there,” David Ekabouma of GreenMax Capital Group, an advisory and fund management firm in the clean energy sector, told ImpactAlpha. “If we’re really interested in a cleaner and sustainable transition, we should have that in the back of our minds.”
Funding mismatch
The success of Africa’s e-mobility sector will be determined by a number of factors. Key among them is financing. Some players argue that there’s a mismatch between e-mobility startups and what investors are willing to back. Demand, technologies and business models are still nascent, they say.
Hiten Parmar of the Electric Mission, a South African NGO working with the private sector and government to push for e-mobility, tells ImpactAlpha that, “there are many options of funding available. The challenge for the financiers is there are a few bankable projects.”
More established companies like Roam and Ampersand have demonstrated viability and growth potential. They’ve been able to raise millions, through multiple rounds. Mark Hankins of Get.Invest, which provides investment support for renewable energy in developing countries, tells ImpactAlpha that many smaller EV players struggle to prove their bankability.
According to Hankins, smaller businesses often have to deal with most of their capital being tied up in operational costs like handling staff and initial fleet acquisition costs. Operational strain facing smaller companies, from sales to battery degradation, contributes to hesitation from investors.
“The banks and investors have to sit there and wait them out,” he says.
Understanding the nuances of financing is key for entrepreneurs. More specifically, entrepreneurs need to identify which financial instruments are needed for specific strategies. Equity can be used to scale operations, for example, while debt financing can be used to purchase assets like e-bikes.
“When you’re trying to grow a business you need to know the flavor of money you want,” Hankins says.
