Driving Change: E-Mobility in sub-Saharan Africa
Context and Investment Insights - Exploring 9 Priority Areas for Climate Action
Hi Exseeders,
Can Sub-Saharan Africa make the leap from being the world's dumping ground for old vehicles to embracing, and even producing, cutting-edge and environmentally-friendly electric vehicles? It's an exciting journey, and momentum is building, especially in East Africa.
In Sub-Saharan Africa, mobility contributes to around 10% of emissions, and this figure is projected to surge as more vehicles hit the road. However, the environmental impact can be curbed if these vehicles are clean and green.
Now, here's the catch. If Europe shifts to electric vehicles, but simultaneously continues to ship old cars (that are not considered clean enough anymore) to Africa, we're not helping the climate; we're essentially passing the problem a few thousand kilometers south.
This underscores the significance of Africa's transition to e-mobility. I’d even go as far and say it might be even more vital than Europe's transition to e-mobility. Why?
In Africa, there’s an abundance of renewable energy sources to charge electric vehicle batteries, making e-mobility truly green. Moreover, the vehicles being replaced are often far less environmentally friendly than their European counterparts.
So, without further ado, let's dive into our 4th focus topic:
#4: Low-carbon, resilient mobility & transport systems
🕐 In a Hurry? Here's a 1-Minute Summary:
Current Landscape: Sub-Saharan Africa predominantly relies on road transport, with low personal vehicle ownership. The region ranks low on the Sustainable Mobility Index especially with challenges in universal access to mobility and safety.
Challenges: Affordability, limited infrastructure, and low consumer awareness pose major challenges to the adoption of electric vehicles (EV) in the region.
Solutions: Four key enablers to realize the transition to e-mobility in sub-Saharan Africa include (1) scaling the electricity and charging infrastructure, (2) innovating local EV production, (3) implementing regulations and incentives, and (4) providing financing.
E-Motorcycles' Momentum: Projections indicate robust EV sales growth, with electric motorcycles at the forefront, driven by their cost-effectiveness, commercial viability, and compact batteries. This momentum is particularly evident in East Africa, boasting over 50 active e-mobility startups engaged in local assembly and distribution of e-motorcycles and e-buses.
Investment Opportunities: Africa's EV market is set to reach $21.39 billion. To scale the adoption of e-motorcycles investments of $3.5-$8.9 billion will be needed by 2030. Key areas that pique our interest include local assemblers, charging infrastructure providers, EV conversion services, parts and component manufacturers, and battery recycling ventures.
⏳ Ready for a Deeper Dive? Here's the Breakdown:
Context: Key facts and figures
(1) Situation: Current Transport Landscape in Sub-Saharan Africa
In Sub-Saharan Africa, road transport, primarily buses and motorcycles, dominates the transportation sector.
Personal vehicle ownership remains well below the global average. For instance, while South Africa boasts 232 motor vehicles per 1,000 people, Kenya has 69, Nigeria has 61, Ivory Coast has 60, and the DRC has 32.
However, vehicle ownership is projected to surge due to urbanization and rising incomes.
While some African countries do have rail transport systems, they often suffer from underdevelopment and obsolescence, and only a handful of mega-cities featur metros or trams.
Sub-Saharan African nations rank in the lower half of the worldwide Sustainable Mobility Index, reflecting challenges related to universal access, efficiency, safety, and green mobility, particularly in limited access and safety aspects.
(2) Complication: Key Challenges for E-Mobility in Sub-Saharan Africa
Sub-Saharan Africa faces 3 major challenges with regard to the transition to clean, electric vehicles:
Affordability: The region is predominantly reliant on used vehicles, with a staggering 85% of cars being pre-owned, often equipped with (very) low emission standards. These are vehicles deemed no longer suitable for Western Europe, gradually making their way through Eastern Europe often ending up being sold in Africa. New electric vehicles come with substantially higher upfront costs. Due to limited affordable asset financing options, many are compelled to purchase older internal combustion engine cars.
Infrastructure: Sub-Saharan Africa grapples with persistent challenges in electricity access, especially in rural areas, and an unreliable power supply. These factors pose significant obstacles to establishing a dependable charging infrastructure.
Consumer Awareness: Consumers in the region possess limited awareness of the advantages of electric vehicles, often perceiving them as unproven. This perception raises concerns regarding their reliability, range, and resale value.
(3) Realizing the Transition to E-Mobility in Sub-Saharan Africa: Key Solutions
In their report, McKinsey outlines four pivotal enablers for establishing a thriving e-mobility ecosystem in sub-Saharan Africa:
Scaling Electricity and Charging Infrastructure:
To alleviate range anxiety and encourage EV adoption, it is imperative to ensure a stable electricity supply and an extensive charging infrastructure.
This entails enhancing electricity access and reliability, forging innovative partnerships for public charging stations, and implementing battery-swapping stations adhering to a common battery standard.
Innovating Local EV Production and Supply Chains:
Customizing EVs to cater to local needs and conditions and investing in regional manufacturing using locally-sourced raw materials can bolster the growth of the EV sector.
Retrofitting internal combustion engine vehicles with electric powertrains can be a cost-effective alternative.
Implementing Regulatory Mechanisms and Incentives:
Regulatory measures, such as prohibiting sales of internal combustion engine vehicles, setting emissions standards, and offering fiscal incentives like tax exemptions and charging infrastructure subsidies, are pivotal in propelling EV adoption.
Soft incentives, including reduced registration times and free parking for EVs, also prove effective in fostering adoption.
Providing Financing for Assets, Assemblers, and Infrastructure Development:
Four types of financing are indispensable for expediting the transition to EVs: asset financing, financing for EV importers and assemblers, financing for charging infrastructure, and infrastructure financing for electricity grid development.
Innovative financing models, including carbon credits for charging infrastructure, are emerging to attract investment. Credit guarantees may be necessary to incentivize asset financing for EVs due to uncertainties in depreciation curves and technology life cycles.
(4) High Potential for E-Motorcycles in Sub-Saharan Africa
The McKinsey analysis foresees robust growth in EV sales, projecting figures ranging from 340,000 to 820,000 units by 2025, with an impressive escalation to 3.8-4.9 million units by 2040.
Electric motorcycles, in particular, exhibit remarkable potential for adoption, driven by the following key factors:
Commercial Usage Advantage: Electric motorcycles serve as primary means of taxi transportation, often covering daily distances exceeding 100 kilometers. This translates to significantly lower daily operational costs when compared to their petrol-powered counterparts.
Compact Battery Requirements: Electric motorcycles employ smaller batteries in comparison to cars or buses, rendering them well-suited for convenient home charging or utilization via mini-grids.
Upfront Cost Competitiveness: Given the prevalence of new motorcycles and limited availability of considerably cheaper used alternatives, electric motorcycles offer buyers a competitive upfront cost proposition.
(5) Surging Momentum in E-Motorcycles and E-Buses in East Africa
East Africa, particularly Kenya, is at the forefront of the African e-mobility movement, with a thriving ecosystem and substantial investments in startups covering various electric vehicles.
There are over 50 electric mobility startups in East Africa ranging from electric motorcycles, buses, bikes, trucks, and vans.
Some notable ventures worth keeping a close watch on include:
Kenyan Roam Electric, with a strong focus on e-motorcycles, e-buses, and energy systems. They recently unveiled East Africa's largest e-motorcycle plant in Kenya.
Kenyan BasiGo, featuring affordable Pay-as-You-Drive financing for their e-buses and proprietary charging stations
Rwandan Ampersand, which pioneers affordable electric vehicles and charging systems tailored for East Africa's motorcycle taxi drivers.
Rwandan REM, among the earliest e-mobility companies on the continent, commencing with its e-bikes in 2019.
Benin’s Spiro, , recognized as one of the continent's leading manufacturers and distributors of e-bikes and batteries in Benin, Togo and Rwanda.
Ugandan Zembo, focused on locally assembling fast-charging, affordable e-motorcycles in Uganda
Investment insights
(1) Market: Massive investment potential with clear applications
Mordor Intelligence projects that Africa's electric vehicle market is on track to reach $21.39 billion by 2027.
Investing in e-mobility in East Africa is akin to the early days of the off-grid solar market, where accessible financing played a crucial role in its growth.
E-mobility has similar potential, with electric vehicles having clear market applications that can make financing more feasible, but the lack of standardized criteria to evaluate market performance remains a challenge.
In a recent report, the Shell Foundation estimates that, to scale up the adoption of electric motorcycles in Ethiopia, Kenya, Nigeria, Rwanda, and Uganda, an investment of $3.5 to $8.9 billion will be needed.
The focus should span asset financing, support for local assembly/import, and the establishment of a battery swap/charging infrastructure.
Asset financing: Financing programs to address the unique technology risks associated with electric vehicles, not currently covered by existing asset financing.
Assembly/import: Support for local production facilities and inventory financing for importers.
Battery swap/Charging infrastructure: Capital-intensive development of a supportive ecosystem.
Possible financing solutions encompass asset financing with a first-loss guarantee, IoT-based payment models leveraging vehicle data to reduce loan risks, long-term incubators, inventory financing, green corporate bonds, and the exploration of carbon credits for charging infrastructure.
(2) 5 Investment Areas We’re Excited About
Electric Vehicle Assemblers: SMEs establishing local production for electric two-wheelers, meeting the demand of the local market.
Charging Infrastructure Providers: Companies creating and overseeing electric vehicle charging stations, including fast chargers and battery swapping stations, pivotal for EV adoption.
EV Conversion Services: Businesses specializing in transforming conventional internal combustion engine vehicles into sustainable electric alternatives.
EV Parts and Component Manufacturing: SMEs focused on manufacturing and supplying electric vehicle-specific components like batteries, motors, charging systems, and specialized EV tires.
Battery Recycling and Maintenance: Services dedicated to battery upkeep and recycling, extending the life of EV batteries and addressing sustainability concerns.
(3) Investors Leading the Way - Selected examples
Mobility54, Toyota’s corporate ventures capital fund, dedicated to mobility in Africa
InfraCo Africa, investing in infrastructure projects in Africa including transportation.
Factor(e)Ventures, providing early-stage capital to e-mobility companies with portfolio companies like Ampersand and Roam
Novastar Ventures, an impact investor focused on Africa and one of BasiGo’s backers
Sources to learn more:
Power to move: Accelerating the electric transport transition in sub-Saharan Africa, McKinsey & Company, 2022
Mobility Performance at a Glance, Country Dashboards 2022, Sustainable Mobility for All Initiative by the Worldbank
Financing the transition to electric vehicles in sub-Saharan Africa, Shell Foundation, 2022
E-Mobility in Africa, by Cliffe Dekker Hofmeyr, 2023, for policies and strategies of selected African jurisdictions
How to drive decarbonisation: Accelerating e-mobility in Africa, Energy Base, 2022
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Thanks for reading,
Carolin
Disclaimer: All information provided is not intended to serve as investment advice. Any mention of industries or countries should not be taken as an endorsement.