Ather Energy has survived so far by scripting a differentiated play. Can they continue creating magic?

Tarun Mehta, Co-founder and CEO of Ather Energy Image: Nishant Ratnakar for Forbes India

October 2014, Bengaluru. Eleven months, maiden venture, and the rookies ran out of money. It was an existential crisis for Tarun Mehta and Swapnil Jain. The batch mates from IIT Madras had made a daring move by starting two-wheeler EV venture Ather Energy in October 2013. “It was bonkers,” recalls Mehta. Two young boys—first-generation entrepreneurs with no money, no connects and no storied family background in business—were engineering an electrifying story that not many in the country had ever dared to dream. The greenhorns had made an audacious pitch of building a two-wheeler EV company. The vision was to invest a lot of money in research and development. “We wanted to build the largest R&D based two-wheeler EV company in the world,” says Mehta.

Ironically, the dream of the young guns was a nightmare for the potential backers.  Everybody greeted them with disbelief and skepticism. Eleven months of  hustle, and Ather ran of money in September of 2014. The duo dragged the  venture into the next month, October, on the back of some personal  loans. “We had decided to close down in November,” recounts Mehta, who  had countless futile meetings with all kinds of investors. But in the dying moments, the founders spotted a spark of light.
 
Mehta  had been in touch with a group of HNIs (high net-worth individuals),  who evinced interest. The meeting was in Bengaluru. Mehta came from  Chennai, and Ather was set for a new lease of life.
 
The  meeting turned out to be a dud. They eventually called to inform that  they would not invest. Mehta’s last hope had vanished into thin air. But  just as death seemed evident, he had a fleeting thought. “Why don’t I  drop a quick message to Sachin,” Mehta thought, referring to Sachin  Bansal of Flipkart. A few months ago. Mehta had sent cold mails to a  bunch of founders in the hope of some connects with potential investors.  Only two replied, Bansal was one of them, and he had liked the vision  of the young boys. “So I thought of going back to Sachin,” Mehta  recalls. “He was my last shot.”


 
At  the time of the meeting in Bansal’s office, Mehta entered the room with  modest expectations. “We are looking to raise funds. Would you like to  put in around Rs30 lakh,” he asked, as gingerly as possible. “How much  are you raising,” Bansal asked with poise. “Six crore,” Mehta replied.  Bansal agreed to invest on one condition. “I will put in the entire  money,” said Bansal, who also roped in his co-founder Binny Bansal. And  so, Ather survived.
 
The  funding deal was inked, paperwork was done, and the money was set to  hit the bank in 30 days. But there was an unforeseen delay and Ather was  about to run out of capital once again. This time, the company had  taken a debt and it had to be serviced by March 31. “We needed Rs40  crore of emergency capital,” recalls Mehta, who panicked on the prospect  of defaulting on debt repayment. It was once again a near-death  experience for Ather and Mehta had a sense of déjà vu.

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Sachin  Bansal came to their rescue once again. He roped in a bunch of friends,  they pooled Rs40 crore, but due to financial year closing, the money  could not be wired on March 31. Mehta was gripped with a feeling of  helplessness. “I called up Sachin again,” says Mehta. Bansal had a word  with his bank, arranged for the money, and Ather was about to survive  one more time. 


 
Ather  spent the first few years in R&D and product development, and by  FY19 it had an operating revenue of Rs4.2 crore and a loss of Rs107.5  crore. “Almost all of 2019 was a big low for us,” recounts Mehta. This  time, however, the crisis was not perpetrated by lack of money.
 
Here’s  what went wrong. In 2018, they had unveiled Ather 340 and 450. A few  months down the line, towards early 2019, they realised that the cost of  the vehicle was three-four times higher than what the co-founders had  anticipated. “The vehicle was a mistake. It was a stupid idea. We should  have never built it,” rued Mehta, who was staring at the improbability  of bringing down the cost to make it affordable for the consumers. He  half-heartedly tried to redraw the blueprint over the next few months  and thought of Plan B.

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The  new plan was to dump the original vehicle and build something from  scratch, but a few months down the line, Ather did not have money to  finish a new vehicle. “Going down the new plan meant only one thing:  Sure-shot bankruptcy,” he recalls. Out of panic, the co-founding team  thought of Plan C. “Can we just become an IP (intellectual property)  company,” wondered Mehta. Ather had a product. So it could sell the IP,  and earn royalty.
 
Mehta  went to the US, pitched the idea to a bunch of investors and attempted  to raise funding for the new business model. Nothing worked. He came  back, and towards the end of 2019, realised his mistake. This time,  Mehta wanted to go back to his roots. “Let’s stick to our guns. Let’s  not give up on what we built for years,” he conveyed the message to his  team. What Ather needed badly was not a new start but a renewed  laser-sharp focus. There was a lot of distraction in 2019: Low-cost  scooter, bike and international operations. Mehta wanted to reboot.  “Let's give our engineering team 12 months to fix this,” he underlined.


 
Cut  to September 2023. Ather has emerged as the third biggest two-wheeler  EV maker in India by volume. While in 12 months of 2022, the brand sold  51,192 units, it has overhauled the numbers during the first eight  months of 2023 by selling 72,800 units. What it means in terms of  revenue from operations is equally startling. From a low of Rs4.2 crore  in FY19, it jumped over eight times to Rs35.3 crore in FY20. While the  next fiscal it doubled, the curve pole-vaulted over the next two years:  Rs 79.8 crore, Rs 413.8 crore and Rs 1,806 crore in FY21, FY22 and FY23,  respectively.  
In terms of strategic backing, Hero MotoCorp has steadily increased its stake in the EV maker. “It is the largest shareholder with over 34 percent stake in Ather,” says Jai Vardhan, co-founder at Entrackr, a media venture tracking startups and internet economy in India.
 
Hero, reckon auto analysts, is evolving its EV play in a smart way. On one hand, it has been increasing its stake in Ather, which helps it cover the premium end of the EV market, points out Amit Kaushik, managing director at Urban Science India. On the other hand, Hero MotoCorp has been beefing up its organic play via its brand Vida. Mehta declined to comment on Hero MotoCorp’s stake.



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Ather’s backers, meanwhile, are elated with the performance. “NIIF’s investing journey so far has seen Ather scale its revenues and volumes almost 4x in the last fiscal year alone,” says Padmanabh Sinha, executive director and chief investment officer (growth equity) at National Investment & Infrastructure Fund (NIIF). Performance EV scooters, he says, would gain higher market share relative to other EVs with the advent of higher quality electric options. “We have seen this play out in Ather’s growth trajectory as customers upgraded from ICE (internal combustion engine) to electric scooters.”
 
Mehta explains how Ather has played a differentiated game. When Ather launched, Honda Activa—India’s largest selling scooter—had a price tag of around Rs70,000. “Our first product was for Rs1.24 lakh,” he says. Today,  while an Activa is around Rs95,000, Ather’s products start from Rs1.3  lakh and go up to Rs1.7 lakh. Most startups, Mehta underlines, start  their product journey by discounting. “We started by saying that we will  charge a premium,” he says.


 
“It’s not that there are no takers for low-end electric scooters. There are  many. But our value proposition comes by upgrading the users,” Mehta  adds, and explains his logic. There are crores of people who own a  two-wheeler in India. When they buy their next vehicle, they should have  a better option. In mobiles, people upgrade to from feature phones to  smartphones. Even within smartphones, the people at the low-end of the  spectrum upgrade to a better phone when they move to their second or  third handset. “We want to build something that people would love to  own, and not just be able to own,” Mehta underlines, adding that Ather  never wanted to build yet-another EV, and a me-too product.
 
If not playing price warrior was a big edge, then staying away from  getting sucked in rivalry was another smart move. “I think those are  inefficient companies who have to fight each other,” he reckons.  Companies in intense competition, he lets on, don't create a lot of  value because profits go away, margins go for a toss and they end up  becoming copycats. “You don't have the space to zoom out and build  something different,” he says. “But when you are doing something  entirely different and magical, there is no competition,” he adds.
 
But  what about another aspect of magic, which is posting profits and  growing sustainably? Mehta says that it’s a work in progress and the  company is on the right track. Ather was planning to turn profitable  next year, but it might take a little longer. “But we will get there  because we are building it correctly, pricing the product correctly, and  upgrading with magic,” he smiles.