Can anyone imagine an Indian road without auto-rickshaws? These hunched three-wheelers are perfect for beetling through narrow lanes and angling around potholes. And, if we live by the Indian Standard Time (IST), they can even warp space to help us keep our doctors’ and work appointments. Despite the magic they perform every day, they are widely disliked for the exorbitant rates they charge. Everyone has at least one story to tell about a rapacious auto driver.
Cedrick Tandong, founder of Three Wheels United (TWU), has been in India for more than a decade now and he too has had auto drivers overcharging him. Instead of berating the drivers, Tandong began conversing with them, to understand their side of the story. He has always held a soft corner for the underdog.
He first worked in India, when he came down for a project at TCS, as a business analyst for the FMCG sector in France. Even in these early days, he knew that he wanted to do more. “I realised that while I was being entrepreneurial in my work, I was not adding any value to my immediate or extended community,” he says.
Growing up in Cameroon, Africa, where a large cross-section of the population is middle or lower class, he had wanted to create a business model that would impact these income segments. Therefore, after working for three years with the IT giant, he wanted to come back to India and start his entrepreneurial journey here. Besides, he had built a large network of contacts here and the market was growing fast with the adoption of tech accelerating.
That was in 2014.
It was around that time that he had started interacting closely with the auto drivers. He learnt that a majority of them, around 70%, were pushed to a corner. They were using vehicles rented for high rates, and were struggling to pay back the vehicle owners and to make even a weak profit for themselves. “I started to think what I could do for them,” he says, “and came up with affordable loans to help them buy their own vehicles.”
During this time, he had attended a social-entrepreneurship programme in Bengaluru and here he met Ramesh Prabhu. Prabhu was running an NGO called Three Wheels United, which helped auto drivers get loans from banks at affordable rates. Coincidentally, six months after that meeting, Prabhu’s investors pulled out because they could not see the venture scaling up.
Tandong, who had joined Prabhu to help with day-to-day operations, wanted to keep going and convinced Kevin Wervenbos, who was an investment director with Enviu and one of the investors in the original TWU, to join him and redevelop it. By 2017, a new Three Wheelers United (TWU) was born with Wervenbos as the co-founder — they pulled out of their bank partnerships, acquired an NBFC and set up the business as a fintech company, advancing loans exclusively to people who wanted to buy e-vehicles. “We now had more control over our processes and the number of loans that can be disbursed. With technology, we could manage loan disbursal, gauge repayment capacities and so on,” says Tandong.
In 2019, Apurv Mehta who used to work with Microsoft when TWU was building their technology with them too joined the start-up as a co-founder and CTO. The same year, TWU raised its first seed round worth $1 million from private investors and grants.
Charging the coffers
There are traditional financers who extend loans too, to buy electric vehicles (EVs), but their terms are daunting. They offer only 70% of the loan amount and expect the driver to bring in the remaining. “If you ask a driver to bring 30% of almost Rs 300,000, which is what the e-auto costs, it can burden him/her heavily,” says Tandong. At TWU, they give 100% of the loan amount at 20-23%, against the regular 30%, without asking for a collateral or guarantee.
100% of the loan amount without collateral? Sounds risky. But TWU manages that risk by closely interacting with the drivers and working out a repayment plan for them. Tandong explains: “They need to make a certain amount of money every day to spend on the vehicle, to take home and to make repayments. We ensure that drivers get that quantum of work and give them easy repayment options such as three or four years.”
The start-up gives the drivers a steady stream of work through its tie-ups with ride-sharing aggregators such as Uber and grocery-delivery platforms such as Big Basket. Its role is limited to negotiating lucrative deals for its drivers, and they do not charge a fee for this service. The start-up also connects the drivers to reliable OEMs such as the Mahindra Group so that they are riding efficient, reliable vehicles. In fact, the start-up even communicates their feedback to the vehicle manufacturers and has effected changes. For example, when drivers found the rides uncomfortable, the manufacturer was informed and shock absorbers were changed. Also, if a vehicle breaks down, TWU informs the dealership, and ensures that the pick-up and repairs are done.
Since e-vehicle adoption in India is being held back from lack of supporting infrastructure, TWU partners with vendors who set-up charging and battery-swapping points. It shows the drivers locations with charging and swapping points on their app. Finally, the start-up has even put in work to manage the end-of-life of these vehicles. In 2020, it partnered with Mahindra Electric for a buy-back scheme to assist in the scrapping of vehicles older than ten years since there is a Green Tax on older vehicles in the making. “We simply do not finance our clients. We are taking an ecosystem approach to electrifying light vehicles in India,” says Tandong.
The start-up earns through interest on loans and also collects a marketing fee of 10% from the manufacturers. While they do expect to see a dip in their revenue for FY21, and expect the revenue to be around Rs.25 million due to COVID-19 and loan holidays, their projected revenue for FY22 is around Rs.162 million.
Currently, TWU has financed around 3,000 vehicles and they are looking to scale it up in 2022 to about 10,000.
Spreading their wings
It has not been easy to build and expand this business. Tandong says they did a significant amount of fieldwork to understand what can motivate a driver to shift to an e-vehicle. “The primary motivation is a lower cost of operating a vehicle,” he says. But those numbers favour the e-vehicle since an ordinary LPG-fuelled auto would cost Rs.200-250 a day, while an e-auto would cost only Rs.40-50. Before giving a loan, a representative from TWU checks if the applicant has a 15mph plug to charge their vehicle. The autos can run 130 km (on an average) and, by the start-up’s calculations, the vehicle needs to run only 100 km to earn an income and make the loan payments.
If it is cheaper to operate, why weren’t more autos turning green?
There are many reasons, he says. One, this is a relatively new technology and people still don’t have much confidence in it. Two, e-vehicles require charging points or battery-swapping points, which aren’t placed that extensively. The third is the upfront cost of owning an e-vehicle. While an LPG auto would cost Rs.180,000, an e-auto would cost Rs.280,000 and Rs.300,000 on the road. That is a difference of Rs.100,000 or more. With the start-up’s tie-ups with reliable manufacturers, infra partners and easy loan terms, it is tackling one hurdle at a time.
To give drivers more confidence to step into this new ecosystem, the start-up also helps them get the right documents, register for insurance and create bank accounts. It offers drivers the option of renting a vehicle for no down payment for a month or two, to give them a feel of what they are getting into. Recently, the start-up launched an app, through which drivers can see the nearest charging points, apply for a loan and make payments, and refer others. While the due diligence is being done, with TWU representatives making a visit to the applicant’s home, the status of the application can be viewed online and the applicant can reach out to a relationship manager with queries.
To finance their loans, TWU works like any other NBFC. They get capital from larger banks, impact investors at the cheapest rate, and pass that down to the drivers. The NBFC is registered in the US and, therefore, they can raise debt from the Indian market at 16% or more and also raise foreign debt and philanthropic capital at around 9%. This brings their cost of capital to 13-15%. They lend to drivers, as mentioned before, at 20-23%.
What really stands out for TWU is their loan-default rate, which is at less than 1%. Tandong believes that it is low because of the start-up’s easy repayment options, of paying daily or weekly, and because of its tie-ups with aggregators and delivery apps. Through the app, they are also able to keep track of a driver’s repayment patterns, and offer nudges and motivators when needed. If a driver is regular with his/her payments, the loan manager is asked not to follow up with the borrower and, if the driver has been sick and therefore struggling to make the payments, he/she is not penalised. During COVID-19 lockdown, for drivers who were not able to find work on their own, the start-up reached out to neighbourhood grocery stores and arranged a delivery deal on their behalf. Tandong claims more than 400 drivers availed this assistance.
The start-up also has a “treasure trove of data” according to Vijay Tirathrai, managing director of TechStars, which participated in the over $1 million bridge round to the start-up’s pre-series A, raised over 2019 and 2020. “This data helps with efficient lending, informs on the network of vehicles and ensures that the drivers earn a reasonable livelihood. Someone in the market may claim to have the fastest battery and another, the fastest vehicle, but all of that is irrelevant if you do not have the data, without data you cannot scale up a company,” he says. The breach round also saw participation from Asian Development Bank, philanthropic capital from the likes of Mulago Foundation and other private investors.
TWU is now working towards a Series A round, for which they are targeting $5 million in equity and Tandong says 40% of the amount has already been committed and a term sheet has been prepared for the same. Once the equity is raised, they plan to raise $10 million in debt.
The market for EVs is expected to grow significantly in the next few years. A study by CRISIL concluded that, by FY24, as much as 43-48% of new three-wheelers (excluding e-rickshaws), and 12-17% of new two-wheelers sold in India will be EVs. Ernst and Young envisions 25-30% of the passenger, and 35-40% of the good-carrier fleet, becoming electric by FY25. Som Kapoor, partner - Automotive Sector, EY India, says, “In the passenger segment, a number of factors will help, such as ride-hailing and vehicle-rental players focusing on electrification of their fleets for last-mile connectivity. In the goods-carrier segment, this trend will be driven by major e-commerce players electrifying their delivery vehicles via retro-fitment or via partnership with OEMs driven by global strategy.
Government interventions are helping too. He adds, “Some of the key drivers for this change have been that out of the 103 models sanctioned under FAME 2.0, 54 3W models by 22 OEMs have been approved.” FAME (Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles) India Scheme was launched as part of the National Electric Mobility Mission Plan (NEMMP) in 2015. Also, states and UTs such as Gujarat, Karnataka UP and Delhi, are encouraging three-wheelers with incentives and initiatives.
Looks like the competition is going to heat up, but Tirathrai says there is space for more since it is not yet a crowded space. “A lot of large manufacturers will be comfortable working with a young company like TWU with its traction and track record,” he says.
Tandong says that, pre-COVID-19, their plan was to have a hub-and-spoke model of starting in a Tier-1 city and then expanding to surrounding Tier-II cities. That is what they did in Bengaluru, from where they have expanded to Chitradurga, Hospet and Bellary. Now, post the pandemic, they have understood that driver economies in the Tier-1 and Tier-II are a bit different. Therefore, they will grow their passenger fleet in Tier-2 cities and goods-and-delivery fleet in Tier-I, and continue this till the pandemic’s cloud has passed. After that, they will return to their hub-and-spoke plan. They already have small operations in Hyderabad and Chennai, and are looking to expand into Delhi.
From a conversation in an auto a few years ago, this start-up has grown impressively. Their biggest strength continues to be listening and working closely with their driver-clientele. When India leaps into an electric future, TWU will hit the ground wheeling.