When you think of the mobility landscape across the Middle East, you’d be understood for envisioning supercars navigating the sleek and modern cityscapes, emblematic of the region’s deep-seated appreciation for high-performance luxury vehicles. In a similar fashion, if asked to reflect on the automotive industry across Africa, images of congested roads operating through haphazard but functional organization would come to mind. While the realities of both automotive markets are stark, their visions for the future have significant overlap; there is an interesting narrative playing out across the Middle East and Africa (MEA) with regards to the rollout and adoption of Electric Vehicles (EVs). In the global race to net zero, the region is presented with a clear opportunity to leapfrog the legacy of the traditional global automotive industry and make the transition to EVs ahead of its international peers. But in a region synonymous with supercars, the hydrocarbons industry and in Africa, a significant gap in the provision of mobility, exactly who is pushing the case for the adoption of Electric Vehicles? Moreover, with minimal contributions to aggregate Greenhouse emissions, relative to its global peers, why does the transition in MEA matter anyway?

Well for one, despite the Middle East and African region representing a small portion of the world’s annual carbon emissions, collectively generating less emissions than the US, the region is disproportionately impacted by the effects of climate change, including rising temperatures and recurrent droughts. Between 1980 and 2022, temperatures in the MENA region surged by 0.46°C, significantly surpassing the global average increase of 0.18°C over the same period. The southern Mediterranean region experienced a staggering 8.3% decrease in total precipitation per decade, leading to severe droughts in Morocco in 2022 and Tunisia in 2023. The UN identifies Africa as the continent most vulnerable to the effects of climate change despite having the lowest emissions on a per capita basis relative to its international peers. For context, a person in Africa creates the same amount of average carbon emissions in one year as someone in Australia or America creates in a month. The changes in environmental conditions driven by climate change pose tangible threats to economies across the region, driving concerns around food security displacement and habitat loss. MEA is presented with a future where continued rising temperatures could make significant areas uninhabitable, creating an increased sense of urgency around the region’s energy transition.

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The region, collectively, emits less carbon emissions than the US, despite being home to close to 5x the number of people

Source: Our World in Data

But that’s not the whole picture.

The move toward clean energy generation isn’t just about mitigating the environmental impact of climate change; it’s also about decoupling some regional economies from carbon emissions, enabling sustained economic growth while reducing emissions.

While the US has been able to achieve consistent economic growth while reducing the rate of which their emissions rise, there is still a strong correlation between the two in the MEA region

Source: Our World in Data

The UAE has set ambitious targets of achieving net zero by 2050 and is one of the largest investors globally in renewable energy, having invested over $49 billion into renewable energy projects across 70 countries. Similarly, its neighbor Saudi is making significant progress towards its goals of achieving a 278 million tonnes per annum reduction in carbon emissions by 2030, increasing renewable capacity by 300% in 2023 alone. As part of its commitment to future-proof fuels, Saudi Arabia is investing $8.4 billion in developing the world’s largest green hydrogen plant in NEOM.

Africa, however, presents a different story.

Africa is a minimal contributor to global greenhouse emissions, and with over 600 million people without access to regular electricity — the idea that Africa should actively contribute to global decarbonisation targets is often met with little sympathy. However, given this gap in energy provision, the continent is uniquely positioned to leapfrog a future reliance on hydrocarbons; some argue that 80% of the infrastructure Africa needs by 2050 has not yet been built. Africa’s significant natural advantage with regards to renewable energy generation could reflect a crucial springboard for the region’s transition story.

So where do EVs come into this?

Within the global energy transition towards net zero, mobility and personal vehicles are a crucial part of the transition conversation. In 2022, private cars and vans were responsible for more than 25% of global oil use and around 10% of global energy-related CO2 emissions. Global electric vehicle (EV) sales continue to observe consistent year-on-year growth, primarily driven by China and Europe (60% and 15% of sales respectively in 2022). If these growth rates can be sustained, as per the IEA, the automotive industry could realistically reach net zero by 2050. However, a key part of this growth will be the development of local manufacturing ecosystems. While an EV produced in one region and driven in another can reduce emissions by 40%, compared to an ICE vehicle, an EV produced and driven in the same location can reduce emissions by up to 83%. An interesting regional opportunity exists as we see countries trying to localize manufacturing and supply chains across MEA. The UAE has already started manufacturing EVs domestically, while Saudi Arabia has unveiled plans to assemble EVs and South Africa expects to start manufacturing EVs by 2026 as part of its Just Energy Transition (JET) Plan.

There might be some interesting lessons for the region from the Far East; China presents an interesting case study in the EV transition story.

In the last ten years, China has seen a 150% increase in EV sales, making it the market leader with 53% of the global market in 2022, more than double Europe’s 25% share. China’s progression to become the global leader in EVs was not accidental and was propelled forward through significant private sector investments around new technologies, external and internal partnerships to drive technological advancements, government subsidies, tax breaks, production quotas and a unified national policy framework for EV and infrastructure development.

In contrast, when examining the regional landscape, the MEA region is still in its nascency in promoting the adoption of EVs.

The high prices of EVs and the absence of a reliable charging infrastructure stand out as significant barriers. This is particularly evident in the GCC countries, who have seen limited success in integrating EVs into mainstream automobile markets, especially given the presence of low fuel prices limiting consumer demand, with adoption majorly being within the luxury passenger sub-segment (AKA Teslas). The region’s warm climate also poses a challenge, as batteries tend to have lower ranges in higher temperatures and deteriorate faster.

However, there are promising signs of change. Companies like Ceer Motors are investing in local production capacity, aiming to produce 170,000 cars annually. There is an increased push for electrification across the two-wheeler sub-segment. Most notably, Talabat signed an MOU with Motoboy to pilot electric two-wheelers across their delivery fleet, while One Moto has announced plans to deploy 10k electric two-wheelers across the UAE by the end of 2024. We are also seeing increasing progress in the build out of charging infrastructure. In December 2023, EasyLease, a mobility solutions provider, made a majority acquisition in Fully Charged, a UAE-based specialist in EV charging technology.

In North Africa, Morocco emerges as a regional leader, not only in EV adoption but in production as well, driven by an abundance of raw materials critical to the EV industry. The country already hosts production facilities for global EV giants like Tesla, Renault, Peugeot, and Opel. These developments, coupled with significant investments by companies like Stellantis (the parent company of Peugeot and Opel), highlights the region’s potential to become a hub for EV manufacturing. Similarly, Egypt has pushed to build out its local EV production capabilities, recently granting a license to EgyptSat Auto to build and operate their own EV production facility.

South of the Saharan Desert, the continent faces a different set of challenges and opportunities. Infrastructure challenges and the lack of affordable electric options hinder widespread adoption. Notably, Nigeria, the continent’s most populous nation, imported 1.3 million vehicles in 2019 but assembled only 14,000 locally. While this represents a large gap in current automotive infrastructure, it also presents a substantial leapfrog opportunity to build production and manufacturing capacity for local EV assembly.

Recent increases in fuel prices, particularly following the removal of fuel subsidies in Nigeria, have driven consumer interest in EVs. However, the absence of reliable and comprehensive charging infrastructure remains a significant obstacle. In the short term, the electrification of two-wheelers, facilitated by various charging options including battery swapping, appears to be a viable avenue for driving adoption.

So how does all of this play into the VC context?

US VC investment in EVs has significantly declined over the last few years. In 2023, there was a nosedive in capital deployed, amounting to $6.1 billion across 191 deals — a far cry from the $21.6 billion deployed across 422 deals in 2021. This dampened outlook is partly due to the poor performance of publicly listed EV and autonomous vehicle companies such as Rivian and Nikola, but it’s also a result of broader lessons learned about the suitability of venture funding for EV manufacturing companies. The success of Tesla seems to be the exception rather than the rule. Challenges such as the expensive upfront cost of research and development, vehicle production, and the difficult job of disrupting the automotive industry have led to less-than-exciting returns for many VCs who ventured into the EV space. Years of data have taught us the costly lesson that venture dollars shouldn’t be used as a substitute for project finance. So where does the opportunity lie?

We see regional opportunities in the electrification space in charging and battery infrastructure, software development, and supply chain innovation leveraging advancements in EV. MAX.ng, a vehicle financing platform for two-wheelers, has begun to deploy electric two-wheelers across West Africa, with more than 200 EVs deployed across Nigeria and Ghana. The removal of fuel subsidies in Nigeria is driving uptake in the adoption of EVs, the availability of financing solutions, and the lower initial cost of two wheeler EVs, making them more accessible to the critical mass in the market. Similarly, KOFA, establishing a network of battery-swapping stations in Ghana, demonstrates how regional startups are addressing key obstacles to EV adoption without directly engaging in manufacturing. Shift EV, based out of Egypt, is a B2B solution aiming to drive the electrification of fleets through a retrofit solution, enabling businesses to transition their fleets to EVs at a fraction of the cost. Retrofitting and battery-swap solutions eliminate the high upfront costs associated with initial EV purchases and the need for extensive charging infrastructure. Solutions targeting B2B players drive volumes, show significant cost savings and create opportunities for economies of scale with centralized closed-loop charging infrastructure.

Although still early days, there are exciting opportunities in venture-backable technologies that can drive the electrification of the automotive industry, and push MEA’s transition agenda. While historical data has shown that EV manufacturing might not be the right avenue for venture funding and startups, there are definitely sub-verticals and supporting technologies where venture dollars can make an outsized impact. We’re seeing founders take a measured approach to EV adoption in the region as they pace themselves alongside the wider infrastructure roll out, vehicle adoption and evolving regulatory frameworks. Whether it’s the replacement of a gas-guzzling supercar or the first vehicle a consumer owns, we believe that regional startups will have a significant role to play in enabling MEA’s EV story.

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Acknowledgements

This article was co-authored alongside my colleague Adi Manoj and with support from Maria Najjar

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