Electric scooter maker Ather Energy said it has raised $128 million led by National Investment and Infrastructure Fund (NIIF), the Indian government’s sovereign wealth fund, and existing investor Hero MotoCorp.

Hero MotoCorp had announced an investment of Rs 420 crore (about $54 million) in Ather in January.

Tarun Mehta, cofounder and CEO of Ather Energy, told ETtech that the funds will be used to expand its manufacturing facilities, invest in research and development and its charging infrastructure, and grow its retail network.

“The largest chunk of investment will go into investing in capacity – not just our own capacity but also that of the supply chain so that it can scale quickly,” he said. “Overall our components are fairly unique, so we have to make sure that our suppliers can invest for us. So a fair bit of capacity will go towards that.” Mehta did not disclose Ather’s valuation. Its competitor Ola Electric is valued at over $5 billion.

“Ather is considerably undervalued still… People are starting to discover real value gradually….In a way I take responsibility for that. As founders, around Covid-19 or just before Covid we got so focused on operations and fixing the nuts and bolts of this business that we decided we did not want to raise more capital,” he said. “But now we feel like we have underfunded the business. I don't completely regret it because some of the starvation has brought in ridiculous efficiencies and very high-quality decisions.”

The deal also marks Ather’s first funding from an institutional investor since Tiger Global in 2015. The company is gearing up for an IPO.

"Ather Energy has indigenously designed and developed products with a high degree of domestic sourcing of components and adaptability to Indian conditions," said Padmanabha Sinha, executive director and chief investment officer for growth equity at NIIF. "We are excited to partner with Ather Energy’s founders and management team who have developed deep expertise in the industry, developed a robust IP portfolio, and built strong manufacturing and distribution capabilities."

Ather’s new funding round comes amid tough times for India’s electric two-wheelers industry. More than two dozen electric scooters have caught fire since March and companies like Ola Electric, Pure EV and Okinawa have since said they will recall over 7,000 vehicles between them. But Mehta says that these incidents have not dampened Ather’s sales.

He said since the end of February, demand is up 30-35% and the company is projecting a roughly 100% increase in demand over the next five months. Ather registered its highest ever monthly sales in April 2022, delivering 3,779 units to customers, he said. Booking orders for Athers flagship product, the Ather 450X, is growing at 25% quarter-on-quarter.

“There are more than 10,000 orders coming in every month,” Mehta said. “So the demand is very high and it has continued to grow even through this fairly dark chapter for the EV industry.”

Mehta said that Ather’s biggest strength is quality, adding, “I think a lot of competition helped validate that.”

He said the company has already achieved a gross margin of 25% and that it plans to increase its store count from 38 to 100 by October. He also said that the company would venture into other segments.