A few days ago, NITI Aayog panel led by Amitabh Kant, proposed that all two-wheelers below 150 cc and all three-wheelers with an internal combustion engine could be banned from 2025 and 2023 onwards. The NITI Aayog panel believes that this move will not only address pollution and fossil fuel dependency concerns but also slowly transform in India into a hub of electric vehicle manufacturing. But if the current draft proposal indeed becomes a policy then how does it affect existing EV-only manufacturers? Does it bode well for existing EV manufacturers or will mass-market two-wheeler manufacturers take over and establish dominance?
India is the largest two-wheeler market in the world and massive chunk of it consists of two-wheelers below 150 cc. In FY2019, the top 10 two-wheelers sold in the country all consisted of models which displaced less than 150 cc and accounted for total sales of 1.31 crore units of over 2.11 crore units sold in total. There is a wide range of two-wheelers on offer as well below the 150 cc segment and buyers have plenty of options to choose from. Speaking with carandbike, Rakesh Batra, Auto Analyst at Ernst and Young said, "To speed up the demand for electric two-wheelers, companies will need to bring a large number of models by 2023 as there are many models on sale below the 150 cc segment."
Yes, there is a massive growth opportunity for electric two-wheelers but there are a few challenges as well.
What are the challenges?
One of the biggest challenges of electrification will be charging infrastructure. It will be safe to say that currently the charging infrastructure in India is nearly zero. EV companies such as Ather Energy and Revolt Intellicorp are working on charging infrastructure grids but only in small pockets. It is highly unlikely that the entire country will have a strong network of charging stations which can accommodate the volumes of EVs, should the proposal become a policy. Although, under FAME II, the govt. has proposed setting up of 2,700 charging stations across the country, with the idea of having at least one station in a grid of 3 square kilometres.
Most electric two-wheeler manufacturers are still playing in low volumes hence, localisation in most cases is less than 50 per cent. As a part of FAME II, the companies whose products have more than 50 per cent localisation can only get the incentives and subsidies. This means increasing localisation levels will help electric two-wheeler manufacturers to avail the subsidies. Speaking in the same context, Batra added, "Localisation of electric two-wheelers is very important to make them affordable which will in-turn improve sales. Given the fact that government policies are favouring two-wheelers more, battery manufacturers also may consider starting local assembly of battery packs for two-wheelers first."
The biggest advantage of big two-wheeler manufacturers such as Hero MotoCorp, HMSI, Bajaj, TVS and so on, is reach! For example Hero and HMSI have about 900 and 2,000 points of sales (dealerships) in India which means excellent market penetration, even in rural areas. In order to gain volumes, EV manufacturers will have to up the footprint game and target audiences across the length and breadth of the country.
Stable Electric Vehicle Policy
While many countries have a proper roadmap made especially for electric vehicles, India is yet to get one. In fact, in September 2018 at the MOVE EV Summit held in Delhi, Prime Minister Narendra Modi mentioned that the government will come out with a detailed and thorough EV policy and roadmap. However, the PM did not mention a timeline as to when the formal policy on EVs will be ready and put into action. Earlier, the government was keen on converting the complete passenger vehicle fleet into an EV fleet by 2030, which was then scrapped.
First Mover Advantage
There are a fair few EV manufacturers in India and some of the bigger names are Okinawa, Hero Electric, Ather Energy, Avan, Tork Motors, Revolt Intellicorp, 22 Motors and so on. It may be difficult for these companies to match up to bigger companies given that everyone has a level playing field and mainstream two-wheeler manufacturers have the financial backing as well. However, the first mover advantage definitely stands with them. Being on a common note, Batra added, "The first mover advantage will obviously be there but to a certain extent as government policies have given a level playing field to every electric two-wheeler manufacturer."
While companies like Hero, HMSI and Bajaj are yet to launch an EV, most of these companies already have an EV portfolio and more will be launched soon. Much will depend on technological leadership, understanding of the market and keeping prices affordable.
Market Size and Opportunity
India sold more than 2.11 crore motorbikes and scooters in FY2019 out of which only 1.26 lakh units were EVs. Of course, this number is double of the total two-wheeler EV sales in FY2018, which were around 54,800 according to data released by SIAM. This is means there is acceptance of electric two-wheelers and with the right infrastructure and subsidies, there is a massive potential waiting for EV manufacturers.
Batteries Becoming Cheaper
At present, almost 40 per cent of the total cost of an EV is for the battery. As the economies of scale come into play for electric vehicles, the cost of batteries too will come down. Plus, the battery technology itself is growing at a rapid pace. The battery chemistry is becoming more efficient and longer lasting in order to make EVs more relevant and reduce range anxiety. As the prices of the batteries go down, so will the prices of electric two-wheelers, making them even more affordable in the next few years.