Instead of focusing on electric vehicles, India appears to be focusing on manufacturing two- and three-wheeled electric vehicles so far. But what are the obstacles to selling these vehicles, which made up only one percent of total vehicle sales in the past fiscal year? And most importantly, how do you overcome obstacles and seize the opportunity? Read on to find out.
The electric boom has swept the world. Auto companies are striving to change their business model to fit the new turmoil. At these crucial junctures of the mobility revolution, experts believe that India has found its champion in the race – the electric two-wheeler.
There is no doubt that India has succeeded in establishing itself as a leader in the global automobile industry, and there is also no doubt in the fact that the country favors two-wheeled vehicles. So far, the internal combustion engine (ICE) and the two-wheeled ICE have been the preferred mode of commuting in the country, and its electric counterpart has not yet made a significant impact on the market.
Two-wheeled electric vehicles accounted for only 1% of the country’s total two-wheeler sales in 2020, which amounted to 150,000 units. The difference is stark, which begs the question: What do electric players have to do to get the same love out of the market?
Starts with the customer
A look at the market today presents us with a mixed picture. While the electric car industry in India is accelerating, it is still making small strides compared to the pace with which other global markets are moving. A quick look back and realize that two-wheeled ICE owners were and still offer very few options, while electric alternatives come with a wide variety of options.
Scooters and motorcycles are the two sub-sections within the two-wheeled bike category that are most popular in India and also in most other parts of the world. While motorcycles make up 29 percent of the total motorcycle production in India, motorcycles make up 67 percent.
However, most of the electric motorcycle players have set their eyes on the scooter segment, leaving the motorcycle market unaffected enough. This means that 67 percent of potential motorcycle buyers do not have a viable alternative in the electrical sector, at least not yet. This, in and of itself, is a huge setback for the average customer who wants a motorcycle but has to reluctantly accept a scooter.
Given its size and market, India is undoubtedly a potential hub for electric two-wheelers, but a common and somewhat frustrating hurdle faced by almost every EV player in the country is customer reluctance. Knowing what a potential two-wheeler buyer is looking for when evaluating an electric alternative is the key to a successful market transition.
Customers are also looking for the model with the most advanced features. With the market now filled with IoT-enabled two-wheelers and AI-enabled, it can be said that more feature-rich variants will be the base for customers to choose a two-wheeled electric bike.
“The new generation is moving towards how much they can do and how many features there are in terms of technology platforms that make mobility and access a lot easier,” says Muhammad Sahel Ali, Senior Sustainability Analyst, IHS Markit.
Funding is a major headwind in electric two-wheeler adoption. With the already exorbitant upfront price, consumers are also feeling uncertain about after-sales service and the car’s resale value after half a decade or so.
Consumers also need some reassurance about after-sales service and the car’s resale value after four to five years. Residual value is also a major concern for financiers, particularly with battery pack prices and battery life dropping from seven years to eight years, which could significantly impact the residual value of reacquired vehicles.
All these factors combine to increase the frequency among consumers to switch to electric mobility. Samsheer Dewan, Vice President and Group Head of Corporate Sector Ratings, ICRA, suggests, “Industry participants should come up with innovative solutions that could be some kind of buyback plan or some lease option that can help us increase the spread of financing.”
While funding is required from 45 to 50 percent for the overall two-wheeler segment, the same stands at just 10 percent for the electric two-wheeler segment. Experts believe that one of the main reasons for this is their lack of confidence in the electricity sector.
The only way to break this hesitation is to educate not only the clients but also those funders and take them to trust. One way to do this collectively, Dewan says, is to share data on the actual use of these compounds with funders to give them an idea of how the sector is actually achieving.
Another weight factor for customers is the load-carrying capacity. According to ICRA research, 55 percent of two-wheeled electric vehicles on the market today have a lower load capacity, and exceeding this may have some impacts on vehicle performance, especially with two or more occupants.
The price differences between the ICE model and the electric model are perhaps the biggest factor preventing customers from making the switch.
There is a lot of debate about the total cost of owning an electric two-wheeler and its long-term benefits. However, it is important to realize that a two-wheeler is the vehicle usually preferred by low-to-middle-income families, for which the starting price is an important factor. They are unlikely to empty their wallets for a product that is priced significantly higher than the gasoline-powered alternatives, no matter how attractive the long-term benefits may be.
Sensing this significant obstacle, the Government of India has launched the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME India) scheme with the aim of boosting the adoption of electric vehicles in the country. Recent adjustments in the second phase of the policy have garnered much praise from the industry.
But incentives and subsidies, while an encouraging start, are not viable forever. Reducing upfront costs and providing a robust freight infrastructure should be the goal to attract more customers.
Battery – the answer to many problems
Charging infrastructure, an inseparable core of building a robust electric vehicle ecosystem, is still in its first phase in the country. To put things into perspective, by the end of March 2021, India had 1,000 charging stations across different cities, which is roughly the same number of charging stations that China is adding daily.
To counteract this scarcity, improving battery technology efficiency should be a necessary catalyst to keep the growth trend going. “In the meantime, we feel that improvements in battery technology will also be a game-changer for B2C’s mass adoption of electric two-wheelers, helping to circumvent charging infrastructure development to some extent,” advises Dewan.
Battery exchange, for example, is gaining popularity for its ease of use and accessibility. “For the passenger segment, we expect the battery swap concept to be a concept that will evolve and become a more realistic solution, which will help simply because the use of that segment will be much higher,” Dewan tells.
Notably, batteries play a more important role than just an alternate charging solution. “The battery is an essential component of an electric vehicle and accounts for 35 to 40 percent of the total cost,” says Navin Munjal, managing director of Hero Electric. According to recent forecasts by experts, battery costs are expected to drop dramatically over the next decade as new chemicals are discovered, and localization becomes the norm.
What is surprising is that India, for all its nonsense for electric mobility, has not yet entered the field of battery manufacturing, which is not only a lucrative opportunity but also necessary to facilitate price parity on two-wheeled electric vehicles and increase their adoption. .
Making it an even better deal is the Production Linked Incentive (PLI) scheme for the manufacture of advanced chemical cell (ACC) batteries approved by the center at a cost of Rs 180 million.
Munjal agrees, “Localization is a very important factor. There are some reports saying that when battery manufacturing takes place in India, it could be one of the lowest-cost manufacturers of lithium-ion batteries.”
Now, while truckload challenges continue to impact the industry, they have undoubtedly presented many opportunities to make a mark in the sector. And while manufacturing and research and development are critical aspects of these opportunities, the electric revolution has also provided an opportunity for startups and companies to be innovative with their business models, which was not possible with ICE cars.
The assembler model, for example, is becoming a popular choice for new companies, helping to grow the industry in many ways. Dewan says the aggregator model is a noteworthy innovation for the industry that could help convert a large portion of the population that uses the internal combustion engine into users of electric mobility. “Although B2B conversion is going to be a very important factor, their economics are already starting to decline. What needs to be put into practice now is the aggregator model.”
The large number of pool models already thriving, or any such model for that matter, is not at all worrisome, according to Kedar Soman, co-founder and chief technology officer, eBikeGo. “In no way do I think there is any danger of competition. Right now, we are all just scratching the surface for a major disruption or change to happen.”
As a matter of fact, as these parallel business models continue to operate, they are creating a certain synergy that is more focused on enhancing electric mobility and proving its benefits and making it mainstream. The last mile delivery strategy is an example of how innovative ideas can emerge in the face of this revolutionary technology. “No one has made delivery vehicles in petrol cars before, and a lot of these kinds of different innovations are going to happen,” Suman says.
In fact, as e-commerce becomes more and more popular in Tier 2 and Tier 3 cities, the scope for aggregation business growth will be filled with abundance.
Ride the future on localization
India, as one of the largest automobile markets, offers many opportunities for the electric vehicle market to thrive. For example, India’s huge potential for exporting cars, for example, already gives locally manufactured two-wheeled electric vehicles and electric vehicle component makers an advantage to enter various global markets. Besides, there is also an opportunity to capture emerging markets.
“If you look at China and other western countries, two-wheelers are not a mass market product there. But if you look at emerging economies like Africa or Latin America, the product line is very similar to what we have here in India,” says Abhishek Saxena, a policy expert General, NITI Aayog. This provides us with a first mover advantage, enabling us to build our capabilities not only for the local markets but also for their synergies with the export market.
Riding that ambition on the back of localization and local production is key, Saxena says.
“If we go electric, we can’t in any way go electric through imported products.” The core of this initiative is to build products suitable to serve Indian road and environmental conditions. Since electricity is a new product, we need to modify and build products that are suitable for our conditions of humidity, temperature, etc.
“We’ve done a lot of manufacturing in India, but not a lot of local R&D patents have come out of India,” Saxena points out. “Until you translate these contents, and unless those contents are translated, you will not be cost-competitive in the long run,” Saxena adds.
In addition, it is necessary to strengthen efforts to complete the entire value chain if India is to be on par with China.
This article is based on a panel discussion entitled “E2W India Market Forecast” hosted by Emobility+. The author, Siddha Dar, is a business journalist at EFY