The subsidy revision for electric two wheelers and electric three wheelers is likely to cause some shifts in market dynamics. While several key players are gearing up to absorb the increased cost, some are planning to pass on the entire or partial cost to the end-customers.
30 Mar 2024 | 12539 Views | By Amit Vijay M
Electric two-wheeler and three-wheeler sales are expected to touch nearly 1.5 lakh units in the current month and enter the slow lane from April 24 onwards due to the imminent revision in subsidies.
According to various dealer and original equipment manufacturer (OEM) estimates, consumers are making a beeline for ...
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Electric two-wheeler and three-wheeler sales are expected to touch nearly 1.5 lakh units in the current month and enter the slow lane from April 24 onwards due to the imminent revision in subsidies.
According to various dealer and original equipment manufacturer (OEM) estimates, consumers are making a beeline for dealerships.
The impending cut in subsidies from Rs 10,000 per kWh to Rs 5,000 per kWh is leading to brisk sales at dealerships, as the prices of electric two-wheelers are set to rise by Rs 5,000 to 10,000 and that of three-wheelers by Rs 25,000 to 30,000.
Market sources are of the view that the cumulative sales of electric two and three-wheelers are expected to cross 1.5 lakh units this month. Sales of electric two-wheelers may breach the 1 lakh mark that was achieved in May 2023.
India cumulatively sold 1.3 lakh units of electric two and three-wheelers in February 2024, of which 82,000 units were of electric two-wheelers and nearly 50,000 units of electric three-wheelers.
Stemming the subsidy slide
To stop any slide in market demand, IPO-bound industry leader in electric two-wheelers, Ola Electric, is considering fully absorbing the price hike, company sources told Autocar Professional. The company sold 33,722 units in February 2024.
Meanwhile, its rival Ather Energy plans to partially absorb the decrease in subsidy and pass on a marginal amount to the customer.
EV Startups like BGauss Auto, which undertake an average monthly sales of 1,500-2,000 units, are monitoring the competition considering the subsidy reduction and their response will also be tactical.
"The decrease in subsidies is leading consumers to advance their purchases in the current month, and the market is expected to see a dip from April onwards, similar to when the government reduced subsidies in June of the previous year,” said Hemant Kabra, Founder and Managing Director, BGauss Auto. A top official at BGauss Auto said that they are contemplating a price hike between 5,000 to 7,000 for its range of electric scooters.
The government has decreased incentives for e-rickshaws and e-carts from Rs 10,000 per kWh or 20% of the vehicle cost to Rs 5,000 per kWh, capped at Rs 25,000. For electric autos, the incentive has been reduced from Rs 10,000 per kWh or 20% of the vehicle cost to Rs 5,000 per kWh, capped at Rs 50,000.
Future tense
Anuj Sethi, Senior Director at CRISIL Ratings, believes that the electric two-wheeler market is likely to experience a temporary slowdown due to the reduced subsidies. However, original equipment manufacturers are expected to introduce lower-cost electric two-wheeler models to stimulate demand, albeit possibly with slower speed and fewer features.
CRISIL also anticipates that this dip will not significantly impact the long-term outlook, projecting an 8-10% growth in overall electric two-wheeler sales in the next fiscal year. This growth is expected to be driven by a trend towards premiumisation and a potential recovery in sales of entry-level two-wheelers.
Ratings agency ICRA has also given a similar forecast. According to Srikumar Krishnamurthy, Vice President and Co-Group Head, Corporate Ratings, ICRA, the penetration of electric vehicles (EVs) in India is currently low. However, it is expected to improve at a healthy pace in the future, supported by factors such as enhanced customer acceptance, anticipation of more product launches, and improvement in overall EV infrastructure.
From the OEM point of view, ICRA has stated that profitability for EV OEMs is still some time away and will depend on factors such as a significant increase in volumes to aid in better-fixed cost absorption and the ability to negotiate with vendors. Additionally, the continuation of subsidies to support volume growth, a meaningful reduction in battery prices (which accounts for 35-40% of overall vehicle costs), and enhanced levels of localisation will also be crucial.
"The recent pricing actions of OEMs follow a steady correction in battery prices in recent months and the expectation of a softer price regime in the near term.
Favourable pricing, increasing product launches, and improved product acceptance are likely to support the expected volume ramp-up, thus reaching break-even levels at an earlier period," Krishnamurthy added.
CRISIL has also stated that it expects healthy double-digit growth of 15-17% in fiscal 2025 for electric three-wheeler sales.
Analysts have noted that the recent subsidy cut has impacted the sales of e-buses and e-fleet cars in the short term, as buses and fleet cars are no longer eligible for subsidies.
Planning for tough times
Saera, the manufacturer of e-rickshaw, Mayuri, is concerned about the intense competition in the market, which may force them to pass on the reduced subsidy to consumers.
Sources at Mahindra Last Mile Mobility have expressed the view that the government should have exempted the electric three-wheeler community from the subsidy cut, as it is the nation's largest source of employment. They highlighted that the cost of ownership for electric autos will increase significantly, affecting economically disadvantaged individuals such as e-rickshaw drivers and women looking to purchase e-rickshaws. A rise of Rs 1,500-2,500 in EMIs will represent a significant portion of the earnings for marginalised communities.
Despite the feedback, Omega Seiki Mobility, based in Delhi, and Altigreen, based in Bengaluru, believe that companies that have localised their production extensively have already anticipated that the government may not extend its subsidies. Dr. Amitabh Saran, Founder and CEO of Altigreen, told Autocar Professional, “we foresaw this situation and have secured long-term contracts with our suppliers and component manufacturers, enabling us to manage costs without burdening the consumer.”
Uday Narang, Founder and Chairman of Omega Seiki Mobility, also told Autocar Professional that the company is committed to affordability and the Make in India initiative. “We are pleased to announce that our prices will remain unaffected due to our strategic approach, which allows us to control our costs and protect our customers from market fluctuations, including subsidy cuts,” Narang said. "While some competitors may choose to pass on subsidy cuts to consumers, Omega Seiki Mobility believes in bearing this responsibility internally. We understand the impact of rising prices on our customers, particularly with the increasing EMIs for electric three-wheelers. Therefore, our decision to maintain stable prices demonstrates our dedication to promoting accessibility and nurturing long-term relationships with our clientele.”