EV transition in India has been driven by the highly value-conscious two-wheeler customer base in India, unlike in the West where EV cars are marketed for driving excitement and the aspiration to own feature-rich green vehicles.
12 Aug 2024 | 5956 Views | By Autocar Pro News Desk
Ola Electric Mobility and Ather Energy, India's pioneering EV makers, are set to enter the Indian equity market at a time when interest in EV companies has been wavering due to slowing sales and concerns over usability. US carmaker Tesla, once valued at over USD 1 trillion, has seen its ...
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Ola Electric Mobility and Ather Energy, India's pioneering EV makers, are set to enter the Indian equity market at a time when interest in EV companies has been wavering due to slowing sales and concerns over usability. US carmaker Tesla, once valued at over USD 1 trillion, has seen its share price drop by nearly a third as the initial excitement around EVs fades and the sector enters a more pragmatic phase of evaluation. For smaller firms, this has meant the difference between surviving and perishing.
Things, however, are not quite so dire in India — mainly because of the difference in the key customer segment addressed by EVs in the country. EV transition in India has been driven by the highly value-conscious two-wheeler customer base in India, unlike in the West where EV cars are marketed for driving excitement and the aspiration to own feature-rich green vehicles.
The foundation of India's market story lies in massvolume products that are practical for daily use, with a strong emphasis on utility and total cost of ownership (TCO) over the product life cycle. Therefore, a vehicle maker that can demonstrate utility and superior TCO in their offerings is poised for exponential growth in sales volume, albeit initially at a slower pace. Indian EV companies have not tried to replicate Tesla's trajectory. Instead they have demonstrated value to consumers, and high volume adoption remains a realistic possibility. In short, Indian EV could go the way of Jio’s 4G service that revolutionised data consumption among the masses.
The rise in scooter penetration in recent years is a classic case of how a utility product can achieve massive market penetration when aligned with historical trends. The increase in urban population and literacy rates has shown a positive correlation with scooter penetration in India. Notably, scooter penetration is higher in states with higher literacy rates such as Kerala, Tamil Nadu, Karnataka, and Andhra Pradesh compared to states in North India.
Up until now, Indian electric twowheeler sales volumes have heavily relied on government subsidies under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) scheme. Consequently, it remains a push product and has not yet solidified its market position as a preferred choice for buyers.
The reduction in subsidies has led to initial 'prebuying' surges followed by sharp declines in monthly sales volumes. According to Vahan data, two-wheeler EV registration volumes rose by 33% year-on-year to 946,363 units in FY2024, up from 712,310 units in FY23.
However, this growth is characterised by high monthly volatility. Monthly sales peaked at 140,167 units in March 2024 due to pre-buying, but subsequently ranged between 65,000 and 79,000 units in the following three months. This indicates that two-wheelers have yet to establish themselves as a common choice among the mass market segment, despite evidence that familiarity and utility drive higher adoption rates.
For instance, EV scooters have seen significant penetration in metro cities like Bengaluru and Pune, as well as non-metro cities such as Kolhapur, Ajmer, and Surat. Kolhapur boasts the highest EV scooter penetration at 23%, suggesting that EVs can meet localised personal mobility needs in smaller markets with more affordable variants, financing support for low to midincome consumers, wider distribution, and improved power infrastructure.
Recognising this, EV companies are aggressively scaling efforts to launch mass-market models that achieve economies of scale and lower costs. Ola's introduction of the lower variant Ola S1X, starting at Rs 80,000 with a 2KWH variant, and Ather's Rizta series targeting the mass-market scooter segment exemplify how disruptive new-age EV companies are actively filling the void in the mass-market segment.
Moreover, EVs enjoy a modularity advantage over ICE vehicles, enabling several variants with significant specification differences on the same platform without the challenges of low production volumes per variant. This modularity ensures options at every price point, catering to diverse consumer preferences. A similar trend is emerging in the ICE vehicle sector, particularly noticeable in motorcycles ranging from 100cc to 440cc. Interestingly, mainstream companies like TVS, Bajaj, and Hero have yet to explore launching multiple variants on a single platform, despite the opportunities presented by EVs remaining predominantly in the premium scooter segment.
Pitfalls to Avoid
Even as there are innumerable possibilities in India's EV sector, there are certain precautions and strategic priorities they must keep in mind. The first one is that the 'deliver now, fix later' strategy that characterised Tesla's early days may not resonate with Indian consumers in the EV revolution, which is driven by bottom-of-the-pyramid customers rather than aspirational segments. Therefore, any product-related issues could delay adoption rates and impact vehicle resale value — an essential consideration for potential buyers.
It's worth noting that Tesla initially faced various challenges, including issues with product quality and thermal management, despite launching a revolutionary product. Over time, Tesla addressed these issues through focused investments in research and development, expanded its supplier network, conducted rigorous product testing, and improved its service and charging infrastructure. These efforts enabled Tesla to resolve product and software-related issues, albeit benefitting from relatively limited competition during that phase.
Apart from focusing on the mass-market segment, EV players must also keep costs down to align operating margins closer to those of ICE two-wheeler makers. Currently, pure EV makers like Ola and Ather report negative EBITDA per vehicle of Rs 35,000-80,000, translating to an operating profit margin of minus 20- 40%, while ICE two-wheeler makers achieve positive EBITDA per vehicle of around Rs 10,000, with sustainable margins ranging from 11-16%. The typical bill of materials for a two-wheeler EV includes 35-40% for the battery pack, 5-10% for the motor and drivetrain, 20-25% for electronics and electrical components, and 25-35% for chassis and body panels. Of the battery pack costs, 80- 85% relate to the cells, with the remainder attributed to the battery management system.
The most critical factor in reducing the cost of twowheeler EVs is lowering cell costs to approximately USD 50-60 per kWh over the next five to seven years. This will determine whether EVs can achieve double-digit margins and be valued competitively against ICE vehicles. Battery pack prices have significantly decreased in the past decade, dropping by 88% to USD 139 per kWh in 2023 from USD 1,183 per kWh in 2010. This decline is attributed to lower raw material prices, innovations in cell chemistry such as using cheaper materials like lithium and iron phosphate, increased supply from cell manufacturers, and enhanced energy density, resulting in smaller, lighter, and cheaper batteries.
Global trends suggest that battery pack prices will further decrease by 40-43% over the next seven to eight years, driven by innovations in cell chemistry, which could catalyse EV adoption globally by making them more competitive in terms of performance and cost. Some automakers, like Ola, have begun developing proprietary cell chemistries, such as the introduction of the 4680 cell format, which boasts higher energy density and offers greater control over battery quality, supply, and cost — enhancing their command over the bill of materials. This aligns with leading global EV manufacturers that have established in-house cell manufacturing capabilities.
Large-scale cell production has enabled EV makers to achieve greater efficiency, higher product quality, and improved accessibility for consumers, making ownership of cell manufacturing crucial for gaining a competitive edge in India's competitive EV market. Furthermore, two-wheeler EV manufacturers are planning to engage in the design and engineering of critical electronics and software-intensive components.
The global EV experience indicates that achieving significant volume ramp-up typically takes about six to seven years after introducing the first model that captures buyer attention. In China, the largest EV market, it took approximately 6 years to achieve a penetration rate of 29% from 1% in the first year. The addressable market for two-wheeler EVs is vast, with the mass and executive segments — the most discerning buyers in the twowheeler space — accounting for approximately 50% of the total market. Consequently, E2W players are targeting a large and promising domestic vehicle market with sales volumes reaching 16 million units in FY2023 (5.2 million scooters and 10.8 million motorcycles), projected to grow to 27 million units annually by FY2028 (12 million scooters and 15 million motorcycles). This translates to a Total Addressable Market (TAM) of Rs 3.5 lakh crore by FY28, compared to Rs 1.65 lakh crore in 2023.
This underscores why E2Ws are projected to capture 41-56% of the domestic two-wheeler sales volumes by FY2028, up from 5% at the end of 2023. By FY2028, India is expected to require 40-60 GWh of E2W battery capacity, based on projected sales of 11-15 million E2W vehicles. Additionally, two-wheeler exports present a global market opportunity of 100-110 million units. Over the last 5 years (FY2019 to FY2023), approximately 18% of two-wheeler volumes produced in India were exported, reflecting the robust reputation of Indian 2Ws globally due to the country's climate, traffic conditions, road infrastructure, and rider preferences for durable, high-quality products—making a strong case for exporting 2wEVs from India.
This feature was first published in Autocar Professional's August 1, 2024 issue.