Switching to electric: is the buzz of the EV two-wheeler real or imaginary?

When Darpan Bhalla, a freshman at Delhi University, bought a two-wheeler last month, going electric was a simple decision for him. “Gasoline prices are skyrocketing,” he says. “And electrics are the future.” The Millennial considered a scooter from a Japanese company, but quickly decided against using it. “It costs Rs 90,000 and does not have all the features,” he says. Features such as a touchscreen dashboard and Bluetooth connectivity, among many others, that its new Ather scooter has.

Bhalla, however, belongs to a minority. Out of 100 buyers of two-wheelers in India, only one buys an electric vehicle (EV). But the buzz in the market might have you believe that things are moving much faster on the ground than they actually are. Electric two-wheelers have gained more opinion share than market share, thanks to startups entering this space. The two-wheeled electric vehicle market has almost all the ingredients in place – products, technology, manufacturing capacity, supply chain, hype – except for the most important, demand. In 2021, around 135,000 high-speed electric two-wheelers were sold. That’s a meager 1.1% of the two-wheeler market, despite sales of conventional vehicles at their lowest since 2012. But experts say the shift to electric vehicles is imminent. Many also believe the two-wheeler segment will be the fastest to transition and be a key solution to India’s climate change targets and fuel import bills.

Consider this. Just seven manufacturers – Ather, Ola, Hero, Bounce, Revolt, Ampere, and Okinawa – claim to have a combined manufacturing capacity of over 3 million units per year. Ola Electric represents 2 million. That’s over 20 times current sales. 12 million additional units of manufacturing capacity were announced by companies, including

NSE 1.51%, TVS Motor and Ola Electric. At this scale, the figures are starting to compare with those for the conventional two-wheeler market.

Are these numbers too optimistic or is this the start of a new era? Rakesh Sharma, ED, Bajaj Auto, says this is the birth of a new industry and the disproportionate excitement is “only to be expected.” “In fact, the new entrants and the high-level discussion will ease the industry’s transition,” Sharma said.

However, the challenges she faces are not uncommon or easy. This is clear from the delays and reported product issues that Ola Electric is riddled with. Pune-based Tork Motors is still struggling to market its electric motorcycle. 22Motor also had to sell its business to Bounce after failing to market the products it showcased in 2018. Even Ather Energy had its own share of start-up issues before expanding its operations this year.

Given these examples, it might be wise to take the claims of new EV manufacturers with a pinch of salt. But not everything in the industry is smoke and mirrors. On the positive side, sales of high-speed electric two-wheelers in 2021 are up more than five times from last year’s low base. And industry players are convinced that the sector will take a turn in 2022. This optimism is supported by three factors –

First, gasoline prices have exceeded the psychological bar of Rs 100 per liter.

Second, the government doubled the subsidy for electric two-wheelers under the electric vehicle promotion program, further reducing the cost of ownership for consumers. Several states also distribute grants on top of that.

And third, the purchase price of gasoline two-wheelers has jumped 15-20%, forcing a potential buyer to explore an electric vehicle. And if one were to add to a lesser but noticeable extent, the hype created by Ola Electric’s expensive marketing campaign has had an effect on the entire industry.

“The EV space is in a pretty incredible time right now,” Ather’s Mehta said at a public event last week.

“We haven’t seen so much activity… In Ather’s life, what we’ve seen over the past seven years and what we’ve seen over the past 12 months still doesn’t compare. “, did he declare.

And businesses put their money where they say it is.

According to the ICRA rating agency, nearly Rs 22,000 crore has been committed in the electric two-wheeler space including auto component manufacturers for the next 3-5 years and this is only expected to increase.

The lack of an ecosystem of local components has so far been the sector’s Achilles heel. The center lobbied for a higher localization for companies to continue receiving subsidies, but local parts were difficult and expensive to find as parts makers were not convinced enough by the electric vehicle narrative to invest in. local manufacturing.

But that is changing now.

“Electrification is a sure thing. Those who continue to wait will be the losers, ”Anil Kumar, Managing Director of SEG Automotive India, told ET. The company is a leading manufacturer of two- and three-wheel electric motors. In fact, the Indian unit of SEG has been given the responsibility of leading the group’s small EV engine business.

Change is imminent

VG Ramakrishnan, MD of consultancy firm Avanteum Advisors, says that given the challenge of climate change, this fundamental change is obvious.

“This is no longer a talk. The change in consumption will be accelerated by government policies and investments by car manufacturers and both are visible. Two-wheelers due to their ticket price and volumes can have an impact significant both in terms of adoption, which can lead to lower emissions and imports, ”Ramakrishnan added.

True, over 75% of vehicles sold in India are two-wheelers, and the overall CO2 emissions of two-wheelers are also higher than those of cars.

Environmental awareness is another reason many will choose an electric vehicle over a vehicle that uses fossil fuels. “The cost of maintaining electric vehicles is lower, but even if I have to pay the same price, I will choose it to save the environment. We know the impact of pollution in Delhi,” Bhalla said. But environmental concerns take a back seat in a price conscious market like India and it will not generate large volumes of sales.

So what will drive the volumes? The entry of historic manufacturers – Hero, Bajaj, TVS and Honda – who not only have deep pockets, but years of experience in developing, manufacturing and selling two-wheelers – can spark change.

More than a dozen and a half models are in the works, such as Hero, Bajaj, TVS and Honda, which will be launched in the coming years. Dedicated teams and subsidiaries are being formed to participate in this change.

According to ICRA, as a baseline scenario, they forecast 8-10% electric vehicle penetration in two-wheelers by 2025. At current annual volumes of 18-20 million, there will be a market for at least 1 , 8 to 2 million units.

Sharma of Bajaj Auto agreed that the transition from two-wheelers to electric vehicles has accelerated, but that it will only take place significantly over a long period of time, he said.

Although it is difficult to accurately predict the penetration of electric vehicles due to several variables, he said, “we could see the rate go up from 15% to 20% of the two-wheeler industry. ‘four to five years from the current 1% penetration. levels. ”

Bajaj for its part and KTM are working jointly in several areas of electric vehicle development, including design, technology and product development, the partners are likely to share vehicle architecture in the future. Bajaj also derives great benefit from its alliance with Yulu, which allows it to gain “invaluable insight” into customer behavior, which will be fed back into product development.

Bajaj’s closest rival, Hero MotoCorp, has already started to evolve the electric two-wheeler business as a solution and has taken an ‘ecosystem approach’ from products to technology to sales, service, customer service, operations and innovation.

Hero plans to address multiple price points through various partnerships, people in the know say.

Understanding the challenges on the residual value of electric two-wheelers due to the lower battery life, Hero plans to form a joint venture with Taiwanese electric vehicle maker Gogoro for a swappable battery solution. In the premium segment of the market, Hero already has a significant stake in Ather and will release its own range of electric scooters developed in Europe.

“We are working on a variety of clean mobility solutions. We have a very aggressive launch and expansion plan for our EV products and services and we will launch our first EV product by March 2022,” a spokesperson said. by Hero.

TVS Motor recently established a subsidiary and announced the extension of its global partnership with BMW to electric vehicles.

The challenges of adoption

While convenience, lack of fuel price hikes, government support, and new product solutions are driving the transition, there is considerable ambiguity around product stability, actual user experience, and costs. that mitigate this transition. Therefore, Sharma says Bajaj expects “the two formats to be able to coexist for a considerable period.”

Srinivas Kantheti, CEO of Bike Bazaar, said the adoption of electric two-wheelers on the last mile delivery front will boost penetration in the country.

The population of last mile delivery vehicles is currently 2 million and is expected to reach 6 million and a large part of them will likely be electrified due to the total cost of ownership and the government’s Shunya project, he said. declared.

“On personal property there is enthusiasm, but penetration will be gradual due to challenges over battery life and resale value. There will definitely be some early adopters, but the initial hype about personal property may not last once the products are available for free, ”Srinivas added.

Meanwhile, Delhi’s Bhalla is so far happy with its electric vehicle. “At a red light I’m always the fastest compared to the others. It has so much better torque,” ​​he said of the acceleration of his scooter.

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