Share of e-two wheelers in overall two-wheeler sales has grown from less than 1 percent in 2021 to almost 4 percent as of October 2022.
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In 2015, the Indian government as part of its COP-21 commitments, enacted and implemented Faster Adoption and Manufacturing of Electric Vehicles in India (FAME) with an initial outlay of just Rs 895 crore. For the fledgling Indian EV industry at that time, it was a major boost, and the numbers showed up. In 2015, India saw 7,737 EVs being registered against 2,356 in 2014. By the time Phase 2 of FAME (FAME-II) was launched in 2019, India has already registered 2.5 lakh EVs. The second phase came with a far greater outlay of Rs 10,000 crore for a three-year period which was subsequently extended till 31st March, 2024.
Under FAME-II, various state governments have enacted their own EV policies with generous subsidies to encourage adoption and investments in charging infrastructure. The central government has also offered various Production Linked Incentive (PLI) schemes to spur manufacturing. All this has led to some interesting developments in the Indian EV ecosystem.
At the current juncture in India’s EV journey, it would be safe to say India has achieved a unique EV ecosystem. From registering just 2,657 EVs in 2013 to over 8 lakh EVs so far in 2022, the Indian EV industry has come a long way. This growth has largely been driven by two- and three-wheelers and continue to be over 95% of all EVs sold in India as of October 2022. A closer look at these numbers, though, over the years, reveal an evolving EV market with an impending transition.
India’s EV market is evolving
For instance, in 2021, e-two wheelers accounted for 47 percent and e-three wheelers 49 percent of all EVs registered in India. Compare that to 2019, when e-three wheelers represented 81 percent of all EVs registered while e-two wheelers accounted for a minor 17 percent.
While e-three wheelers essentially serve as commercial vehicles engaged primarily in last-mile commuter transportation, e-two wheelers, on the other hand, are geared towards personal use. As the numbers would suggest, the Indian EV industry from 2015 till 2019 largely grew catering to the commercial EV segment while the personal vehicles segment—mostly composed of two-wheelers—remained relatively small and underserved. However, following 2019, we notice a gradual shift in the market dynamics, indicating consumers were becoming more receptive towards e-two wheelers. For instance, 27,706 e-two wheelers were registered in 2020 which was slightly lower than in 2019 largely due to the pandemic. In 2021, the number was a staggering 147,784 with the segment registering a 433 percent growth. In 2022, sales are very likely to cross 5 lakh at the current rate, and will account for over 60 percent of all EVs sold in India surpassing e-three wheelers.
Therefore, we see an impending evolution in the Indian EV space with the next phase of the growth being driven by the personal two-wheeler segment. With more affordable and reliable offerings in this segment and increased availability of charging infrastructure, and subsidies, more Indian consumers are likely to consider e-two wheelers for their commute signalling a transition in the Indian EV story.
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Two wheelers serve as vital means of transport in Indian households especially in lower and middle income groups. Though this sector has historically remained one of high growth, in the past few years following 2017, there has been a decline which was aggravated during the pandemic. The decline could be attributed to a number of factors which include a sharp rise in costs following implementation of new emission standards, pandemic related restrictions and others. The increased costs of two wheelers seem to have catapulted a growth in the Indian used two-wheeler market which has grown significantly in the past few years. While the apparent market for two-wheelers has been shrinking, e-two wheelers seem to be inching towards a larger share of the Indian two-wheeler market. This can be attributed largely due to the parity in prices brought about between IC (Internal-Combustion) and electric vehicles following subsidies which considerably make these vehicles affordable. Added to that, the rising cost of fuel and the assurance of low and easy maintenance of e-two wheelers, favour towards e-two wheelers is growing. Despite a number of fires and other incidents, the growth in e-two wheelers has sustained.
Share of e-two wheelers in overall two-wheeler sales has grown from less than 1 percent in 2021 to almost 4 percent as of October 2022. For two-wheeler manufacturers, the increased receptiveness of consumers towards e-two wheelers make them a likely bet in a shrinking market. For instance, of all the vehicles sold by TVS Motors as of October 2022, over 1.6% are electric against 0.28% in 2021. Given the current trajectory, we expect e-two wheelers have enough room to grow as it gradually captures space from its IC counterparts, and is very likely to drive growth in the overall two-wheeler market in the upcoming years.
It is a welcome sight to see the personal vehicle market gradually gaining ground through e-two wheelers, signalling a shift from being commercial vehicle oriented market to a more balanced personal vehicle market. Unlike the e-three wheeler market characterised by large number of manufacturers, low prices and being relatively under-regulated, the same isn’t the case for its two-wheeled counterparts. The e-two wheeler environment has small number of players who are subject to stringent quality controls and regulations. Despite these obstacles, large players such as Hero Electric, Okinawa Autotech, Ampere, Ola Electric, and Ather Energy have come to the market with affordable and reliable offerings which appeal to the regular consumer and at par with IC offerings. Coupled this with the fact that more state governments are enacting their own EV policies with various incentives in the form of subsidies or tax exemptions for electric vehicles particularly for e-two wheelers. Significant investments are also being made by government agencies as well as private players for setting up adequate charging infrastructure. The government too in recent months has issued numerous guidelines for EV manufacturers to comply with which range from passenger safety to battery standards. Such measures further bolster consumer confidence in EVs.
Also read: EVs are all the rage. Will the charging infrastructure catch up in 2023?
With the seeming transition towards adopting consumers adopting EVs as personal vehicles led by e-two wheelers, it is imperative to realise that it is still in its early growth stages when compared to commercial e-three wheelers. While the growth of e-three wheelers was and still is driven by its compelling use case, relatively low prices when compared to its IC counterparts, easy maintenance and other benefits, the drivers of e-two wheelers are very different.
Subsidies currently aid in bringing some price parity between e-two wheelers and its IC counterparts which often knock anything between 5 percent to 25 percent off the price. Added to this are other incentives like exemption of taxes and registration fees in certain states. These subsidies and incentives have largely aided the growth in the e-two wheeler market. These subsidies, usually paid directly to manufacturers, come with strings attached subject to compliance to various standards and regulations which are likely to grow more stringent. Failure to comply has recently drawn the ire of the government with subsidies being halted in some cases. Such heavy dependence on subsidies for e-two wheeler manufacturers is worrisome, especially as subsidies will eventually stop.
For the government, it is necessary to sustain this new found growth in e-two wheelers. While it is evident that subsidies will be necessary to drive growth, the current system of providing subsidies to manufacturers must transition to direct subsidies to the buyers. This would ensure that manufacturers have enough capital at their disposal to invest in R&D for their vehicles which would eventually bring down costs. This would eventually allow the government to wean away subsidies quicker as prices reduce. Further, regulations pertaining to this sector must be introduced and implemented with a pace that doesn’t overwhelm manufacturers which may lead to unintended price hikes.
With the growth of e-two wheelers bringing about a transition in the Indian EV market, sustaining this growth in the personal EV space in the face of eventually shrinking subsidies remains a challenge.
Soumya Roy, Associate Professor, Quantitative Methods and Operations Management Area, Indian Institute of Management Kozhikode
Soumyadeep Kundu, Doctoral Student, Quantitative Methods and Operations Management Area, Indian Institute of Management Kozhikode
