Electrification disrupting 2-W space, transition under way sooner than expected

What’s Buzzing:

Electric 2-Ws are gaining traction domestically thereby challenging the might of ICE powered vehicles. The disruption is visible in the scooter as well as entry level motorcycle segment with subsidies (Centre + state) making them more affordable than their ICE counterparts in some states. With new age e-commerce players as well as delivery platforms committing to going green and electric, the transitional change is around the corner and is expected to accelerate, going forward.

Context:

Electric vehicles, particularly in the 2-W space, make a lot of economic sense on total costs of ownership basis, with per km running costs pegged at < Rs 0.5/km for electric 2-W vs. ~Rs 1.5-2/km for ICE powered vehicles. With rising fuel prices and battery (swappable) as a service optionality, the economics is even more favourable towards electrification. The government’s mission asking oil PSUs to install ~22,000 EV starting stations pan India over the next few years is an affirmative step in this direction.

Perspective:

In the recent past, the 2-W space has witnessed a lot of activity with plenty of new OEMs/start-ups launching their electric 2-Ws. The product profile is also quite attractive both in term of pricing as well as features and technology offered. They also provide help in charging ecosystem thereby addressing the issue of range anxiety. We see this as a transitional change, which will propel existing 2-W OEMs to offer attractive proposition in this space as well as expedite penetration of electric vehicles domestically. Robust allocation to FAME-II subsidy scheme at Rs 2908 crore for FY23E vs. Rs 800 crore in FY22E, which is largely in the form of demand incentives will further expedite the transition. The government has also proposed to come out with a battery swapping policy, which also includes the concept of energy/battery as a service, which will make electric vehicles even more affordable (lowering the initial upfront cost of purchase). We believe the government’s push in the form of schemes like FAME-II (~Rs 10,000 crore), auto PLI (~Rs 26,000 crore) and advance cell chemistry PLI (~Rs 18,000 crore) will be key enablers of electrification, with the 2-W space being the first one to witness meaningful penetration, going forward.