India’s electric two-wheeler market

India proposes a policy that electrifies most of its two-wheelers over a 6-8 year period. Considering the failure to incentivise the car industry with a similar strategy, is this new proposal likely to succeed?

Background

India has one of the world’s biggest two-wheeler markets. India’s rapidly urbanising population, increasing purchasing power, and the need for connectivity in cities have boosted the sector. In the first quarter of 2019, India sold over 21 million motorbikes and scooters. During the same period, it sold 3.3 million cars and utility vehicles, highlighting the popularity of two-wheelers.

In 2013, the Government of India launched the National Electric Mobility Mission Plan (MEMMP) 2020 aimed at securing “national fuel security by promoting hybrid and electric vehicles in the country.” It targets sales of 6-7 million hybrid and electric vehicles per year beginning in 2020. In order to provide fiscal and monetary incentives, Indian authorities launched a scheme called Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME India). FAME India seeks to make hybrid and electric vehicles the first choice for Indian consumers.

Analysis

The NITI Aayog is expected to propose electrifying most motorbikes and scooters to curb pollution and reduce India’s dependency on fossil fuels. The government-run policy think tank will recommend a period between six to eight years to implement the proposal. The proposal is in line with the think tanks’ goal to achieve the Sustainable Development Goals set by the UN. Details of the scheme have yet to be confirmed, although it also included the mandate to sell only electric three-wheelers from April 2023. Headed by the Prime Minister, the think tank can help adopt research-backed policies that incentivise specific markets.

According to the Society of Manufacturers of Electric Vehicles, electric two-wheelers have accounted for only a fraction of total sales. However, sales over twelve months have doubled to 126,000 from 54,800 in the previous period. This indicates a desire by the market to adopt electric two-wheelers gradually. Current players in the market include Hero Electric and several startups, such as Ather Energy, Twenty Two Motors and Okinawa. 

The focus on electric two-wheelers comes after Prime Minister Modi’s government set a target to electrify all new cars and utility vehicles by 2030. This target, established in 2017, was met with resistance from the domestic auto industry, forcing the government to scale back the plan. Authorities now aim for electric vehicles to make up 15% of all new sales in five years from less than 1% currently. Analysts believe that car makers have not been adequately incentivised by government policies to invest in local manufacturing and sales. 

The NITI Aayog proposal marks a shift in approach by the Indian government. The project, developed in cooperation with the Ministries of Heavy Industries, Road Transport and Power, is in line with India’s status as the world’s largest two-wheeler market. It places greater emphasis on the most critical segment of the transportation industry in India - two-wheelers. 

Indian authorities seek to learn from their mistakes in electrifying the car segment. The proposal offers incentives for the manufacture and sale of electric motorbikes and scooters while penalising the purchase of new petrol models. This is likely to introduce a new market for global companies like Yamaha Motor and Suzuki Motor, who have already announced plans to launch electric two-wheelers in India. India’s cabinet recently approved a scheme to spend US$ 1.4 billion over three years to subsidise sales of electric vehicles, making electric-two wheelers more attractive to consumers. 

Counterpoint

Similar to the problems that hinder the electrification of the car industry, the price viability of electric two-wheelers has yet to reach parity with combustion engines. Currently available electric two-wheelers are relatively more expensive than their fossil-fuel alternatives. More importantly, although battery technology has significantly improved in recent years, it still requires development before it can truly compete with combustion engines. 

Additionally, most current market players lack consolidated service units and supply chains, although this is likely to change as international players enter the fray. The lack of national infrastructure to augment electric two-wheelers (such as charging ports), means that the average consumer is unlikely to view the option as a viable one. 

Assessment

Our assessment is that the proposal is likely to succeed, given that key players in the two-wheeler industry already field electric options or are currently developing them. We believe that in terms of securing India’s national fuel security and climate future, the two-wheeler industry must be further incentivised by government plans and schemes to pursue electric technology. Considering the urban use of two and three-wheelers, charging infrastructure must be installed in cities first to facilitate the transfer to electric options. We feel that attracting international players is essential to draw upon consolidated supply chains and service networks while competing at the cutting edge of electric technology. We believe that the NITI Aayog can play a significant part in driving this policy, while effectively cultivating consensus among the various state governments. 

 

Comments