Behind India’s electric scooter gold rush

In March, Bhavish Aggarwal, founder of Ola Electric, revealed his plans to build the world’s-largest electric two-wheeler factory in Krishnagiri, Tamil Nadu.

Nothing short of global scale would have kindled interest, as the Indian electric two-wheeler sector has been teeming with startups and traditional two-wheeler manufacturers launching new products and investing in new capacities. Amid a capex drought in the country, the electric two-wheeler sector has been an island of hope.

In the first three months of calendar 2021, India saw the launch of 11 new products in the electric two-wheeler segment. More are in the pipeline.

While Ola’s mega factory is looking at exports too, interest in the sector is being driven by domestic demand. Electric two-wheeler sales have grown by over seven times in the last six years, but this is on a small base.

Looking ahead, the share of electric vehicles in the total two-wheeler market is estimated to grow from 0.8% in 2020-21 to 12.8% in 2024-25, according to JMK Research & Analytics.

Demand is expected to come from both individuals, and from the delivery and ride-hailing businesses. Demand from e-commerce/delivery businesses is expected to grow at a compounded annual rate of 15-30% through 2025, according to McKinsey estimates.

While early adopters of electric vehicles tend to be environmentally conscious, demand for electric two-wheelers is primarily driven by economics.

In terms of the total cost of ownership, electric two-wheelers work out 10-20% cheaper than petrol vehicles, research by Motilal Oswal Financial Services analysts show. Cost dynamics have tilted in its favour primarily because of plummeting prices of lithium-ion batteries, thanks to mega factories mostly in China.

Volume Play

A drop in battery costs can significantly bring down the cost of an electric vehicle (EV). According to McKinsey estimates, it typically represents around 40% of the cost of material inputs.

Prices of batteries have been plummeting. According to BloombergNEF, lithium-ion battery pack prices have fallen 89% from above $1,100 per kilowatt-hour in 2010 to $137/kWh in 2020.

BloombergNEF expects this to fall further to $101/kWh by 2023. This, it adds, could make EVs comparable in cost to internal combustion vehicles even without subsidies in some markets.

In India, EVs currently receive subsidies through the government’s FAME-2 scheme. By 2030, battery prices could further drop to $58/kWh through, for example, adoption of solid-state batteries. Last year, battery prices fell 13% from 2019 levels, thanks to increasing order sizes, growth in EV sales, and the introduction of new pack designs, BloombergNEF said.

Chinese Dominance

China is unmatched in investments in battery production. Of the 181 battery mega-factories in different stages of planning and construction, 136 are based in China, according to an Oxford Institute for Energy Studies study.

The country accounts for 72.5% of the global battery capacity, according to Benchmark Mineral Intelligence. Even when the total battery capacity goes up by the projected six times in the next 10 years, China will retain a 67% share, adds Benchmark.

At a time when many global businesses are trying to de-risk supplies by reducing dependence on a single source, it will be crucial for Indian electric two-wheeler makers to look beyond China, especially if they are not making investments.

Electric two-wheeler makers could partner with battery cell makers. Volkswagen and General Motors have done precisely that in Europe and the US respectively.

Charge Recharge

For Indian electric two-wheeler makers, though, a more immediate issue is strengthening the network of charging stations. While individual customers are likely to use it for short commutes, businesses are expected to work their vehicles longer every day. McKinsey research suggests a vehicle in an e-commerce fleet will travel 90-100 km per day, while one in a food-delivery fleet would clock 120-130 km per day.

While some electric two-wheelers promise such a range on a single charge, the availability of charging stations will be a key demand driver. In 2019, the Indian government had allocated ₹1,000 crore to set up charging infrastructure under its FAME scheme. Recently, Ola followed up its announcement to set up the world’s largest electric two-wheeler factory with another big plan. It said it would set up 100,000 charging stations across 400 cities in the next five years. Given India’s current network of 4,300 stations, that’s a long distance to travel.

www.howindialives.com is a database and search engine for public data