Two-wheelers continue to face hurdles even as EVs are charged up
Premium- Share of EVs in total two-wheeler (2W) registrations in the country has risen from just 0.4% in FY21 to 4.3% in March (2022), analysts at Jefferies India said
India’s transition to electric vehicles (EVs) will be supported by the production-linked incentive (PLI) schemes launched by the government. On Thursday, the Ministry of Heavy Industries said four companies would receive incentives under the PLI scheme for advanced chemistry cell battery storage. These companies are: Reliance New Energy Solar, Ola Electric Mobility, Hyundai Global Motors Co., and Rajesh Exports.
Separately, recall that the government had earlier approved 75 companies under the component champion incentive scheme and 20 companies under the champion OEM (original equipment manufacturer) incentive scheme.
Such incentives by the government should support auto companies in their endeavour to convert to EVs gradually. It helps that there is an increasing excitement about EVs amongst consumers as well. As Jefferies India Pvt. Ltd’s analysts said in a report on 24 March, “Share of EVs in total two-wheeler (2W) registrations in the country has risen from just 0.4% in FY21 to 4.3% in March (2022)." The analysts further pointed out, “EV penetration is picking up fast, especially in the 2W segment led by high subsidies and new product launches."
In the passenger vehicle (PV) segment, Jefferies’ analysts note that the EV penetration has reached about 1% of registrations despite increased cost of ownership and limited products. “Tata is leading with EVs now contributing 7% of its total India PV volumes," said the Jefferies report.
Be that as it may, it is worth noting that while the 2W segment is seeing increased traction in the EVs portfolio, overall domestic demand continues to remain muted. The higher cost of raw materials such as aluminium and precious metals is further adding to the woes. Accordingly, analysts at Kotak Institutional Equities expect the raw material basket for 2W to increase by 200-300 basis points (on current spot prices) from 1QFY23E onwards. One basis point is 0.01%.
Of course, the companies can resort to further price hikes to battle commodity inflation but this would have an adverse impact on demand. Plus, elevated fuel prices are impacting affordability in the entry-level market.
“Owing to slowdown in the rural economy, the replacement segment mix has declined from 40% (pre-covid levels) to sub 30% currently," said Kotak’s analysts in a report on 23 March.
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In this backdrop, the export market for 2Ws is a bright spot. “Among the key export markets, Nigeria, Colombia, Mexico, Argentina, Guatemala, Nepal and some other African countries are witnessing strong growth trends, which augurs well for Bajaj Auto Ltd and TVS Motor Co. Ltd," added the Kotak report. According to the analysts, export two-wheeler segment volumes are expected to grow by 16% compound annual growth rate over FY2021-24E.
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