PremiumHigher fuel prices during the year led to an accelerated shift to e-2Ws. Fire accidents weighed on the rate of adoption. Nevertheless, the segment rose steadily,
In 2022, the Indian two-wheeler (2W) industry bore the brunt of muted demand and elevated commodity prices. But what stood out was the increase in the adoption of electric two-wheelers (e-2Ws).
Higher fuel prices during the year led to an accelerated shift to e-2Ws. True, fire accidents weighed on the rate of adoption. Nevertheless, the segment rose steadily, and the penetration levels touched almost 5% in September, according to data sourced from Vahan registrations. In January, the share of e-2Ws was 2.6%.
The penetration levels in October and November were in the range of 4-4.5% as sales of internal combustion engine (ICE) vehicles got a boost during the festival season.
Also, the withdrawal of FAME – II subsidies by the government from a few original equipment manufacturers due to non-compliance issues impeded production, points out Varun Baxi, an analyst at Nirmal Bang Equities. FAME stands for Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles.
In the e-2W segment, new entrants made significant headway in 2022 and enjoyed a higher market share versus listed incumbents.
Last month, Ola Electric held the top market share at about 21%. In comparison, TVS Motor Co. Ltd and Bajaj Auto Ltd’s market share stood at nearly 10.6% and 4%, respectively.
While companies such as Ola and Okinawa have reported instances of their e-2Ws catching fire, this has not been the situation with the incumbents. This makes a case for a shift in market share to listed 2W makers in 2023. As such, how much of the e-2W market the incumbents can capture remains a key monitorable as this would be one factor which could boost the sentiments of investors in shares of 2W companies.
Overall, e-2Ws are likely to gradually erode the share of ICE volumes in 2023. The year is expected to see new launches by different automakers. State incentives are also likely to boost demand. An example is the recently announced electric vehicle (EV) policy by Uttar Pradesh.
“We estimate the EV share of 2Ws will rise to 7-10% by FY24-25. Note that within scooters, the EV share already touched about 15% as of October," analysts at Nomura Financial Advisory and Securities (India) said in a report.
However, the path to increased adoption of e-2Ws is not without speed bumps. “The longevity of accelerated adoption would need a decline in EV battery and technology costs over the coming years. The incentives would go away eventually, and hence it is crucial for component costs to reduce so that it does not impact affordability," said Kumar Rakesh, an automobile and technology analyst at BNP Paribas Securities India.
Meanwhile, an increasing mix of EVs in an automaker’s portfolio would dilute margins. As certain tests with respect to batteries and cells are being made mandatory from 1 April 2023 to claim incentives, there is a likelihood of a rise in costs. But this may not translate into an increase in the vehicle price given the high competitive intensity. As such, the margin trajectory of listed 2W makers needs tracking.
Coming to passenger vehicles (PVs), EV adoption is still minuscule here, with the penetration rate in November at about 1%. The charging infrastructure needs to evolve more for electric PVs to gather momentum. The upcoming year would see a decent number of launches here. In view of this, 2023 would give a good insight into how things shape up in the electric PV segment. As EV makers step up their footprint, it is vital for the charging infrastructure to expand. In 2023, all eyes will be on the automakers’ roadmap in the EV segment.