In the third article of this series based on the analysis of EV dashboard data, we explore why it may be prudent to subsidise under Rs. 90,000 EVs so that the market continues to introduce lower priced models and accelerate the transition

This is the third article in a series of posts that draws insights from the Climate Trends and Climate Dot EV Dashboard launched recently. In the previous article, we examined the three wheeler segment where we looked at how important this segment is to India mobility transition and to ensure low-cost, last-mile connectivity in cities, towns and even villages.

In this article, we shift - if not gears, certainly wheels - and do a deep dive into the two wheeler segment. Two wheelers are the leading vehicular category in India with over 71% of sales among all vehicular categories in 2023. Transitioning the two wheeler segment to EVs is crucial on two counts. One, they are the most used form of personal transport and two, they are easier to transition on account of lower sticker price in comparison to their four wheelers counterparts.

In fact, two wheelers in India have already crossed the “tipping point”. 2021 was a watershed moment for the 2W EV market in India with sales growing by 5X (see figure 1). The hockey stick growth continued in 2022, with the market growing 4X (figure 1).

Figure 1: Sales of two wheelers over time in India

This augurs well for the 2W EV market in India, showing that there is a strong demand. What are the causes? We suspect four factors playing out.

One, Faster Adoption and Manufacturing of Electric Vehicles (FAME) subsidies have certainly helped drive down costs and make EVs more affordable.

Two, notwithstanding the subsidies, EVs have quickly become an aspirational product for many who do not mind paying the extra markup for an EV. This argument is backed up by data that shows that Ola has the maximum sales of EVs in India. And until recently, the Ola S1 was at a significant markup compared to its ICE counterpart.

Three, the availability of models in the market have increased since the launch of the first premium EV scooter (the Ather S340) in 2016. This has provided customers with a wider variety of choice.

Four, petrol prices in India have increased sharply over the last five years or so, moving from about Rs. 60 per litre to close to Rs. 100 per litre. This has tipped the scales for ‘value hunters’ who are desperately looking to offset their monthly petrol bills.

The year 2023 might just be another crucial year for the 2W EV segment in India. The FAME subsidies were drastically reduced, driving up costs. This reduction of subsidy came into effect in June 2023. The impact of this is distinctly visible in the sales (see figure 2). After a temporary blip due to the last minute buying rush, sales fell drastically from about 66,000 units a month in April to 45,000 units in June. Interestingly, though there has been a steady pick up in sales with numbers in October crossing 74,000 units. However, these numbers are only equal to 2022 numbers, meaning that the market may not see that exponential growth that is crucially required for mass 2W EV adoption.

Figure 2: Comparison of month wise 2 wheeler EV sales (2022, 2023)

Electric two wheeler OEMs have responded to this by doing two things. One, they have significantly reduced battery capacity by introducing lower end models. For instance, Ola now has the Ola S1 Air (3 kWh battery) and the S1X (2 kWh battery) compared to the premium 4 kWh Ola S1Pro. Ather also followed a similar strategy by introducing the Ather 450S (a 2.9kWh battery) compared to the premium Ather 450X (3.7 kWh battery). Second, some of the standard connectivity and smart features have been bundled as an optional add-on by many OEMs, to further lower the sticker price. Both these strategies have brought EVs close to ICEs on upfront cost parity.

Notwithstanding these positive announcements, it is certain that the market will not increase in similar measures (i.e. 4 to 5X) over 2022 levels. This is disappointing to say the least, given that India is on the cusp of an EV revolution. If 2W EVs are to meet the 30% sales penetration goal by 2030, continued fiscal support is needed, especially in the lower affordability segments. It may be quite clear that Rs 100,000+ vehicles are purchased by people who can afford to pay that price. But it may be prudent to subsidise under Rs. 90,000 EVs, thereby providing a clear indication to the market to continue to introduce lower priced models.

This article was first published on Clean Mobility Shift.