demand and volumes of electric two wheelers (e-2Ws) have witnessed a very
lackadaisical growth in recent years and despite the government’s thrust on
adoption of electric vehicles (EV). Despite an unprecedented demand shock
caused by the pandemic, the outlook for the e-2W remains largely unchanged in
FY2021 due to a low base, says a survey conducted by India’s leading rating
As per the findings of a nationwide survey of
16 e-2W dealerships in November 2020, the stringent eligibility criteria set
for claiming the subsidy under the second phase of Faster Adoption and
Manufacturing of Hybrid and Electric Vehicles (FAME-II), GoI’s flagship scheme,
have been a deterrent – mainly due to a minimum localisation requirement and
exclusion of lead-acid based e-2W for subsidy.
In addition, lack of consumer awareness
(regarding Government subsidy), low acceptability led by lack of product
knowledge and after-sales service concerns have been dominant reasons for the
scheme’s lacklustre performance.
FAME-II SCHEME HAS
FAME-II scheme aimed to push faster electric vehicle (EV) adoption crossed the
halfway mark of its three-year tenure (FY2020-FY2022), on September 30, 2020.
However, it has managed to achieve only 2% of its target (out of covering 10
lakh e-2Ws) sales during the period.
Dewan, Vice-President, , ICRA, says, “The e-2Ws segment was expected to witness
faster penetration among all segments of the automobile market, given the
favourable economics and limited reliance on a widespread charging
infrastructure. However, e-2W sales vis-à-vis targets set under FAME II have
been tepid so far, with the same constituting less than 1% of total
two-wheelers (2W) sold in FY2020 in India. While the e-2W sales reported a 21%
Y-o-Y growth to 1.5 lakh units in FY2020 (first year of scheme) the number of
e-2Ws which availed FAME-II subsidy plummeted.”
research was done to understand the ground realities regarding the current
challenges and possible drivers for faster e-2W penetration. The key findings
were as under:
50% of the dealers mentioned that e-2W sales had declined post FAME-II, as the
number of models eligible for subsidy under FAME II has declined, (indicating
the impact of stringent qualifying criteria). Only e-2W with advanced (i.e.
Lithium-ion battery based) are eligible, resulting in all lead-acid
battery-based e-2W sales (constituting 70% of models available in the market
today) being excluded from claiming any demand incentives. Further, the
requirement for meeting a minimum 50% localised content criterion in a phased
manner is tough as Li-ion battery
accounts for 40-50% of the overall cost of the EV and is the most expensive
component in EVs. Due to lack of adequate domestic supply, most of the OEMs are
importing the same which could be a possible reason for their ineligibility for
claiming the subsidy.
third of the walk-in customers lack awareness about the financial incentives
offered by the Government on e-2W, while the rest have limited understanding.
Apart from higher upfront cost of an e-2W, the potential customers are also
concerned about their durability and after sales services; the Government and the
OEMs need to step up and invest in creating customer awareness towards EV
technology, tax benefits, financing options etc.
80% dealers in the survey indicated that dominant e-2W customers are those who
are looking for a second 2W for the household, mainly for kids and women. With
schools and colleges shut because of the pandemic and limited non-essential
movement, it stands to reason then, that purchase of a second vehicle has been
deferred in the current fiscal.
consumers continue to prefer low cost-low range lead-acid battery powered e-2Ws
even when FAME-II demand incentives are available only for advanced battery
based (i.e. lithium-ion (Li-ion) e-2Ws. Low-speed lead-battery based e-2W are
exempted from RTO registration, driving licence and helmet requirements; this
adds to their appeal. However, lead-acid batteries have limited life, and lack
proper end of life recycling facilities (which are not environment-friendly);
leading to the Government’s decision to dis-incentivise the same.
OPTING FOR LEAD ACID BASED 2-WHEELERS
60% of the customers are opting for lead-acid based e-2W, because of lower
upfront costs vis-à-vis Li-ion powered e-2Ws. Significant upfront cost savings
in Lead-acid based e-2W attract the price sensitive Indian consumers. Consumers
lack awareness that running costs of e-2Ws yield significant savings over
ownership period. Also, a considerable increase (>30%) in ICE ownership cost
over past 2 years has reduced the upfront cost differential with Li-ion based
respondents believed that improvement in battery technology and presence of
more participants (and models) has helped in expanding the e-2W market. This is a promising trend.
80% of the dealers also believed that more financing options could drive faster
adoption. Dealers reported that 20-30% of their e-2W sales are currently
financed; this is lower than 40-50% financing enjoyed by conventional 2Ws in
India. Greater financing avenues and rise in consumer awareness could propel
50% of the respondents said interest in e-2W increased after announcement of
the EV policies by select states, which sweetened the deal in select markets,
like Delhi. Demand incentives are currently crucial to sway customers to e-2Ws
and hence, the financial incentives under the state EV policies provide
incremental impetus for faster EV adoption. Most of the state EV policies have
focused on demand creation through reduction in upfront cost of ownership by
offering a combination of subsidies, registration tax and road tax waivers etc.
and clear transition dates for e-2W migration for delivery services/ e-commerce
response indicates that most dealers (80%) expect flattish to moderate growth
in e-2W sales in FY2021, albeit on a low base. While interest in e-2W amid the
pandemic has increased, conversion into sales remains to be seen.
Dewan, “In H1 FY2021, the high-speed e-2W reported a 25% Y-o-Y decline,
primarily a result of the pandemic-led lockdowns. However, the sales data
released by SMEV for the month of September 2020, which reported a 72% Y-o-Y
increase in sales of high-speed e-2W, augments the positive expectations of the
dealers. The industry is banking on pent-up demand from H1 FY2021, to get
realised in the festive season. Announcement of EV policies by states and Union
Territories like – Delhi, Telangana, and the Central Government’s decision to
allow sale of EVs without battery, could push growth in the near-to-medium
term. However, ICRA expects 15-17% Y-o-Y contraction in domestic 2W volumes in
FY2021, amid an evolving pandemic situation, persisting health concerns and
economic uncertainties. In H1 FY2021, the actual 2W wholesale sales volumes
were 38% lower on a Y-o-Y basis.”
PLAYS SPOIL SPORT
notes that while the practicality behind the FAME-II policy target of 10 lakh
e-2Ws by FY2022 could be debated at this juncture, the Covid-19 pandemic has
been an unpredictable variable which has altered all the best laid out plans.
Although the increased preference for personal mobility, to ensure social
distancing, bodes well for 2W sales in the near-term, the demand for e-2Ws
could be impaired as consumers face income uncertainties. Nonetheless, the
Government’s thrust on adoption of EVs, increasing awareness towards public
health and clean energy continue to favour EV adoption in the long run.
Multi-level policy support (demand incentives) and policy push (firm transition
date) will be imperative for the same.
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