Will ICE 2-wheelers really fall off a cliff as Ola's Bhavish Aggarwal says?

Perhaps the more realistic scenario is also the more appropriate metaphor, writes Suveen Sinha

Time was when a new entrant in an industry segment got to shake things up when the government issued it with a licence. In the modern world, the challengers can legitimately lick their chops when a shift of technology is underway or when user behaviour sees a drastic change driven by new products or innovations. That is when the incumbents are most vulnerable, as they try to extract the last drop of return from their existing setups and wonder whether change is indeed inevitable.

For instances, look no further than phones. Mobile phone service providers grew to become behemoths as landline companies stayed entangled in their wires. Touchscreen phones swept the market away as phones with keypads were caught clicking their tongues.

The much older segment of automobiles has seen quite a few such shifts of its own. And we do not need to turn the pages of history to look at the early innovations.

Hyundai launched its first car in India, the Santro, on October 9, 1998, and in a short six months, it became the second largest player. The South Korean company introduced the term MPFI (multiple-point fuel injection), to the lexicon of Indian car buyers as it tom-tommed its technology while Maruti, which had an 88 per cent share of the passenger car market then, tried to stick to the archaic carburettors.

It took a Supreme Court deadline for shifting to more stringent emission norms to make Maruti finally embrace the computer-enabled MPFI. The new norms required a certain air-fuel mixture in the engine that the carburettor just could not maintain.

Silent motor, noisy battle

At the time MPFI came in, at the turn of the century, climate consciousness was beginning to become a thing. It is much more of a thing now. So much so that Hyundai’s number two position is finally being challenged by Tata Motors, which has dramatically ramped up its electric vehicles (EV) production.

However, the noisier battle involving the silent electric motor is raging in the two-wheeler segment, with Bhavish Aggarwal of Ola Electric being one of the more vocal warriors. Electric two-wheelers (e2Ws) have covered more ground than cars, with a raft of startups – usually the harbingers of change these days – coming in and incumbents such as Hero MotoCorp, TVS, and Bajaj Auto trying to muscle their way in.

Ola appears the most ambitious of the lot, with a fourfold expansion of its capacity to 4 million a year underway and a planned increase to 10 million. Not surprisingly, Aggarwal told Business Standard in a recent interview that he sees two-wheelers running on internal combustion engines, or ICE, falling off a cliff as nearly the entire market shifts to electric in three years.

That is hardly corroborated by the current scenario. BNP Paribas pointed out this month that e2W sales volume was flat, month on month, in November, and EV penetration in two-wheelers dipped slightly to 4.1 per cent in the month from 4.5 per cent in October as registration of ICE vehicles bought during the festival season spilled over to November. In fact, the festival season sales have enthused many brokerages enough about the near-term prospects of ICE giant Hero MotoCorp to put out “buy” recommendations on its stock.

Several projections see e2Ws comprising no more than 30 per cent of all two-wheelers by 2030. The true surge may happen in three-wheelers, where electric could come to corner three-fourths of the market.

Of peaks and cliffs and slow melt of ICE

Any projection – 30 per cent or 100 per cent — has to contend with the fact that electric vehicles, for the foreseeable future, are relying on government support, leading to inevitable ramifications. Recent reports in the aftermath of the fires spoke about an increased audit of EV makers taking subsidies under the government’s Faster Adoption of Hybrid and Electric Vehicles, or FAME, programme. The government has withdrawn subsidy — between Rs. 30,000 and Rs. 50,000 — where e2W makers have violated localisation norms. As Business Standard reported, analysts say subsidies can begin to taper only after the rate of conversion from ICE to e2Ws rises to 20 per cent. At present, it is at a distant 5 per cent.

For that gap to narrow, e2W makers need to resolve certain issues or hope that the issues get resolved, for not everything is up to them. For starters, the range needs to become longer. The highest range on a single charge claimed by an e2W, according to reports, is 220 km by Komaki Ranger. More mainstream ones claim to run 140 to 180 km on a full charge. These are claims and may not necessarily translate into real-life performances.

Hero Splendor, one of the best-known ICE motorcycles, can probably go 750 km on a full tank. Yes, the running cost is much higher for petrol, but the price tag is much lower: About Rs. 70,000 for a Splendor Plus compared to Rs. 1.85 lakh for the Komaki. Add to that the hours it takes to charge an EV and the sparse charging infrastructure. Then there is the matter of perception: how do e2W riders feel knowing a roadside mechanic cannot fix their vehicle should it break down?

In an indirectly related development, the government is understood to have extended the deadline for ICE two-wheeler makers to install certain emission monitoring devices, not signalling a huge urgency on emission control.

So, will ICE two-wheelers really fall off a cliff? That does not seem likely in the near term. In the longer term, it may be a more accurate prediction to say that ICE will melt. And it will certainly be a better metaphor than “fall off a cliff”.