EV three-wheelers will be popular due to favourable operating economics

Electric three-wheelers are expected to gain traction due to favourable operating economics, and the government's focus on cleaner means of transportation, domestic credit rating agency Icra said on Monday.

According to a recent Icra report, the electric segment is likely to account for 14-16 per cent of new three-wheeler sales (excluding rickshaws) by FY2025, up from 8 per cent currently.

Penetration is estimated to rise to 35-40 per cent by FY2030 as the product gains more acceptance and financing-related challenges subside, as per the report.

Icra said, according to its recent channel check, most e3W dealers have seen double-digit growth in sales in the last two years, owing to various factors, such as lower operating costs, exemptions from registration and road taxes, and higher demand for last mile connectivity.

However, while demand for e3Ws (including e-rickshaws) is increasing, sales have been limited by a lack of financing options, with the loans being offered at high-interest rates, poor loan-to-value ratios, and shorter EMI tenures, it said.

Furthermore, many large banks and NBFCs are not yet lending to this segment, limiting the buyer's financing alternatives, it said, adding that almost three-quarters of the dealers polled believed that improving finance availability will be the most effective way to boost e3W sales.

"e3Ws (including e-rickshaws) have been at the forefront of India's electrification journey, being among the early adopters. In 10M FY2023, the 3Ws (excluding rickshaws) recorded an electric penetration of 8 per cent, compared to 4 per cent for two-wheelers and 1 per cent for passenger vehicles," said Kinjal Shah, Vice President at Icra.

While sales dropped substantially in the aftermath of the pandemic, they rebounded at a healthy rate in the current fiscal year, surpassing pre-pandemic levels by a solid margin, she added.

According to the rating agency, a favourable regulatory environment with central and state government subsidies to lower capital costs, as well as reduction or waiver of registration fees, road taxes, and permit requirements continue to be supportive of e-auto adoption.

Coupled with the inherently lower running costs, this results in a much lower (40-45 per cent) total cost of ownership (TCO) than conventional diesel or CNG three-wheelers, making the conversion to e-autos an attractive proposition, Shah stated.

Noting that until now, the unorganised e-rickshaw industry has dominated the expansion of the e3W market, accounting for 90 per cent of all e3Ws sold in the country, Icra said this segment has thrived over the last five-seven years due to lower upfront expenses and operational savings, as well as minimal compliance requirements.

However, e-autos, which have a larger load-bearing capacity and top speed than e-rickshaws, are also gaining popularity, with sales split evenly between the goods and passenger carrier segments, it said.

The latter has been fuelled in large part by favourable operating economics and a desire by numerous companies, notably e-commerce firms, to employ green vehicles for last-mile transportation needs.

The e-auto passenger carrier segment, on the other hand, has had relatively lower levels of electric vehicle adoption, although this trend is improving, the report said.

Because e-rickshaw is also an option for passenger transportation, with lower upfront costs, more seating capacity and fewer compliance requirements, the adoption of e-auto passenger carriers has been relatively slower, it observed.

"The outlook for e3W (including e-rickshaws) remains favourable in the medium-to-long term due to growing demand for electric vehicles as a result of factors, such as environmental concerns and higher CNG and diesel prices," Shah noted.

Furthermore, several cities are increasingly limiting the registration, admission, and usage of polluting vehicles, and as a result, e3Ws are expected to gain further popularity, the report said.

"Additionally, lower TCO, as well as the government's push for net zero targets and support from government incentives, are expected to propel e-auto sales in the medium to long term. With incentives under the FAME-II scheme set to expire in a year's time, there is a likelihood of sales pace gaining further momentum in the upcoming fiscal," she emphasised.