Electric two-wheelers surge in March: Has the tipping point indeed arrived?

Did we just have the elusive tipping point for electric two-wheelers (e2Ws) in March? It was a milestone month in more ways than one. Sure, e2W sales had their highest registrations in March — more than 138,000 — compared to the previous monthly high of 103,000 in May 2023.

March registrations are nearly double of February, and only the second time monthly registrations have crossed 100,000. It was also the month when e2Ws accounted for 9 per cent of all two-wheelers. In scooters alone (e-motorcycles are few), electric penetration is said to have reached 28 per cent in March.
 

Impressive as the peaks are, they look more so because they came at a time when government subsidies on e2Ws have touched a historic low.
 

“The tipping point has already happened. The subsidy, which is very low now, does not really matter to the big boys,” says the top executive of one of the “big boys”, who cannot be named because he is not authorised to speak to the media. 

Is he right?

 

Behind the surge
 

Makers of e2Ws aggressively liquidated their stocks at deep discounts, as the second edition of the Faster Adoption and Manufacturing of Electric Vehicles scheme came to an end on March 31, and was replaced by a new electric mobility promotion scheme (EMPS) from April 1.
 

The new EMPS, valid for four months, halved the subsidies per KWH (kilowatt hour, a measure of battery capacity) to Rs 5,000 per vehicle. 
 

In response, several e2W makers, such as Bajaj Auto, TVS, and Ather increased their prices by Rs 2,000 to Rs 10,000. Ola, the electric scooter leader, has not yet raised prices, but has reduced discounts.
 

So, is March the harbinger of bigger things for e2Ws in 2024-25 (FY25)?
 

Ola Electric, whose electric scooters saw a record registration of 53,186 in March, making it the first company to cross 50,000 in a month, is upbeat. Its chief marketing manager, Anshul Khandelwal, sees the momentum continuing for Ola, especially because its price points start at Rs 79,999, whereas some of its competitors do not have vehicles priced below Rs 1 lakh.

But there is another side to the story.

 

 The other side of the highs
 

Despite the highs of March, the increase in e2W penetration has actually slowed after galloping from 1.9 per cent in FY22 to 4.5 per cent in FY23, increasing only to 5.38 per cent in FY24. Though the e2W industry was looking to end FY24 with more than 1.2 million in sales, it did not cross the million mark.
 

There is a consensus in the industry that sales in April could fall compared to March.
 

“March saw huge bookings by customers to take advantage of the higher subsidy under FAMEII. The new EMPS will take time to show results, and then there are the price increases. We think April will settle at 50,000 vehicles,” says the top executive of a leading e2W maker.
 

But, he says, there could be two scenarios in FY25. If the subsidy continues beyond July (beyond the four months of the new EMPS), the festival season boost could take e2W sales up in the region of 80,000 to 90,000 a month and maybe more, and FY25 could have 1.5 million – more than 50 per cent growth.
 

However, if the subsidy does not continue after July, resulting in further price increases or disappearance of discounts, sales might grow very little this year, or not at all. Not everyone agrees with this. Harshvardhan Sharma, head of the auto retail practice at Nomura, says e2Ws sales could see robust growth in FY25 and their penetration could touch 10 per cent.
 

“Following the peak [in March], a short-term decline is possible, as demand suddenly saturates. However, the overarching trend towards e2W shows that any downturn is only transient,” says Sharma. He adds that continued push from the government for electric mobility, improvements in e2W charging stations, advancements in battery technology, and introduction of more models offering better range and performance will push the pedal.       

 

 Lessons from May
 

Sceptics fear a repeat of May-June 2023. In May, e2W sales crossed 100,000, only to plummet by half in June, and grow slowly in the months that followed. 
 

The government had reduced its subsidy from June 1 by a third, forcing companies to liquidate their stocks at discounted prices in May. 
 

Khandelwal of Ola says the scenario has changed. The drop in subsidy was sharper last June, forcing companies to raise prices by Rs 25,000 to Rs 30,000. Secondly, last June the number of models was small, and most of them were priced above Rs 1 lakh. Thirdly, economies of scale, engineering, and lower lithium prices have reduced costs substantially. So, a reduction in subsidy will not have the kind of impact it did in 2023.
 

Besides, companies eligible under the production linked incentive (PLI) scheme for electric vehicles, such as Bajaj, TVS, and Ola, says PLI incentives — 13 per cent to 18 per cent on sales, to kick in from this year — will make up for any loss of subsidies.  Curiously, those not eligible for PLI say the impact of the incentives looks exaggerated if one were to consider the domestic value addition norms.  

 

Divided they stand
 

The e2W market is getting divided into the premium segment (priced above Rs 1 lakh) and affordable segment (below Rs 1 lakh). During the early phase of this market, big players such as Ola, Bajaj, TVS, and Ather entered the premium segment with electric scooters starting around Rs 1 lakh and going up to more than Rs 1.5 lakh.  
 

Subsequently, Ola moved aggressively into the affordable segment. As mentioned above, its pricing now begins at Rs 79,999 for a 2KWH bike addressing users who ride 15 to 20 km a day. Experts say nearly 30 per cent of the market has now moved to the affordable segment.
 

The rise of the affordable segment has encouraged growth in sales in many states that were earlier electric laggards, such as Uttar Pradesh, Rajasthan, and Punjab. Also, the share of women buying electric scooters is seen to be rising.
 

Yet, Bajaj, TVS, and Ather have kept away from the affordable segment till now. Insiders in the EV business predict that TVS, the second largest in e-scooters after Ola, could enter the affordable market. Bajaj has preferred to grow in stages. It is however sitting on huge cash reserves, which give it the financial muscle to play the volume game, should it want to.
 

Bajaj and TVS declined to comment.
 

An Ola Electric spokesperson declined to comment on future plans as the company is waiting for the Securities and Exchange Board of India to clear its initial public offer (IPO). However, industry experts say that based on Ola’s expansion of factory capacity — it will soon be 2 million — the company could shoot for 100,000 in monthly sales within the next two quarters.
 

Ather, too, is preparing for an IPO and declined to comment.Days ago, G20 sherpa Amitabh Kant, one of the architects of the country’s EV policy, said at the launch of Ather’s new vehicle that ICE (internal combustion engine) was a “dead technology” and exhorted EV players to make India the largest manufacturer and exporter of electric two-wheelers.
 

The question is, how fast.