Slashed subsidies to cause e-two-wheeler sales to ebb

Electric Scooters
Electric Scooters

Summary

  • While prices drove sales at a macro level, EV market share was being driven by another key factor - distribution. EV OEMs' market share was being driven by the strength of their distribution network in various states, a JP Morgan report said

New Delhi: Buyers swarmed showrooms in March to lap up attractive deals on electric two-wheelers while higher subsidies on them lasted. This led to their sales swelling to 136,000 units last month compared to over 83,000 units in February, according to the Vahan dashboard.

Starting 1 April, the government has decided to cut subsidies on these vehicles by more than half—from up to 22,000 per scooter to a maximum of 10,000 per scooter. This can lead to a price hike of 1,000-5,000 per scooter, where prices range from 80,000 to well over 1.5 lakh (ex-showroom).

However, FY24 clocked the slowest pace of electric two-wheeler sales growth since FY21—a 29.9% growth rate for sales of 941,745 units. Sales were hampered by a substantial subsidy cut last June—from 40% of a vehicle’s ex-factory price to just 15%. (Sales had spiked 480% in FY21, thanks to the government doubling the cap on FAME-II incentives.)

This time, too, industry watchers say the sector will have to grapple with a few months of lull before demand revives after March’s surge, prolonging a period of stagnation in electric vehicle (EV) penetration that kicked in in the second half of last year.

Monthly data from the Vahan dashboard reveals that electric two-wheeler sales plummeted to 46,102 units in June 2023 from 105,390 in May, and recovered somewhat only in October to 75,069 units, when the festival season began.

Some EV makers have decided to absorb part of this subsidy cut. Bengaluru-based Ather Energy has decided to absorb a 5,000 per unit reduction in incentives, and pass on only 5,000 to the consumer.

Market leader Ola Electric, on the other hand, has tapered down discounts from 25% to close to 10% of the ex-showroom price of its models, even as it continues to offer its cheapest model, the S1X, at 80,000.

Bajaj Auto and TVS Motor Co., the two largest incumbents in the e-two-wheeler market, are yet to announce new pricing under the Electric Mobility Promotion Scheme (EMPS) 2024, which is valid only for four months after April, until the Union Budget under the new government gives way to a fully fleshed-out incentive programme for EVs.

Industry executives, however, feel the recovery will be quicker this time than last year. “The reduction in the quantum of subsidy under the EMPS is much lower than the last time subsidies were lowered in May," Ravneet Phokela, chief business officer, Ather Energy, said. “The market pricing dynamic hasn’t changed dramatically, but because of a large volume of pre-buying in anticipation of the subsidy cut, demand could take some time to stabilize."

However, while subsidy- and discount-driven lower prices drove sales at a macro level, EV market share was being driven by another key factor, distribution.

A JPMorgan report of 1 April on the Indian two-wheeler market said that the market share of EV original equipment manufacturers (OEMs) was being driven by the strength of their presence—distribution or dealership network in those areas. The report highlighted that an OEM like Ola Electric’s market share rose in relatively low-income markets like Uttar Pradesh and Rajasthan where its distribution network far exceeds its competition. Conversely, in mature markets like Maharashtra and Karnataka, it is in much closer competition with rivals Bajaj Auto and TVS Motor, respectively (see chart).

This is a temporary advantage, the report inferred, and can change as other OEMs tap into new markets.

While Ola emerged as the dominant player in the Indian e-two-wheeler market, capturing nearly 35% of the overall market share during the fiscal year 2023-24, Mint’s state-wise analysis reveals that Ola’s dominance was not uniform across all regions.

In Maharashtra, which was the biggest market in 2023-24, Bajaj Auto (28.3%) held the lead as the dominant player, while Ola Electric’s share was 27.5%. Additionally, in Tamil Nadu, another significant contributor to the overall Indian market, the competition was intense between Ola (21.8%) and TVS Motor (20.6%).

In a policy shift, the government has replaced the FAME-II scheme with the new EMPS. Under this new scheme, the subsidy on electric two-wheelers was reduced by half, from 15,000/kWh under FAME India Scheme Phase II to only 5,000/kWh. The new policy also requires vehicle manufacturers to obtain fresh vehicle certification, which means OEMs have had to bear losses for inventory they couldn’t claim subsidies on as recertifications for the EMPS only started rolling in after 1 April.

 

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