Mint Primer: Are two-wheelers shifting gears toward an electric future?

Subsidies and more players mean electric two-wheeler sales could top 0.8 million units per annum. (Mint)
Subsidies and more players mean electric two-wheeler sales could top 0.8 million units per annum. (Mint)

Summary

Petrol two-wheeler makers will continue to push vehicles for some time before going aggressive on electrification

Domestic overall two-wheeler sales increased 4% in the first half of FY24, and estimates suggest they will easily top 17 million units by the year-end. Yet, sales would be significantly below the peak levels of the pre-covid era. Mint explains why.

What’s the trend for two-wheeler sales?

In 2018-19, two-wheeler sales hit a peak of nearly 21.18 million units, registering a 6% growth during the year. Thereafter, sales fell for three consecutive years to hit a decadal low of less than 13.6 million units in 2021-22. As the economy rebounded from the impact of the pandemic, sales grew to 15.86 million units last year and are tipped to cross 17 million units this year. Nonetheless, the figure would still be 20% less than the peak achieved in 2018-19. In contrast, the passenger vehicle segment has already surpassed pre-covid levels. Commercial vehicles and three-wheelers are likely to do the same this fiscal.

Why is recovery so sluggish?

High inflation, stagnant wages, rising joblessness and soaring petrol prices have all been speed breakers. Also, regulatory changes starting with BS-VI emission norms in 2020 and stricter safety standards have impacted every sub-segment as prices shot up: The price of India’s largest seller, Honda Activa, is up from 52,000 in 2016 to 88,000 in 2023. The K-shaped recovery in the overall economy means that while demand for premium bikes such as Royal Enfield is surging, entry level motorcycles (100-125cc), which still command over half of the industry volumes, are in a protracted slump.

Graphic: Mint
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Graphic: Mint

Do electric vehicles have anything to do with it?

Subsidies and more players mean electric two-wheeler sales could top 0.8 million units per annum. Still, it would be just 5% of the overall sales. The paucity of electric motorcycles hampers EV penetration, but in the scooter segment, it has started to impact its petrol counterparts. By March 2024, electric scooters are expected to account for over 15% of monthly sales.

What are two-wheeler makers planning?

To comply with BS-VI norms, the industry had to spend significantly to introduce fuel injection systems. The transition happened under the shadow of covid. The industry could not recover the cost in time because of the impact on demand. Analysts believe that had the market continued to grow, companies would have recovered the cost by 2026. It has now been pushed back by a couple of years. So, petrol two-wheeler makers will continue to push vehicles for some time before going aggressive on electrification.

What are the projections?

According to Crisil, two-wheelers will see the sharpest increase among all automobile segments, logging a 9-11% CAGR between fiscals 2023 and 2028 to reach around 26 million units. Sales will moderate to 3-5% CAGR between fiscals 2028 and 2032 at 31 million units. Most of this growth will come from electric two-wheelers which will account for 20-24% of sales by fiscal 2027 and 53-57% by fiscal 2032. Sales of petrol two-wheelers will increase in the next two years but volumes are likely to be less than in 2018-19.

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