Ola Electric, the dark horse in the two-wheeler stable?

The electric two-wheeler space has been the focal point for testing electric vehicle penetration in India’s huge auto market (AFP)
The electric two-wheeler space has been the focal point for testing electric vehicle penetration in India’s huge auto market (AFP)

Summary

The scooter segment within two-wheelers could face the first pressure because of the new electric vehicle (EV) launch. Scooters formed about 30% of Indian two-wheeler demand in FY21, and TVS Motors Co. is one of the larger players in this segment

Conventional two-wheelers have weathered a challenge or two quite well in the past. The recovery after the first wave of covid-19 was sharp and better than the market’s expectations. However, with new players making a splash in the electric two-wheeler market, conventional players face a daunting task.

The electric two-wheeler space has been the focal point for testing electric vehicle penetration in India’s huge auto market. So far, the penetration has been low. However, with Ola Electric’s scooters at a price point that makes it a compelling alternative, the move towards electrification has accelerated. Newer manufacturers are also readying more launches in this space. This poses a high risk to increases in valuation multiples of conventional two-wheeler manufacturers.

That said, electric two-wheelers are priced about 1.25-1.75 times higher than conventional two-wheelers. Electric passenger vehicles have a price point that is 3-4 times higher than conventional vehicles. However, the government’s push with subsidies has made electric two-wheelers affordable compared to conventional two-wheelers. Analysts pointed out that subsidies are likely to accelerate the shift towards electric two-wheelers.

The electric vehicle segment is still small compared to conventional two-wheelers.
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The electric vehicle segment is still small compared to conventional two-wheelers.

What’s more is that Ola Electric has trumped the traditional dealership sales model by going fully online. This translates to more competition for incumbents. Still, one of the factors that drive sustainability and growth in the two-wheeler market is the on-road performance. On that front, the final consumer verdict on Ola Electric is yet to be out.

“In case there are no quality issues, significant disruption is possible for the 2W industry market share for incumbents and the traditional dealership model. We note that even without Ola’s EV launch, the electric 2W market share has touched 2% pan India and 8% in Bangalore in August 2021," said analysts at Nomura Financial Advisory and Securities in a client note.

The scooter segment within two-wheelers could face the first pressure because of the new electric vehicle (EV) launch. Scooters formed about 30% of Indian two-wheeler demand in FY21, and TVS Motors Co. is one of the larger players in this segment.

Conventional two-wheeler manufacturers have no choice but to ramp up their electric vehicle presence, analysts noted. “The bigger onus is now on incumbents to leverage their R&D (research and development), manufacturing and distribution to scale up in electric vehicles," said analysts at Jefferies India in a client note.

The electric vehicle segment is still small compared to conventional two-wheelers. Volumes are low as of now and greater production of e-vehicles will take time. Besides, new players also have to ramp up production. Hence, a meaningful impact on conventional two-wheeler market shares may be some distance away.

However, that may be of little consolation. Conventional bike sales volumes have yet to see a meaningful recovery after the second covid-19 wave. All eyes are on the festival season for an improvement in sales, but a sharp recovery may still be quite an uphill road.

These factors could be a drag on valuation multiples of two-wheeler companies. “As electrification is picking up at a slightly better pace, there might be some valuation contraction for conventional two-wheelers in the near term," said Mitul Shah, head of research, Reliance Securities.

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