The revision of subsidies for electric two-wheelers and three-wheelers is expected to impact market dynamics. Many major companies are preparing to absorb the higher costs, while others intend to pass all or part of these costs onto consumers.
Sales of electric two-wheelers and three-wheelers are anticipated to reach around 1.5 lakh units this month but are expected to slow down from April 24 due to a forthcoming reduction in subsidies. Dealer and manufacturer estimates suggest a surge in consumer visits to dealerships as the subsidy cut from Rs 10,000 per kWh to Rs 5,000 per kWh prompts brisk sales, with electric two-wheeler prices set to increase by Rs 5,000 to 10,000 and three-wheeler prices by Rs 25,000 to 30,000.
Market insiders predict that combined sales of electric two and three-wheelers will exceed 1.5 lakh units this month, with two-wheeler sales potentially surpassing the 1 lakh mark achieved in May 2023. In February 2024, India sold a total of 1.3 lakh electric two and three-wheelers, with 82,000 two-wheelers and nearly 50,000 three-wheelers.
To counteract any decline in market demand, Ola Electric, a leading electric two-wheeler company, is considering absorbing the price increase in full. In contrast, Ather Energy plans to partially absorb the subsidy decrease and pass a small portion onto customers. EV startup BGauss Auto, with average monthly sales of 1,500-2,000 units, is keeping an eye on competitors and will adjust its strategy in response to the subsidy reduction.
Hemant Kabra, Founder and Managing Director of BGauss Auto, noted that the subsidy decrease is prompting consumers to make early purchases this month, with a market dip expected from April, similar to the effect of last year’s subsidy reduction. BGauss Auto is contemplating a price hike of Rs 5,000 to 7,000 for its electric scooters.
The government has reduced incentives for e-rickshaws and e-carts from Rs 10,000 per kWh or 20% of the vehicle cost to Rs 5,000 per kWh, capped at Rs 25,000. For electric autos, the incentive has been reduced from Rs 10,000 per kWh or 20% of the vehicle cost to Rs 5,000 per kWh, capped at Rs 50,000.
Anuj Sethi, Senior Director at CRISIL Ratings, expects a temporary slowdown in the electric two-wheeler market due to reduced subsidies. However, manufacturers are likely to introduce lower-cost models to stimulate demand, albeit with slower speeds and fewer features. CRISIL projects an 8-10% growth in electric two-wheeler sales in the next fiscal year, driven by a trend towards premiumization and a potential recovery in entry-level two-wheeler sales.
ICRA also forecasts a similar outlook, with Srikumar Krishnamurthy, Vice President and Co-Group Head of corporate Ratings, stating that electric vehicle penetration in India is currently low but is expected to improve significantly, supported by increased customer acceptance, more product launches, and better EV infrastructure. Profitability for EV manufacturers is still some time away and will depend on factors such as higher sales volumes, negotiations with vendors, continued subsidies, a significant reduction in battery prices, and increased localization.
Krishnamurthy added that recent pricing actions by manufacturers follow a steady correction in battery prices and the expectation of a softer price regime in the near term. Favorable pricing, more product launches, and improved product acceptance are likely to support volume growth, leading to earlier breakeven levels.
CRISIL anticipates a healthy double-digit growth of 15-17% in electric three-wheeler sales in fiscal 2025. However, analysts note that the recent subsidy cut has short-term impacts on e-bus and e-fleet car sales, as these vehicles are no longer eligible for subsidies.
Saera, the manufacturer of the e-rickshaw Mayuri, is concerned about intense market competition and may need to pass on the reduced subsidy to consumers. Mahindra Last Mile Mobility believes the government should have exempted the electric three-wheeler community from the subsidy cut, as it is a significant source of employment in the nation. They argue that the increased cost of ownership for electric autos will significantly impact economically disadvantaged individuals, such as e-rickshaw drivers and women looking to purchase e-rickshaws, with a rise of Rs 1,500-2,500 in EMIs representing a substantial portion of their earnings.
Despite these challenges, Omega Seiki Mobility and Altigreen, companies with extensive localization of production, have anticipated the possibility of subsidy discontinuation. Dr. Amitabh Saran, Founder and CEO of Altigreen, mentioned that they have secured long-term contracts with suppliers and component manufacturers to manage costs without burdening consumers. Uday Narang, Founder and Chairman of Omega Seiki Mobility, stated that their strategic approach allows them to control costs and protect customers from market fluctuations, including subsidy cuts. While some competitors may pass on subsidy cuts to consumers, Omega Seiki Mobility is committed to maintaining stable prices, underscoring its dedication to affordability and fostering long-term relationships with customers.
