The adoption of electric vehicles is slowly growing in India and rating agency CRISIL estimates that electric vehicles present an opportunity of nearly Rs 3 lakh crore over the next five years to 2025-26.
Opportunities include potential revenue of around Rs 1.5 lakh crore on vehicle segments for original equipment manufacturers (OEMs) as well as component manufacturers and Rs 90,000 crore in the form of payouts for vehicle financials, with shared mobility and insurance accounting for the balance, CRISIS said.
The demand for electric vehicles is increasing in the country; electric two-wheelers are the main drivers. The latest data points to a three-fold increase in total sales in the fiscal year ending March 2022, albeit from a low base. According to the Federation of Automobile Dealers Associations, in the last fiscal year, total retail sales of electric vehicles reached 4.29 lakh units, compared to around 1.35 lakh units in 2020-2021.
Over the next few years, the demand for electric vehicles is expected to increase further, given high fuel prices and the rising cost of internal combustion engine (ICE) vehicles. Government support for electric vehicles through various programs also plays a huge role in promoting the adoption of electric vehicles, CRISIL noted.
Fuel prices rose sharply due to soaring crude oil prices in the context of the Russian invasion of Ukraine; gasoline, for example, reached Rs 120 per liter in Mumbai.
The continued rise in fuel prices will only make electric vehicles more attractive. CRISIL’s cost of ownership analysis indicates that electric two- and three-wheelers have already reached parity with ICE vehicles last year, even when they travel only 6,000 km and 20,000 km respectively. Because of this parity in ownership costs, even without subsidies, electric two-wheelers and three-wheelers will be in demand by 2026, CRISIL executives said.
“Given improved cost parity and the government’s focus on vehicle electrification, we shouldn’t be surprised if EV penetration reaches 15% in two-wheelers, 25 -30% in three-wheelers and 5% in cars and buses by FY2026 in terms of vehicle sales,” said Hemal Thakkar, Director of CRISIL.
While sales are only expected to increase, the overall base, especially in passenger vehicles, is expected to remain low compared to their ICE counterparts even after five years, due to various issues such as high initial purchase cost , range anxiety, resale and service uncertainty, and limited charging infrastructure.
Several recently reported incidents of burning electric two-wheelers will also reduce appetite in the short term, according to CRISIL executives.
“From an immediate point of view, there could be a perception that could be developed that the safety of these vehicles is not,” Thakkar said.
In recent days, electric two-wheelers from different manufacturers, including Ola Electric, Okinawa, Pure EV and Jitendra Electric, catching fire have been reported in different cities. The union government, for its part, has already appointed a team to investigate these fire incidents. CRISIL leaders say a proper investigation will only determine the root cause of these incidents.
These instances of vehicles catching fire may have a short-term negative impact, but there is unlikely to be a long-term effect, Thakkar said.
These incidents may well lead people to the established two-wheeler players, who have long commanded a trust.
“With these increasing fire incidents, especially with regards to startups etc., we will definitely see the customer mindset shift more towards traditional original equipment manufacturers (OEMs) as per example Hero or a Honda or TVS or Bajaj, because they have developed reliability in the market,” Thakkar said.
Since the manufacture of electric vehicles, especially two-wheelers, requires few parts compared to their ICE counterparts, many companies have entered this field in recent years. But, over the next few years, this industry should consolidate.
“This is the initial phase, where people are taking advantage of market opportunities and there will be an increasing proliferation of electric two- and three-wheelers. As the market matures, companies that will have volumes weaker, managing the scale of operations and services is going to be very difficult. Therefore, we see that there will be a definite consolidation in the industry. Over the next four to five years, you will see this happening at a much faster pace,” Thakkar said.
As electric vehicle sales increase over the next few years, several new business models such as battery as a service, public charging stations, shared mobility and last mile distribution of goods through the micro-rentals of electric vehicles are likely to emerge, feels CRISIL.