Not often do the top guns of the two-wheeler industry, bitter rivals in the market, come together and speak in one voice. The government managed to bring about this rare feat when reports emerged that the Ministry of Road Transport and Highways was coming out with a draft notification stipulating sale of only electric three-wheelers in the country after April 1, 2023.

 

For two-wheelers (below 150 cc) the D-Day was reportedly April 2025.

 

This information stunned the industry. The Society of Indian Automobile Manufacturers (SIAM), the apex body representing the auto sector in the country, reacted immediately asking the government to temper its electric vehicle (EV) ambition by adopting a practical approach that will not needlessly disrupt the industry.

 

This was followed by separate statements by Venu Srinivasan (TVS Motor Company), Rajiv Bajaj (Bajaj Auto), Pawan Munjal (Hero MotoCorp) and Minoru Kato (Honda Motorcycle & Scooter India).

 

All of them called the proposed time frame unrealistic (as the sector lacks the necessary expertise, technology and infrastructure) and ill-timed (coming close on the heels of large investment the sector has committed for moving to BS-VI emission norms).

 

The government backed down quickly, rather uncharacteristically, calling for consultations with the industry — an exercise it should have done in the first place before drafting the guidelines. While the government’s intention to push e-mobility is welcome, the manner in which it is attempting to realise this dream is flawed.

 

Trying to force the pace by mandating a date is not the right approach and could prove counter-productive. The industrialists are not way off the mark when they claim that the sector is not ready for this change.

 

Despite reports suggesting that 4-5 million electric two-wheelers and three-wheelers will be sold in India by 2025, the industry has not made any significant investment as it is unable to perceive the demand on the ground.

 

Electric two-wheelers sold in the country are still a negligible fraction of the overall sales. Some players have launched products by retro-fitting their existing models rather than designing them afresh. This has led to poor customer experience and slower adoption.

 

Supply chain is a bigger concern. The most critical part in an electric two-wheeler is the battery and much of it is imported today. That cannot be the case at high volumes. Today, as many as 21 million two-wheelers are sold in India and of that those less than 150 cc are 17 million.

 

A strong battery eco-system needs to be in place to feed such volumes. Can they come up in the next five years?

 

Then there is the larger issue of access to lithium, a rare earth mineral, that is critical for battery manufacturing. India does not have this mineral. China has in abundance.

 

If the government does not move fast and strike some strategic deals (large reserves are found in South America), India’s energy dependence will shift from South West Asia to China.

 

Also, EVs are connected vehicles and have a lot more electronics in them. They are need to run the battery system, manage the charger, control the motor and operate the dashboard. Facilities to build these in large numbers need to come up. Then, of course, comes the charging infrastructure itself which is practically non-existent.

 

India’s auto component eco-system, though vibrant, is heavily focussed on the internal combustion (IC) engine. As much as 60 per cent of the $55 billion sector deals with IC power-train parts. It need time to make the transition. Forcing the pace will adversely affect the sector which employs three million people.

 

The better approach for the government would be to catalyse the demand. As we have seen in other sectors, once demand manifests all parts of the puzzle will automatically fall into place — be it supply chain, technology, manufacturing capacity or the charging infrastructure.

 

The government has already taken the first step with its FAME (Faster Adoption and Manufacture of (Hybrid) and Electric Vehicles) policy. Its second iteration, FAME-2, has been welcomed by all the stakeholders. It needs to give time for the policy to work. If the government is is really keen on speeding up the process, it should make the policy a lot more attractive by deepening (increase the outlay multiple times from the present ₹10,000 crore) and broadening it (with greater emphasis on hybrid technology).

 

Positive factors

The policy of catalysing demand, rather than mandating a time line, should work as electric two-wheelers are becoming increasingly attractive for multiple reasons. To start with, their costs are coming down thanks to falling battery prices. In 2013 a kilo watt hour lithium battery cost as much as $1,000 but today it is just $160. Electric two-wheelers are now available at the ₹1 lakh range.

 

Range anxiety is not a major issue for two-wheelers as studies have revealed that the average distance travelled in India is just about 20 kilometres. Electric two-wheelers offer a comfortably higher range in a single charge.

 

Also, rising awareness among Indian about the need for clean air should drive demand.

 

EVs also have the potential to turn the automotive industry on its head. They are throwing up new business models. As the new lot of electric two-wheelers are connected vehicles, it is now possible to offer them on lease instead of out right sale.

 

As data keeps flowing, the vehicle can be tracked continuously. This reduces the risk premium and makes leasing attractive (a leased electric two-wheeler will cost less than a petrol vehicle).

 

They are also threatening the present revenue streams. Service costs are very low in EVs as they need no periodic oil change, filter or carburettor cleaning. This will severely impact the present model where the dealers are dependent on service revenues.

 

Manufacturers too need to tap newer options like revenue from charging stations (they need to put them up first, something existing players are not comfortable with) or look at ways to monetise data that the vehicles will generate.