Disappointment with Indian 2 wheeler EV market
The common understanding today is that the EV revolution will begin with 2 and 3 wheelers before moving on to the rest of the vehicle segment. The reasoning is logical given that a typical 2 wheeler is mostly used for urban commute with average distance travelled anywhere between 15-30 Kms in a day. [The daily average KMs for a 2 wheeler is 12KMs] Hence the quantum of battery that would be required the power the vehicle is less. Given that the cost of Battery is currently the biggest impediment for electric crossover, 2 wheeler segment is the ideal for initiating the switch. The fact however is that with the current Battery prices and available Govt subsidies, the penetration of EV is very disappointing to say the least. They account for less than 1% of total 2 wheeler sales in India
Let's do some numbers around the same. Let's start with Scooters and Mopeds which account for nearly 35% of the total 2 wheeler market segment. They are majorly used in the urban environment and hence ideal for electric disruption. For a typical electric scooter we are looking at range of 60-80 kms with top speeds equivalent to petrol peers (80-85 kmph). This would require a minimum battery size of 2.5 Kwh.
Today a Honda Active (petrol) the top selling scooter retails out around Rs 63,000 to Rs. 81,000. Hence the ideal price for our electric scooter should be around Rs. 75,000. Now from a cost perspective the key difference between a petrol and electric scooter is the engine and power transmission. In a petrol scooter, material cost or COGS is estimated to be around 75% of the total selling price. The break up of costs for various parts is as follows
- Engine+Parts - 31%
- Drive+Transmission +Steering - 19%
- Suspension+Braking - 12%
- Equipments - 10%
- Electrical Parts - 9%
- Others - 19%
Hence the engine + gear would cost around (31% + 50%*19%)*75% = 30.38%. This would translate to around Rs. 22,000 - 23,000. Now assuming a cost of $60 for electric motors, that would leave Rs 17,500 - 18,500 for the battery costs. Taking some margin for costs related to integration, we can assume Rs. 15,700 - 16,500 for the battery costs. This would translate to Rs. 6,300 - 6,500 per Kwh assuming a 2.5 Kwh pack. In dollar terms this would be $84 - $89.
As per BNEF, currently large scale battery costs at $156 per Kwh at a pack level in 2019. BNEF also forecasts that pack level costs are expected drop at 8% per annum. [This seems too conservative according to me, with Tesla pushing the boundary of battery technology, we can expect around 15-20% drop in costs in next few years]. That would mean we can expect per Kwh pack costs to be around $130 - $140 range for 2020-21 at a large scale level. On the face it, it is obvious that at the current costs, price parity for electric and petrol scooters not feasible currently.
However one should note the FAME 2 subsidy scheme, which gives Rs. 10,000 per Kwh subsidy for all vehicles including 2 wheelers. Assuming the maximum initiative at Rs. 20,000 for a 2.5 Kwh pack, this would translate to around $110 per per Kwh of subsidy costs. That would mean, today petrol price parity scooter can be achieved with a battery cost of $194 - $200. We already know that at a large scale level, the cost at pack level is $150 today.
Hence this is the cause of my disappointment as we can see launching an electric scooter with range of 60-80 kms and top speeds of 80 kmph at price of Rs. 75,000 is feasible but is not being attempted by any of the established players.. If a player can plan and source batteries at scale with an intent to capture let say 20% of the scooter market (1 Mn vehicles) then it is feasible to achieve parity. This would truly disrupt the market and start the electric revolution in the country. But no established players are willing to do this. Even when they have launched electric scooters, they are looking at skimming the top of the market and not cater to the mass audience. I know several start-ups are attempting to do so but are constrained by capital and technology to achieve the scales that can bring about the price parity. Add to this, the market leaders in Scooters Honda similar to other Japanese auto giants is still sceptical about electric transmission on the whole at a global strategic level.
Hence instead of a million electric scooters on road in 2020-21, we have to wait for a few more years atleast (if we are lucky) to start the EV revolution in India. Though government has been extremely supportive, the blame for retarding India's movement to clean technology squarely rests with established Auto giants. The disappointment is harder when you know that achieving price parity is not only feasible but at scale truly disruptive. The only hope is for one of the current group of startups to achieve the scale necessary aided by falling battery costs to achieve this in the next few years.