June has ended up being a reality check of sorts for electric two-wheelers with sales totalling 45,734 units, a near 60% fall from the preceding month’s tally of 1.05 lakh units.
With the Centre slashing the subsidy element from 40% to 15%, manufacturers passed on the cost burden, ranging from INR 15,000-35,000, to customers who promptly decided to give this product segment the cold shoulder. Ola Electric led the pack in June with a little over 17,500 electric scooters, followed by TVS Motor, Ather Energy and Bajaj Auto whose combined sales were in the range of nearly 15,000 units.
As an industry observer says, a comparison with May sales “might not be entirely appropriate” considering that people went on a frenzied buying spree last month to avail themselves of the heftier 40% subsidy. This was promptly reduced to 15% from June 1 and the tepid market reaction that followed was “on expected lines”.
Electric two-wheeler sales had been averaging a little over 60,000 units each month prior to May and it now remains to be seen if they will settle at the lacklustre levels of June. “It’s too early to say what will happen now but clearly customers are going to think a little harder before buying an electric scooter now,” says an industry executive.
“In a way, it is good this happened because customers now know that technology does not come in cheap. Neither can subsidies be offered forever,” he adds. The balance 15% subsidy element will now be completely withdrawn from April 1, 2024, which means that electric two-wheelers will see yet another price hike thereafter unless some “serious localisation initiatives” are put in place.
Ather's Focus On Costs
Tarun Mehta, Co-founder and CEO, Ather Energy had told this writer in an interview last year that the company would focus on lowering its cost structure so that the brand would become more accessible to end-users. “We have to invest a lot more time in engineering because the current cost structures that the industry has are not super long-term viable,” he had explained.
The key challenge was to make electric (scooters) fundamentally cheaper than petrol (alternatives) despite having a battery pack “that is an additional cost”. For now, there were really not too many “good answers” going around, Mehta admitted.
“I think we have to figure out how to fundamentally draw cost structures to make that possible and this is what we want to do. Ather’s strongest muscle is its engineering capability — we want to lean on that and rethink all platforms to make the same experience possible with a far lower cost structure,” he had elaborated during the interview.
While reiterating that performance would not be diluted as a result, Mehta said the challenge was to build a product very similar to the company’s existing range but at a “very, very different” cost structure. While this was not going to be a walk in the park, he added that only a company which controlled its designs and platforms “right from the frame to all the electronics and everything” would be able to surmount this obstacle.
Eventually, in the long-term, continued Mehta, it was important to find ways to have the same upfront costs for both petrol and electric scooters. He was confident that users of conventional entry-level motorcycles, powered by petrol, would also find greater value in paying for electric scooters.
“You have just more convenience on a scooter. This is my world view and it is not as if I have data for this. People buy an entry-level motorcycle both for emotional and practical reasons like low running costs, which are very well answered by an electric scooter,” said Mehta.
Survival Mantra
The challenges of meeting competitive cost structures extend beyond Ather Energy to other players who know only too well that this is the only way they can survive in the electric two-wheeler arena, which will separate the men from the boys. The Centre is now expected to lend a greater helping hand to manufacturers under the Production-Linked Incentive (PLI) scheme.
While sales of electric two-wheelers will continue to chug along at more realistic levels of around 50,000 units each month going forward, the scenario is clearly a lot brighter for their counterparts in the three-wheeled pickup space. June numbers were nearly 50,000 units, which was keeping in line with previous months, and indicating in no uncertain terms that customer priorities in this space are quite different from the two-wheeler segment.
“Here, the applications are essentially B2B and operators see greater benefits in terms of operating costs compared to a conventional pickup powered by diesel,” says an industry official. In contrast, electric two-wheeler buyers give a lot of importance to the acquisition cost too since there is really no return on investment coming in.
The other area of concern, the official adds, is that the aspiration quotient message needs to be reinforced with greater vigour for electric two-wheelers. “Buyers must understand that these products are in a different league and they should, therefore, be ready to pay more. When people are quite happy to cough up big bucks for a cellphone, sometimes even disproportionately to their incomes, why can’t they do this for an electric scooter too?” he wonders.
Yet another mind block in buying these products is the big unknown on resale value. As an executive puts it, people are naturally concerned if they will get some money when they are ready to put them up in the second hand market. “The confidence that comes with buying a Hero or Honda two-wheeler has a lot to do with trust in their resale value in later years. In the case of electric scooters and motorcycles, this is still a big unknown,” explains the executive.
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