30/09/2024
According to the Society of Indian Automobile Manufacturers (SIAM), India’s automotive market is substantial, with an annual production of approximately 28 million vehicles as of FY24. This sector is crucial to India’s manufacturing industry and overall economy, contributing around 35% to the manufacturing GDP and about 7% to the overall GDP in FY23. Despite having large markets for two-wheelers (2W) and four-wheeler passenger vehicles (4W-Passenger Vehicle), India’s penetration levels are still limited, suggesting significant potential for medium to long-term volume growth.
India stands as a global production hub for two-wheelers, producing around 19.5 million units in FY23, which accounts for 15-20% of the world’s total two-wheeler production. This makes India the second-largest two-wheeler producer globally, following China. Of the total production, approximately 4 million units were exported, while 16-17 million units were sold domestically. Domestic two-wheeler sales have been recovering from the pandemic-induced decline, reaching 16-17 million in FY23, compared to the pre-pandemic levels of about 21 million. This high growth potential, along with the partially recovered small base, is expected to drive strong volume growth at an estimated 11% CAGR over the next five years, potentially expanding the domestic two-wheeler market to Rs.2.8-3.6 trillion (US$ 35-45 billion) by FY28. Key growth drivers include the growing middle-class population, increasing urbanization, and favorable policy frameworks.
The electrification wave is sweeping across all automotive vehicle segments. Shared mobility sectors, including three-wheelers (3Ws), commercial vehicles, and taxis, are undergoing electrification to achieve better operating economics than internal combustion engine (ICE) vehicles. eCommerce and logistics players are adopting electric vehicle (EV) fleets as part of their decarbonization commitments, while central and state governments are promoting the electrification of public buses. Electrification in the three-wheeler segment is bolstered by exemptions from registration and road taxes.
In the personal mobility segments, particularly two-wheelers and private four-wheeler passenger vehicles, two-wheelers are poised to lead the electrification wave in India. This contrasts with many developed markets due to the high sensitivity of Indian consumers to the initial prices of EVs versus ICE vehicles, given the lower gross national income per capita compared to developed markets. Factors such as stronger supply availability, compact and suitable designs, limited range anxiety, smaller and lighter batteries, lower initial price differences, and growing popularity have resulted in scooters leading India’s electric two-wheeler (E2W) market. States like Goa, Kerala, Karnataka, and Maharashtra have seen higher E2W adoption rates, exceeding 10-15%.
The battery pack, primarily consisting of the cell and battery management system (BMS), constitutes 35-40% of an E2W’s Bill of Materials (BOM) cost. Between CY10 and CY23, global E2W battery pack prices have dropped by approximately 88%, from Rs.94.6 thousand/kWh (US$ 1183/kWh) to Rs.11.1 thousand/kWh (US$ 139/kWh). This reduction is attributed to the falling prices of cell raw materials, innovations in cell chemistry (such as increased use of iron phosphate in lithium iron phosphate batteries), greater supply from cell manufacturers, and higher energy density. A further reduction of about 43% in global battery pack prices is projected over the next 7-8 years.
Unlike the domestic ICE two-wheeler market, which is dominated by traditional OEMs, the E2W market is more democratized in terms of supply. Easier product assembly due to fewer moving parts, availability of certain components for off-the-shelf purchase, and regulatory support have encouraged new entrants into the market. E2Ws are expected to capture not only the ‘replacement’ demand but also generate new two-wheeler demand by appealing to households that do not currently own two-wheelers but are interested in lower ownership costs, better performance, and sustainability.