Flush with funds, the new entrants are snapping at the heels of the old guard in two-wheeler manufacturing, including Bajaj Auto, TVS Motor Company and Hero MotoCorp, all of whom have so far approached electric vehicles (EVs) with restraint.
Hero Electric, India’s largest electric two-wheeler manufacturer, sells a few thousand scooters every month, while the likes of Ola and Bounce are talking millions.
Ola has SoftBank’s backing and got into manufacturing by buying out Dutch EV maker Etergo. It is expected to roll out its first electric scooter on Dec 15.
The company has announced construction of the world’s largest two-wheeler factory in the southern state of Tamil Nadu. The plant will have an annual production capacity of 10 million units, which far outstrips the EV market’s projected growth.
McKinsey & Company, a management consultancy, estimates that between 8 and 9 million electric two-wheelers will be sold each year in India by 2030.
Bounce is a scooter rental startup that bought 22 Motors to get into EV manufacturing. It has raised about US$220 million from B Capital, Sequoia Capital and Accel Partners.
The company unveiled electric scooters with changeable batteries last week and aims to facilitate battery swapping for at least 1 million electric two-wheelers by 2023.
Both Ola and Bounce jumped on to the EV bandwagon after their core businesses were battered by protracted lockdowns last year during the Covid-19 pandemic.
The EV scene for two wheelers is similar in India to other markets. In the US, startups include Tesla, Rivian, Faraday Future, Lime and Nuro.
China has Niyo, Xpeng and WM Motor. They have all thrown down the gauntlet to legacy manufacturers and secured billions of dollars from marquee investors such as T Row Price, Baillie Gifford, Tencent and Baidu.
The massive projections by startups have elicited some testy reactions from India’s legacy manufacturers.
“Champions eat oats for breakfast,” said Rajiv Bajaj, managing director at Bajaj Auto, at a press conference in late October, alluding to Ola, Ather Energy, Tork Motors and Smart E. “Are you going to bet on legacy companies, as you call us, or the startups?”
Bajaj said he would put money on his eponymous firm, Royal Enfield and TVS, who are “champions and have demonstrated it with a track record”.
Despite all the posturing, nobody really has a significant business advantage over anyone.
“EVs are new for everyone,” said Jeetender Sharma, managing director at Okinawa Scooters, a bootstrap EV startup that has become the second-largest electric scooter manufacturer in the country after Hero Electric. “The market is so small right now that there is room for everyone to grow.”
Analysts ascribe the cautious approach of older companies to a dilemma. While an electric future is writ large, it threatens in the nearer term to make inroads into the bread-and-butter business of two-wheelers powered by internal combustion engines (ICEs).
“Having invested in engines for decades, they have something very big to lose if the market transitions to EVs,” said Amit Kaushik, managing director and country head at Urban Science, an auto consultancy.
Indian EV sales have barely begun. For example, Bajaj Auto sold only 3,564 electric two-wheelers between April and October 2021, compared to 1.02 million motorcycles, according to the Society of Indian Automobile Manufacturers (SIAM).
In the year that ended in March 2021, 143,837 electric two-wheelers were sold overall in India, according to a JMK Research estimate. According to SIAM, 15.1 million two-wheelers were sold during the same period, suggesting that EVs barely accounted for 1% of the two-wheeler market.
But the EV present is no indicator of the future.
The Indian government’s policy is for at least 30% of all new automobiles sold to be electric by 2030, and incentives are being rolled to grease the transition.
These include more subsidies for buyers of electric two-wheelers, as well as a 257 billion rupee package for manufacturers to spur local production of vehicles powered by electricity or hydrogen fuel cells.
The string of incentives, coupled with a drop in the price of lithium-ion battery packs from US$1,100 per kilowatt hour in 2010 to US$137 in 2020, is expected to make electric scooters affordable, and thereafter, mainstream.
With all indicators pointing to an impending EV surge, venture capitalists are stepping up. In 2021, investments in Indian EV startups, from battery makers to vehicle manufacturers and distribution platforms, grew year on year more than five times to US$604 million from US$112 million, according to Tracxn, a data company.
Yet, analysts question the ability of new entrants to match the deep pockets of established players with distribution networks and brand recognition.
“There is an inherent trust with the established brands because they have created a network,” says Jaspreet Singh Bajwa, a management consultant at Nomura Research Institute. “They have built an ecosystem, including a strong pre-owned vehicles market, that is lacking in startups.”
Moreover, established players in the two-wheeler market have not been blindsided by the arrival of EVs. While they have proceeded cautiously, most began investing in EV startups at the outset.
Hero MotoCorp owns about 35% of Ather Energy, an electric scooter startup that also has Tiger Global as an investor. TVS owns about 30% in electric motorcycle maker Ultraviolette Automotive, while Rattan India owns about 43% of Revolt, another manufacturer.
Greaves Cotton has raised its stake in electric scooter maker Ampere to 81%, and Bharat Forge owns 61% of Tork Motors. Bajaj has invested about half a billion rupees in electric shared mobility startup Yulu.
India’s electric two-wheeler market remains a relatively level playing field since the product matters more than the brand, according to Okinawa’s Sharma.
Sales at Ather, Pure EV and Okinawa outstrip Bajaj and TVS at the moment, but a strong turnaround by the legacy brands may be just around the corner.
Heavy backing is being lined up. In July, TVS Motor announced an investment of 10 billion rupees in design and development of electric vehicles and capacity expansion.
Hero MotoCorp has set up research facilities in Jaipur, a city in the northern state of Rajasthan, and in Munich, Germany. The company is due to roll out its first electric scooter in March 2022, and has partnered with Taiwan’s Gogoro to set up battery-swapping infrastructure.
Hero Electric, backed by Gulf Islamic Investments and OAKS Asset Management, has announced plans to invest 70 billion rupees by 2025.
Bajaj Auto has incorporated a wholly-owned subsidiary to develop electric vehicles.
“If the quality is good and there is value for money, the customers will go for it,” said Sharma.