Electric Two-Wheeler Market Faces Profitability Challenges, Says Bernstein Report
Most OEMs are leaning towards outsourcing critical components, with some planning to establish exclusive EV outlets over time.
The Indian electric two-wheeler market is poised for major transformation, according to a report by Bernstein. Both traditional OEMs and new entrants are scrambling to capture a growing share of the burgeoning segment, and a significant shift towards electric vehicles is also anticipated over the next two decades.
An assessment of the unit economics done by the report in the Indian electric two-wheeler market points towards a challenging profitability landscape for all players.
Leading players include Ola Electric, TVS, Bajaj, and Ather Energy. E-2W OEMs are diversifying their product offerings, focusing on various form factors such as scooters, motorcycles, and three-wheelers. Pricing strategies generally start with premium models before expanding into more affordable versions. Notably, Ola Electric currently leads in both pricing and form factor innovation.
Most OEMs are leaning towards outsourcing critical components, with some planning to establish exclusive EV outlets over time. Ola Electric stands out with its intent for vertical integration and a company-owned distribution network, while others primarily use third-party dealers.
Unit Economics
The unit economics assessment suggests that it is not easy to generate margins in EVs, and incumbents with higher margin buffers can be aggressive and absorb losses, the report said.
Ola Electric shows the strongest margin profile, driven by aggressive localisation, a diverse product range, and access to dual subsidies—PLI and FAME.
TVS is expected to receive PLI subsidies soon, potentially improving its margin situation, although it currently incurs a per-unit Ebitda loss of approximately 7.5%.
Bajaj's Chetak faces higher losses than TVS due to its reliance on outsourced components and lower performance specifications.
Ather Energy exhibits the weakest unit economics, suffering from high overhead costs and low volumes, coupled with ineligibility for PLI subsidies.
Profitability Insights
The profitability of E-2W OEMs hinges on several factors:
Subsidy Availability: The PLI and FAME subsidies significantly impact the cost structures and margins.
Scale and Localisation: Companies focusing on in-house manufacturing and higher localisation tend to perform better in terms of margins.
Product Pricing: The positioning of products can influence profitability—premium products often yield better margins compared to budget offerings.
Comparative Analysis of Key Players
Ola Electric: Currently achieving positive operating Ebitda from its premium models, while incurring losses on mass-market models.
TVS: Generates a gross profit margin of about 7%, but incurs a loss at the Ebitda level. Anticipation of PLI benefits could lead to improved profitability.
Bajaj: Faces a 10.5% Ebitda loss, but strong ICE margins could buffer these losses.
Ather Energy: Struggles with high costs per unit and underutilised capacity, leading to significant losses despite a positive gross margin when subsidies are considered.
Market Implications
The Indian E-2W market, currently generating around $1.3 billion in annual revenues, is facing challenges with approximately $300-400 million in Ebitda losses without incentives. This highlights the critical need for sustained support and innovative strategies to enhance competitiveness against the internal combustion engine sector.
