According to a recent analysis, the number of startups entering India's electric two-wheeler market has surged from 54 in 2021 to over 150. This growth has been fueled by government incentives aimed at promoting clean transportation and reducing oil imports. Bernstein, in a report released on Tuesday, noted that this influx has led to intensified competition in a sector expected to expand significantly, with annual sales projected to reach 15-20 million units over the next decade.
The report highlights that the majority of new entrants are focusing on mainstream products, with 85% of the 65 models launched last year falling into this category. These products prioritize high-speed capabilities over speed and range limitations, which were previously common among startups. Additionally, the average battery capacity for new launches has increased from 2.3kWhr in 2022 to 3kWhr.
India aims to achieve a 30% penetration of electric vehicles by 2030 and net zero carbon emissions by 2070. To support this goal, the government has extended incentives under the FAME II scheme, which provides subsidies to buyers and has been extended until 2024.
Despite a reduction in FAME II subsidies in mid-2023, the number of electric two-wheeler companies continued to rise, reaching 152 by January 2024, up from 124 in June 2023. Much of this increase is attributed to "importers" who source components or entire vehicles from abroad, particularly China.
While startups currently dominate seven of the top 10 spots in the market, Bernstein's analysis suggests low barriers to entry, with many electric two-wheelers being assembled using outsourced models and readily available components. However, the report also notes that only about half of the founders analyzed had engineering backgrounds.
The government's shift towards production-linked incentives (PLI) favors domestic manufacturing, with most established automotive companies receiving PLI benefits while only a few startups qualify. This could potentially provide a cost advantage for major incumbents.
Although there is room for at least five startups to emerge as significant players alongside established companies, the report warns that intense competition may keep industry profit margins and returns subdued in the medium term.
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