The number of startups in India's electric two-wheeler market rose to over 150 from 54 in 2021, driven by government incentives to encourage clean vehicles and cut oil imports, according to a new analysis.
The influx has intensified competition in a segment that is expected to grow 15-20 times to annual sales of 15-20 million units over the next decade, Bernstein said in a report issued late Tuesday.
“Most of them compete in the mainstream, and 85% of the 65 models launched last year were of these products: high-speed versus fast and limited-range products, which were previously a feature of startups,” Bernstein analysts wrote. “The average battery capacity of new launches has increased from 2.3 kWh in 2022 to 3 kWh.”
India aims to achieve 30% penetration of electric vehicles by 2030 and net zero carbon emissions by 2070. The government has offered incentives under the FAME II scheme, which provides support to buyers and which was recently extended until 2024.
Although FAME II support declined in mid-2023, the number of electric two-wheeler companies rose from 124 in June 2023 to 152 by January 2024, with most of the increase coming from “importers” purchasing components or complete vehicles from abroad. Bernstein noted.
“Most of this equipment is just assembled kits from China,” said Kunal Khattar, founder of mobility-focused AdvantEdge. “It's not expensive to have an EV product. Building the brand and distributing it is what people underestimate.”
Image credits: Bernstein
Startups currently occupy seven of the top 10 spots, including the market leader (Ola Electric, which also plans to go public soon) with a 39% share as of January 2024. About 85% of sales volumes are concentrated among the top five players . , but.
Bernstein's analysis found low barriers to entry, as electric two-wheelers were manufactured using third-party models and readily available components. Only about half of the 35 founders they analyzed had engineering backgrounds.
Image credits: Bernstein
The government is now shifting toward production-linked incentives that favor local manufacturing. Most established auto companies were granted PLI while only a few startups qualified, which could provide a cost advantage to larger established companies, Bernstein said.
The report sees scope for at least five startups to emerge as relevant players alongside established companies, but warns that intense competition could keep the industry's profit margins and returns low in the medium term.
Image credits: Bernstein
