The number of startups in India’s electric two-wheeler market rose from 54 to more than 150 in 2021, driven by government incentives to promote clean vehicles and reduce oil imports, according to a new analysis.
The influx has intensified competition in a segment that is expected to grow 15 to 20 times to reach annual sales of 15 to 20 million units over the next decade, Bernstein said in a report late Tuesday.
“Most compete in the mainstream, and 85% of the 65 models launched last year were products of this type: high-speed products compared to products of limited speed and range, which used to be a feature of startups “Bernstein analysts wrote. “The average battery capacity for new launches 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 its FAME II scheme, which provides subsidies to buyers and was recently extended until 2024.
Although a reduction in FAME II subsidies by mid-2023The number of electric two-wheeler companies increased from 124 in June 2023 to 152 in January 2024, with much of the increase coming from “importers” sourcing components or complete vehicles from abroad, Bernstein noted.
“Most of these are simply kits assembled in China,” said Kunal Khattar, founder of mobility-focused venture firm AdvantEdge. “Putting an electrical product on the market is not expensive. What people underestimate is the construction and distribution of the brand.”
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Currently, startups occupy seven of the top 10 spots, including the market leader (Ola Electric, which is also planning to go public soon) with a share of 39% in January 2024. However, around 85% of the sales volume is concentrated among the five main players.
Bernstein’s analysis found low barriers to entry, with electric two-wheelers built using outsourced models and readily available components. Only about half of the 35 founders they analyzed had an engineering background.
Image credits: Bernstein
The government is now shifting towards production linked incentives (PLI) favoring national manufacturing. Most established auto companies have been granted PLI, while only a few startups qualified, potentially providing a cost advantage for major incumbents, Bernstein said.
The report sees room for at least five new companies to emerge as relevant players alongside established companies, but warns that intense competition could keep industry profit margins and returns moderate in the medium term.
Image credits: Bernstein