Here’s What Can Make Or Break Bajaj Auto’s Electric Chetak Ride

Bajaj Auto Ltd.’s re-entry into scooters nearly after a decade with an electric version of its iconic Chetak may have an underlying message: the future of battery-powered transport in India is on two wheels. At least peers and analysts think so.

It’s a “big move for the industry”, Sohinder Singh Gill, global chief executive officer at Hero Electric, maker of electric two-wheelers, told BloombergQuint over the phone. “When big players move into this industry, it will lend a very different type of confidence in minds of customers towards buying electric vehicles,” he said, adding it would build reliability around products.

Bajaj Auto’s bet on electric vehicles comes as India—home to seven of the world’s 10 most-polluted cities—aims 30 percent electric mobility by 2030 to reduce its import bill by cutting reliance on fossil fuels. The government’s second phase of a scheme to boost electric mobility offers upfront incentives on purchase of battery-powered vehicles and focuses on creating charging infrastructure. It followed that up with tax incentives for buying such vehicles.

According to Ashish Modani, vice president and co-head of corporate ratings at ICRA, this gives Bajaj Auto an opportunity to tap into the scooter market where everyone is starting from scratch.

And that’s why electric vehicle makers must think beyond commercial users, according to Shantanu Jaiswal, head of India research at BloombergNEF. Two- and three-wheelers will lead India’s efforts to electrify the transport sector, Jaiswal told BloombergQuint. “While this is a good start, to further reduce urban pollution and fuel import bill, retail buyers need to be incentivised.”

Here’s what goes in the company’s favour and what doesn’t.

More Demand For E-Scooters Than Cars

Sales of battery-powered scooters more than doubled over the previous year to 1.26 lakh units in the year ended March, according to the Society of Manufacturers of Electric Vehicles. And the market is set for further churn in the next 12 months, with entry of TVS Motor Company Ltd. and Suzuki Motorcycle India Ltd. The 12 incumbents, including Hero Electric and startups like Hero MotoCorp Ltd.-backed Ather Energy, Okinawa Scooters and Ampere Motors—that have offerings at multiple price points—are expected to face greater competition.

In contrast, companies barely sold 8,000-odd electric cars in India in the past six years, Bloomberg reported early this month. The reasons for the poor adoption, the report said, were lack of charging infrastructure, reluctance by banks to finance purchases and unwillingness among government departments to use electric vehicles as directed.

Poor Infrastructure No Hurdle

Sales of battery-powered motorcycles and scooters rose despite poor charging infrastructure, Modani said, adding nearly 90 percent of the charging happens at home. Unlike four-wheelers, two-wheelers are primarily used for shorter commutes. “Sooner or later, the two-wheeler sector will go electric and scooters are expected to lead the transformation.”

Hero Electric, which claims to have sold 30,000 electric scooters so far this year, expects to end 2019 with sales of 50,000-55,000 units. “We’re looking to double capacity to 1,60,000 by next year,” said Gill.

Upstarts Okinawa and Ather are building capacity, too. Tarun Mehta, co-founder of Ather Energy, said the waiting period for its customers has risen to five months, while not providing sales numbers. The company plans to boost capacity by next year, and eyes operations in Mumbai, Hyderabad, Delhi-NCR, Pune and 30 other cities by 2023.

Okinawa targets selling over 50,000 scooters by 2019 and is investing Rs 200 crore to expand capacity to produce 10 lakh scooters annually by next year, Managing Director Jeetender Sharma told BloombergQuint. “The demand is only going to grow with more players joining the EV movement.”

Growing Demand

All companies are looking beyond big towns. While Okinawa boosts of a network of 350 dealers, Hero said it has 630 touchpoints. Ather Energy, on the other hand, only allows customer to pre-order online. It has two experience centres—one each in Bengaluru and Chennai—where customers can test-drive vehicles.

Gill of Hero Electric said demand is high from tier-II cities where people seek vehicles that can help save fuel costs in their daily commutes ranging 30-50 kilometres. “We’re getting interest from customers who don’t have high-speed or high-range aspirations from a product.”

Affordable two-wheelers, he said, are beginning to make a mark on last-mile connectivity, just like autorickshaws, and will become popular in short- to mid-distance commutes. Range, or the distance one can cover, is the primary metric for potential users of electric vehicles—akin to mileage for internal-combustion engine two-wheelers.

Yet, affordability, lack of financing and travel range on a single charge are the key hurdles.

Pricing Challenge

“Price point is a major tickler,” Gill, who is also the director general of Society of Manufacturers of Electric Vehicles, said.

While Bajaj Auto is expected to create a buzz, its electric scooter will likely be a premium product as it would be priced around Rs 1 lakh—closer to Ather Energy’s starting price of Rs 1.13 lakh. That, Gill said, may prove a deterrent for cost-conscious customers.

“Despite a huge running cost advantage, customers aren’t willing to shell out 30-40 percent more for EVs over IC engine (powered vehicles),” he said, adding that 70-80 percent customers prefer products priced not more than Rs 75,000-80,000.

Moreover, financing remains a problem. A mere 2-3 percent of Hero Electric’s vehicles are sold through financing, the company said, adding it expects sales to double if financing improves. “At present, we have been able to do financing through HDFC Bank Ltd. and private financiers,” Gill said. “There should be some directive to public sector banks to finance electric vehicle sales.”

Range Of Anxiety

Ultimately, it may boil down to the vehicle’s range or the distance covered on a single charge. Chetan Maini, co-founder of Sun Mobility who’s credited with building India’s first electric car Reva, called “range anxiety” the biggest concern of electric vehicle buyers.

“This is an issue for consumers while opting for electric vehicles, where solutions like battery swapping could come handy,” Maini told BloombergQuint over the phone. There’s also a gap between EVs when compared with their fossil fuel engine in terms of performance, he said. Original equipment makers are, however, improving their product portfolio as they better understand consumer requirements.