The shift from vehicles with internal combustion engines (ICE) to electric vehicles (EVs) presents an estimated ₹3-lakh-crore opportunity for manufacturers of components, financiers, insurers and shared mobility players, among other stakeholders in India, over the next five years, according to CRISIL analysis.
Inherent in it is a potential revenue of about ₹1.5 lakh crore, across vehicle segments, for original equipment manufacturers (OEMs) and component manufacturers, about ₹90,000 crore in the form of disbursements for vehicle financiers, and shared mobility and insurance accounting for the rest.
EV adoption continues to surge. The Vahan portal shows that electric three-wheelers (3Ws) made up almost 5 per cent of three-wheeler registrations in FY22, as against less than one per cent in FY18. The percentage for electric two-wheelers (2Ws) and e-buses rose to almost 2 per cent and 4 per cent, respectively.
Small towns adopt big
Alongside large cities, smaller towns, too, are witnessing this shift, driven by the government’s fiscal and non-fiscal measures.
As per Vahan statistics, the share of the top 10 districts in nationwide sales of electric cars and three-wheelers dropped from 55-60 per cent in fiscal 2021 to 25-30 per cent in fiscal 2022. For electric two-wheelers, the percentage declined from 40-45 per cent to 15-20 per cent.
“Considering the improving cost parity and the government’s focus on electrification of vehicles, we should not be surprised if EV penetration reaches 15 per cent in 2Ws, 25-30 per cent in 3Ws, and 5 per cent in cars and buses by fiscal 2026 in terms of vehicle sales,” said Hemal Thakkar, Director, CRISIL Ltd
The drivers of EV adoption are all too evident. Rising fuel prices and higher cost of ICE vehicles are impacting their affordability, and government support for EVs is also playing a huge role.
Central schemes such as the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME-India), phased manufacturing plan, and production-linked incentive have jump-started the country’s EV journey. Start-ups with new-age business models as well as established OEMs alike have evinced interest in manufacturing EVs. Many state governments have also provided demand incentives and capital assistance for setting up greenfield manufacturing plants.
CRISIL’s analysis of the total cost of ownership suggests electric 2Ws and 3Ws attained parity with ICE vehicles last fiscal even when running a mere 6,000 km and 20,000 km, respectively, annually. By 2026, the analysis indicates, the adoption of electric 2Ws and 3Ws will rise even sans subsidy, due to parity of ownership cost with ICE vehicles.
Allied businesses
The growth in EV adoption is expected to spark several new trends and business models.
Battery-as-a-service and public charging stations, for one, typically have a pay-per-use model and aim to reduce the initial outgo of the customer, improve viability, address range anxiety and, in turn, increase asset utilisation.
Mobility-as-a-service focuses on shared mobility by linking operations with charging infrastructure. Here, too, the vehicle and charging infrastructure are deployed on a pay-per-use model.
Then there is micro-mobility, which provides last-mile distribution of cargo by way of micro-rental of electric 2Ws and 3Ws, operating on a self-drive rental model. The model is typically asset-light and based on open-source operations, where the user can hire and deploy vehicles.
“Overall, the emergence of EVs is an opportunity for both existing and new industry participants to innovate and capitalise on the quickly evolving passenger and cargo mobility. To address the ecosystem challenges of the EV industry, the government is considering rolling out a structured battery swapping policy. Such facilitations will go a long way in realising the EV potential. In addition, improvement in the availability of finance will push EV adoption,” said Jagannarayan Padmanabhan, Director, CRISIL Ltd.