How Electric Vehicles Rev Up Business Opportunities India's electric vehicles market received a boost in Budget 2019. Although at the cost of already bleeding internal combustion engine vehicles market, the EV segment offers a slew of lucrative business opportunities.
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For many, the government's electric vehicle (EV) thrust and the ensuing disruption could not have come at a worse time. 2019 has been a dampener for overall internal combustion-engine (ICE) vehicle sales, given that it recorded the steepest fall in 19 years with sales of vehicles across categories dipping 18.71 per cent. However, the government's intent is noble and its hurry understandable. India, whose 14 cities count among the world's 20 most polluted, wants to tackle pollution on a war footing.
At a macro level, the government is worried about climate change, surging pollution and crude oil import bill. Battery-run EVs with zero tail-pipe emission are emerging as a good alternative to ICE vehicles. Hence, the government is deploying a carrot-and-stick strategy to nudge auto sales towards EVs.
Albeit on a much lower base, the country's nascent EV segment has notched handsome numbers. In FY2018-19, India sold 7.6 lakh EVs against just 56,000 units in the previous fiscal. The segment is dominated by two-wheelers (16.4 per cent) and three-wheelers (83 per cent), as per a recent PwC report. Low-cost e-rickshaws, offering cheap last-mile connectivity, is the humble winner in this race with over 150 small-scale e-rickshaw makers.
While 2- and 3-wheelers will continue to lead the EV market, electric cars are expected to grab 6 per cent share of the new car sales by 2030 and thereafter will touch 28 per cent by 2040, making India the fourth-largest passenger EV market in the world, as per BloombergNEF report.
The move to electric mobility has always been the priority of the Narendra Modi government, keeping in mind India's commitment to reduce its carbon footprint by a third from 2005 levels.
NITI-Aayog is striving to curtail ICE 2-wheelers under 150cc by 2025 and 3-wheelers by 2023. Nearly 80 per cent of all vehicles sold in India are 2- and 3-wheelers.
In her maiden budget, Finance Minister Nirmala Sitharaman has made switching to EVs a priority. She has allocated Rs 10,000 crore to the Faster Adoption and Manufacturing of Electric Vehicles (FAME II) scheme.
India's EV policy is headed in the right direction with the framework linking subsidy to higher level of localisation. "FAME II has a 2-pronged approach: it promotes strong localization and motivates people to buy good quality products. The government is offering a subsidy of Rs 10,000 per KW of the battery, for locally-procured battery. By March 2020, motor will also have to be procured locally to be eligible for any subsidy," shares Ravneet Phokela, Chief Business Officer, Ather Energy.
The government also announced income tax rebates of up to Rs 1.5 lakh to customers on interest paid on loans to buy EVs, with a total exemption benefit of Rs 2.5 lakh over the entire loan period.
Welcoming the government's move, Sohinder Gill, CEO, Hero Electric Vehicles and Director General, Society of Manufacturers of Electric Vehicles (SMEV), says, "The announcements on EVs bring cheer to both consumers and manufacturers. Provision of additional income tax deduction of up to Rs 1.5 lakh on purchase of EVs would encourage customers to opt for EVs." He adds that the next 12 months are crucial for EV growth in India, which requires concerted approach both from manufacturers and government to lower the prices, deliver quality products and educate consumers.
The GST council has already lowered the GST on EVs from 12 per cent to 5 per cent. The government also announced customs duty exemption on lithium-ion cells, which will help lower the cost of lithium-ion batteries in India, as they are not produced locally.
Mahesh Babu, CEO, Mahindra Electric, rejoices, "The government has well addressed the concern of the upfront cost of EVs. It now becomes imperative that OEMs chalk out plans to scale up and meet the demand for compelling products. The next decade will mark the beginning of the new-age green revolution with the world moving towards electric mobility and in India 2- and 3-wheelers will drive the change."
EV franchise becomes hot
While the immediate effect on prices of EVs is not phenomenal, the government push has already created an inquisitiveness and awareness among the consumers. "Price of the entry-level electric scooters has come down by Rs 2000-9000, which is a direct benefit to consumers. This has generated a great level of customer interest. We are getting over 2000 queries in a week from people interested in buying EVs or starting a dealership," shares Kshitij Kumar, Co-Founder, Goreen e-Mobility. The Noida-based company has 50 dealers across 13 states with major concentration in South India with 25 dealerships.
While the price drop brings end-customer price a bit closer to ICE vehicles, EV players are highlighting the total cost of ownership (TCO) benefits to close the gaps. "Customers are now realizing that TCO of EVs is far less than the ICE vehicles. A petrol scooter runs at Rs 2/ km against Rs 0.30/km for an electric scooter, saving Rs 1.7/ km. If we run 10,000 km in a year, we will be able to recover an additional Rs 25,000 spent on EVs in 14-15 months. Since an electric scooter has 1/10th number of moving parts in comparison to petrol scooter, maintenance is also lower," elaborates Phokela.
He further highlights that range anxiety in private 2-wheelers is a baseless fear. "In a city like Bengaluru, a weekday commute on 2-wheelers is 14 km, which goes to 17 km on weekend, on an average. In fact, over 90 per cent of the commute are less than 35 km in a day. Any decent EV gives over 60-65 km range and premium EVs deliver 75-110 km, which is more than enough. Customers are now realizing that range anxiety for 2-wheelers is not an issue."
Industry experts say that with growing customer awareness, it's the best time to enter into an EV franchise. "EVs will be the mainstay of India vehicle market in the next 2-5 years and beyond. Definitely, people entering this business can leverage the early mover advantage," emphasizes Gill. He adds that consumers are happy to spend more on high quality products.
Typical investment required for an EV franchise ranges between Rs 12-20 lakh for a humble 500 sq, ft area. This includes Rs 4-7 lakh on interiors and the rest on stocks, spare parts and equipments. "New dealerships can easily make Rs 80,000- 90,000 gross profit per month by selling 20 scooters, which will enable them to achieve RoI in just 9-10 months if the premises are owned and 16-18 months in case of rented premises. In fact, many of our dealerships are selling more than 100 scooters in a month," reveals Kumar of Goreen.
On the other hand, there are not many new franchise opportunities on electric cars front as most of the 4-wheeler players are still re-aligning their strategies for EVs. In the near future, players like Mahindra do not have plans for exclusive EV outlets and will be using the current extensive network of dealerships across India.
Charging opportunity in the offing
EVs are opening up many new business models with charging infrastructure and battery storage being the prominent ones. "The FAME II offers Rs 1000 crore as incentives to set up charging stations across India. Under the scheme, the government is proposing to set up 2700 charging stations across the country, ensuring at least one station in a grid of 3 square km," informs Babu.
Realizing the opportunity, various players are venturing into this space. Companies like Panasonic have aggressive plans to strengthen the charging infrastructure. Panasonic is targeting to set up around one lakh charging stations for EVs across 25 top Indian cities by 2024. It is planning to set up mini charging stations across cities like Delhi, Pune, Bengaluru, Chennai, Amaravati, Hyderabad, Gurugram, Noida and Ghaziabad. The charging facilities will be set up at petrol pumps, malls, and parking lots. "We have deployed our solutions in Delhi NCR. We aim to expand to 25 cities in the next five years targeting approximately one million vehicles including commercial 2- and 3-wheelers and EVs which don't have access to the domestic electric supply," shares Atul Arya, Head, Energy Systems Division, Panasonic India.
Besides, Sun Mobility is creating a universal energy infrastructure which offers battery swapping facility to EVs. Unlike private vehicles, commercial vehicles like buses, auto-rickshaws and delivery vehicles can't stop for long to charge batteries and travel long distances on a daily basis. Battery swapping addresses two major pain areas of commercial EVs: high price and range anxiety. "Batteries make up 50 per cent of the total cost of the EV as compared to an ICE vehicle, which makes up 15-17 per cent of the cost. By removing batteries, price reduces by almost half and swapping batteries at interchange stations offers unlimited range to EVs. It is already creating a lot of interest from fleet operators," says Avinash Sharma, Head, 2/3 Wheeler Business, Sun Mobility.
He further highlights that with 2- and 3-wheelers alone, charging infrastructure will be a $200-billion opportunity by 2030 in India. "We are looking for partners who already own a retail outlet or automobile dealership and would like to add charging stations as an additional business. We require 100-200 sq. ft space to install 2-3 charging kiosks where battery swapping will not take more than one minute," shares Sharma. In addition, Sun Mobility has plans to deploy 50+ Quick Interchange Stations in Delhi NCR and Bengaluru.
Bengaluru-based bike rental player, Bounce, has similar plans with battery swapping as a solution to add more EVs to its fleet. "We are looking to tie-up with 3000 kirana stores across the city to enable battery swapping anywhere. We will leverage kirana stores to offer battery swapping for any EV user. The store owner will have to invest Rs 50,000 to earn handsome margins on battery swapping," says Varun Agni, Co-Founder and CTO, Bounce.
Bike rental to get big
Mobility challenges like last mile connectivity are making micro-mobility solutions like ride sharing and bike rentals the next big thing. As per market experts, almost 300 million trips happen daily in India; mere one per cent of this happens through Ola and Uber. "As 50 per cent of the trips are less than 5 km, affordable and convenient last mile connectivity is a major challenge for over 177 million working professionals," informs Akash Gupta, Co- Founder & CEO, Mobycy. The company has presence in Delhi with over 1000 EV scooters.
Amit Gupta, Co-Founder & CEO, Yulu Bike, adds, "Looking at the consumer preferences on last-mile connectivity, we expect large traction on EV bike rental services." The company claims to clock up to 30,000 rides in a day with 20,000-22,000 unique customers and over 1.5 million downloads. Yulu charges Rs 10 to start a ride and Rs 10 per 10 minutes of the ride.
As most of the bike rental companies are startups, they are still devising their strategies for franchising. "So far, we have operated in COCO model and are now looking for players to invest under FOCO model in Bengaluru and Mumbai. While strengthening operations in FOCO model, we will introduce FOFO model for tier-2 and -3 cities by 2019-end," shares Gupta of Yulu. He adds that cities like Bengaluru with over 5 million 2-wheelers have an appetite of 2.5 lakh EV rental bikes. In comparison, most of the smaller cities will have an appetite of 5000 EVs, which presents an excellent opportunity for city-based entrepreneurs. "Franchisees can start with an investment of Rs 20-40 lakh for 50- 100 EVs at Rs 40,000 per vehicle. Just 2-3 people are required to manage 100 EVs. With handsome margins, franchisees will be able to recover the investment in just 8-9 months."
On the other hand, Mobycy is looking for franchisees to invest Rs 36,000 per scooter in FOCO model to get Rs 2000 per month for 24 months, while the company manages the operations. In another option, the franchisee can take charge of the territory with investment of Rs 20-25 lakh with 40-50 EV scooters. Setup cost of a charging station/pick and drop zone comes at Rs 10,000-15,000. The company demands brand royalty of 20 per cent of the revenues if the franchisee manages the operations, which goes to 50 per cent if the brand manages the operations. Operations cost comes at Rs 700-750 per scooter per month, which includes the salaries, electricity and maintenance expenses. Franchisee can recover the investment in 12-15 months. "We already have over 100 franchisees who have invested in FOCO model. We are now looking at 15-20 franchisees who can take up operations for metro and Tier-2 cities," discloses Gupta of Mobycy. The company is targeting to add 4000-5000 EVs over the next 6-8 months in metro and Tier-2 cities with metro network.
For better customer experience, Gupta of Yulu suggests maintaining high density of pickup and drop zones. Yulu has over 1000 Yulu zones in just six neighborhoods of Bengaluru city. The company also operates in Pune, Navi Mumbai, Bhubaneshwar, and Powai in Mumbai.
With government push and influx of startups, EV market is indeed a hot segment to invest in. From buses to cars, 2-wheelers to 3-wheelers, companies across the spectrum are drawing out their EV plans. Further, companies like Tesla and China's Contemporary Amperex Technology and BYD Co, are creating a charged environment with their interest in the Indian government's plan to build large factories to make lithium-ion batteries at an investment of about Rs 50,000 crore.
India is the world"s largest 2-wheeler market, and a leading market for three-wheelers. With over 99 per cent of the total EV sales coming from 2- and 3- wheelers segment, the future outlook remains strong for these segments.
Not to be left behind, 4-wheeler companies like Tata Motors, Maruti Suzuki and Hyundai Motors are readying their EV models for 2020 launch. In fact, after launching India's first long-range electric SUV Kona, Hyundai is planning to develop a new EV platform for the mass market with a $200-million investment. New entrants like the Chinese MG Motors and Korean Kia Motors are exploring EV launches to gain a toehold on Indian roads.
No wonder, experts are unanimous that the shift towards EVs is inevitable.
(This article was first published in the September 2019 issue of Entrepreneur Magazine. To subscribe, click here)