Transition of India’s entire 2/3-wheeler fleet to electric needs financing

The complete electrification of India’s entire fleet of two and three-wheelers, the largest in the world, will require financing to the tune of USD 285 billion (nearly Rs 23 lakh crore), according to a new white paper.

Published in collaboration with NITI Aayog, the World Economic Forum (WEF) paper said the last-mile and urban delivery fleets are leading the adoption of electric two-and three-wheelers in India and are likely the first segments to transition completely to electric.

But driver-cum-owners are hesitant to make the transition to electric due to higher upfront cost of acquisition, lack of confidence in new technology, unassured reliability, and unestablished resale value, it added.

Two-wheelers and three-wheelers account for over 80 per cent of vehicle sales in India and the adoption of electric vehicles has been steadily rising in the past few years.

There are about 45 certified vehicle manufacturers of electric two-and three-wheelers in India in an otherwise consolidated auto market and the cumulative sales of these vehicles have reached an impressive 10 lakh units.

However, this remains a small portion of the country’s total two-and three-wheeler fleet stock of 25 crore, leaving immense room for sustained growth.

“Achieving 100 per cent electrification of India’s two- and three-wheeler stock requires a capital allocation of approximately USD 285 billion,” the WEF said.

Explaining the calculation, it said given India’s rising incomes and vehicle ownership, it has assumed the overall stock of two and three-wheelers to grow to 27 crore.

Capital cost for its transition to electric is calculated based on an average two-wheeler vehicle cost of USD 1,000 (over Rs 81,000) for 26.4 crore two-wheelers and an average three-wheeler cost of USD 3,500 (Rs 2.8 lakh) for 60 lakh three-wheelers (across vehicle categories, excluding e-rickshaws), bringing the overall capital cost to approximately USD 285 billion.

Electric vehicle turnover rate and cost of infrastructure have not been taken into consideration and will require additional financing, it added.

Although electric vehicles (EVs) are costlier to purchase, their running cost is much lower. Gauged by the total cost of ownership, they are already being seen as preferable for ride-hailing and last-mile delivery fleets, which have high daily utilisation.

These segments are leading the adoption of electric two and three-wheelers in India and are likely to be among the first segments to transition completely to electric.

But for a rapid transition of fleets, capital flow to the ecosystem needs to grow multi-fold and opening large capital pools will require de-risking of the market through deeper collaboration between stakeholders and business model innovation, the WEF said.

It also said a long-term policy roadmap is needed to attract greater investments.

While purchase incentives by governments have been key drivers for the adoption of EVs, a policy roadmap for demand incentives beyond the current term of policies (usually up to 3-5 years) can help, the WEF said.

While incentives will need to be phased out eventually, a roadmap with timelines for a gradual phaseout can help support new corporate investment decisions, it added.

This can further be supported by an ambition for a combustion engine phaseout date for new two- and three-wheelers, the WEF said.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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