Electric 2 Wheelers: Nascent market at the cusp of disruption, BCG Perspective

Mumbai, November 16, 2021: The Electric 2-wheeler (E2W) market, while nascent, is fast emerging as a new space for innovation, activity and potential scale. It is abuzz with excitement as old and new players are introducing and bringing in exciting products, new technology, models of distribution, and value-added customer services every day. The positive trajectory is set to continue, according to a new report by the Boston Consulting Group (BCG), titled, “Electric 2 Wheelers: Nascent market at the cusp of disruption”, which seeks to decode the E2W market and assess the potential vectors for its evolution over the next 5-7 years.

While the market is still small today with 145K units sold in FY21, signs of explosion are already visible. Sales of high-speed E2W in the first half of FY22 have already surpassed the sales achieved in FY21. BCG’s view is that the market can conservatively reach at least 2.5-3 million units by FY25 and potentially 6-8 million by FY30; at that level it will represent a 20-25% penetration of the overall 2-wheeler industry. Further most of this demand is likely to emerge from the metro and urban regions and unlike today, high-speed E2Ws are likely to contribute to 80-90% of the overall E2W market driven by lower cost of ownership.

“The Indian electric 2-wheeler market is set to boom, with demand expected to be driven by both the B2C and B2B segments,” said Natarajan Sankar, a BCG managing director and partner, and a co-author of the report. “The supply of E2W, while still sub scale has exploded in the sheer number of models and a mix of new and old OEMs pursuing it. A scale up is inevitable: but will also bring with it four foundational shifts impacting the business and operating model compared to ICE 2W. And when the dust settles, we believe the 2W segment will look very different.”

The report lays out the foundational shifts that will change everything about the market that we know today. With these shifts, the E2W industry will start moving away from the ICE industry and will start taking a new shape.

1. Distribution 2.0

• A fragmented supply market and tight dealership economics will give rise to a mix of 3 distribution models that will co-exist: Standalone dealerships, Digital direct-to-customer, and multi-brand phygital.

2. Transition from ownership to consumption

• Consumers will want to experience E2W without having to purchase a large ticket size novel product with uncertain residual value
• Uptake will be pushed by leveraging disruptive consumption models (e.g., subscription, peer to peer sharing networks, on-demand hires etc)

3. Ecosystem value over product value

• Low servicing and spares revenue in E2W will hinder the passive monetization strategy of the ICE era
• Ecosystems will emerge as a vital means of monetization of customer lifecycle with services revolving around enabling the ownership to consumption shift, innovative financing structures, mobility, customer engagement, monetisation of access to consumers etc and will exceed the profits from sale and service of the product.

4. Segmentation is dead; Long live segmentation

• As the market matures, the way customers are segmented, and targeted will start changing. Customer segmentation will move away from ICE definitions based on psychographics, demographics etc., to more nuanced E2W-relevant segmentation
• This is primarily because the commuter segments extant today will break down into many individual segments based on travel purpose, distance travelled etc.,

“Innovation around all four foundational shifts is vital for E2W players. Each choice will not be relevant to different new and old OEMs. While the former will perhaps have to find ways to approach current models with a “disrupt” lens, the latter will still have to try and find ways to leverage their assets and strengths as ICE OEMs to win disproportionate share for their E2W. It’s this tension that will define exactly how the market evolves and equilibrates around these four themes. This will be an interesting market to watch,” said Vikram Janakiraman, a BCG managing director and partner, and a co-author of the report.

A copy of the report can be downloaded here