India’s electric vehicle industry is irrelevant without incentives: Bernstein, ET EnergyWorld

New Delhi: The transition to electric mobility will not be easy for automakers as generating profitable margins and gaining economies of scale in the electric vehicle (EV) segment is difficult, according to a Bernstein research report.

The report indicates that generating sufficient margins and scaling up development in the area of ​​electric vehicles is difficult, even with significant financial incentives. He added that many traditional automakers are facing losses and only a few are expected to remain competitive in the long term.

“It is difficult to generate sufficient margins and achieve economies of scale with electric vehicles. Even with massive incentives, incumbent OEMs remain unprofitable,” the report said. “The electric vehicle industry is not relevant today without incentives, and to crack the ICE sector requires intense focus, scale and continuous cost reduction,” he added.

The report shows that while niche startups may survive, their market share is likely to remain limited in the long term. She noted that competition in the electric vehicle space will instead be mainly between established OEMs.

According to Bernstein, among India’s leading two-wheeler manufacturers, Bajaj Auto and TVS Motors hold a similar position in the electric vehicle sector, while Hero MotoCorp lags behind. Eicher Motors, which will soon launch its electric vehicles, is expected to operate on a smaller scale and be less relevant in the market. Bernstein rated Bajaj Auto ‘Outperform’ due to its lower valuation, while TVS, Hero and Eicher were rated ‘Market Perform’.

The report also highlighted that Ola Electric (Ola-E), one of the two-wheeler electric vehicle startups, has managed to generate positive operating earnings (EBITDA) from its premium models such as S1 Pro and S1 Air. However, it is making losses on its mass-market S1X model.

On the other hand, TVS is estimated to be losing around 7.5 per cent of EBITDA (around Rs 11,000 per vehicle) despite generating a gross profit margin of around 7 per cent net of subsidies.

Bajaj Auto is reportedly facing an even greater EBITDA loss of 10.5% (around Rs 15,000 per vehicle) and is also losing money at the gross profit level without subsidies.

“Our analysis indicates that Ola-E is generating positive operating EBITDA on its premium models, such as the S1 Pro and S1 Air, while incurring a loss on its mass-market model, the S1X,” Bernstein’s report states.

The report highlights that the overall two-wheeler EV industry in India generates around $1.3 billion in annual revenues but incurs an estimated EBIT loss of $300-400 million net of incentives.

However, the additional benefits of GST have helped reduce the price gap between electric vehicles and internal combustion engine (ICE) vehicles.

The report highlights that in the current scenario, the electric vehicle industry remains highly dependent on government incentives and subsidies. To remain competitive, the electric vehicle industry needs continued focus, large-scale operations and significant cost reductions to break through the traditional ICE market.

Summarizing this perspective, the report concluded that only dominant startups are likely to become mainstream, while traditional OEMs will continue to compete for market share in the electric vehicle space.