Why is it the Most Opportune Time to Invest in Electric Vehicle Franchise

As the mix of government benefits, consumer awareness and the ongoing pandemic is accelerating the rate of adoption of electric vehicles, learn the reasons why electric vehicle franchise is indeed a hot opportunity to invest in

By Assistant Editor
Why is it the Most Opportune Time to Invest in Electric Vehicle Franchise

At present, India is still in the early stages of adoption of electric vehicles, however, over the last two years, there has been a significant development in the electric vehicle space in India with both two-wheeler and four-wheeler launches from automobile giants, local players, and startups alike.

Despite the challenging year marred by Covid-pandemic, electric vehicle sales, excluding e-rickshaws, in India grew by 20 percent at 1.56 lakh units in 2019-20 driven by two-wheelers, as per data from Society of Manufacturers of Electric Vehicles (SMEV). In 2018-19, total EV sales in India stood at 1.3 lakh units.

Out of the total sales in FY20, two-wheelers accounted for 1.52 lakh units, cars accounted for 3400 units, and buses 600 units. This figure does not include e-rickshaws which is still largely with the unorganized sector.

Commenting on the sales performance, Sohinder Gill, Director General, SMEV said, “The electric vehicle industry is taking shape rapidly and we believe that despite the ongoing pandemic, FY2020-21 will be a defining year for this segment."

Driven by Personal Mobility

The current Covid-19 pandemic is expected to accelerate the rate of adoption of electric vehicles in the medium term as customers look for environment-friendly and cost-effective personal mobility solutions. Due to social distancing norms, most people are avoiding public transport and ride-sharing. In fact, traveling by personal vehicle is the priority now and many of the deals for two-wheelers are converting in the favor of electric two-wheelers as they offer quite a lower total cost of ownership (TCO) compared to internal combustion engine (ICE) vehicles.

As per market estimates, India represents the fourth-largest automobile market in the world and the second-largest two-wheeler market. It is also a country with massive dependency on oil imports, with a $112 billion oil import bill in FY2019. In addition, pollution in many Indian cities has reached alarming levels. All these factors combined make a strong case for electric vehicle adoption in India.

Deliveries Play a Critical Role

Covid-19 and the resulting lockdowns forced consumers to switch to online delivery sites for their daily and grocery needs. Delivery firms were quick to cater to the ever-increasing demand by expanding their fleet of delivery vehicles. In fact, many of the delivery firms are including electric vehicles including three-wheelers and two-wheelers in their fleet.

The ecosystem of last-mile delivery seems to have a promising future and online retail platforms like Amazon, Flipkart, and food delivery apps like Swiggy, and Zomato are playing a key role in driving demand for electric vehicles.

As per the analysis of DataLabs, the adoption of electric vehicles in India is likely to grow with commercial vehicles with a projected market share of 70 percent by 2030.

Government Push

At the macro level, the government is worried about climate change, surging pollution, and crude oil import bills. Battery-run electric vehicles with zero tailpipe 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 electric vehicles.

With the target of 30 percent electric vehicle adoption by 2030 is projected to be powered primarily by electrification of two-wheeler, three-wheeler, and commercial vehicles in India, the government has earmarked over Rs 51,000 crore for this sector under the Production Linked Incentive (PLI) Scheme. 

In addition, the government has lowered the GST on electric vehicles from 12 percent to 5 percent. The government also announced a customs duty exemption on lithium-ion cells, which will help lower the cost of lithium-ion batteries in India. It is also contemplating to delink battery cost of 2-3 wheelers from vehicle cost as it accounts for 30-45 percent of the vehicle cost.

Further, India’s electric vehicle policy is driven by the framework linking subsidy to a higher level of localization. “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,” 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 electric vehicles, with a total exemption benefit of Rs 2.5 lakh over the entire loan period. In addition, the Delhi Government is offering benefits of up to Rs 30,000 for two-wheelers and three-wheelers and up to Rs 1.5 lakh for four-wheelers. Besides, the government has exempted electric vehicles from road tax and registration fees in Delhi.

Electric 2-Wheelers: A Bright Spot

Electric two-wheelers have emerged as a bright spot in the overall electric vehicles segment. Of the entire electric two-wheelers sales in FY2019-20, electric scooters accounted for over 97 percent share and a very small volume of motorcycles and electric cycles filled the rest of 3 percent. However, the low-speed scooters that run at a maximum speed of 25km/hr and do not need registration with the transport authorities constituted a whopping 90 percent of all the electric two-wheelers sold.

Sq. Ldr. Prerana Chaturvedi, CEO, Evolet (Rissala Electric Motors), adds that the electric two-wheelers market is growing at a very rapid pace with a number of key drivers enabling growth. “Government incentive schemes, growing distributor and dealership network, better quality products, increased awareness and acceptance of electric vehicles by consumers are some of the key factors that are fueling the growth of the electric two-wheelers market in India.”

While the government subsidies have brought the end-customer price of electric two-wheelers a bit closer to ICE vehicles, electric vehicle players are highlighting the total cost of ownership (TCO) benefits to close the gaps. “Customers are now realizing that TCO of electric vehicles 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 a petrol scooter, maintenance is also lower,” elaborates Phokela.

Moreover, the direct price benefits and the government’s focus have created 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 electric vehicles or starting a dealership,” shares Kshitij Kumar, Co-Founder, Goreen e-Mobility.

He further highlights that range anxiety in private electric two-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 weekends, on average. In fact, over 90 percent of the commute is less than 35 km in a day. Any decent electric vehicle gives over 60-65 km range and premium ones deliver 75-110 km, which is more than enough. Customers are now realizing that range anxiety for electric two-wheelers is not an issue.”

Franchise Opportunities

Industry experts say that with growing customer awareness, it’s the best time to enter into an electric vehicle franchise. “Electric vehicles will be the mainstay of India vehicle market in the next 2-5 years and beyond. Definitely, people entering this business now 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 electric vehicle franchise ranges between Rs 12-40 lakh for a humble 500-1000 sq ft area. This includes Rs 4-7 lakh on interiors and the rest on stocks, spare parts, and equipment. “New dealerships can easily make Rs 80,000- 90,000 gross profit per month by selling just 20 scooters, which will enable them to achieve RoI in mere 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 100-150 scooters in a month,” reveals Kumar of Goreen.

The Hero Electric franchise store calls for an initial investment of Rs 40 lakh, which includes Rs 2 lakh of the franchise fee, for an area of 1000 sq ft. The company claims a breakeven period of 24 months. On the other hand, the dealership of Evolet from Rissala Electric Motors requires a capital of Rs 25.5 lakh with no security deposit. The company offers dealership exclusivity in a single district but can appoint two dealers in a large district.

Charging, Swapping Opportunities in the Offing

EVs are opening up many new business models with charging infrastructure and battery swapping being the prominent ones. Under FAME II, the government offers Rs 1000 crore as incentives to set up charging stations across India. The government is planning to set up at least one electric vehicle charging kiosk at around 69,000 petrol pumps across the country.

Realizing the opportunity, various players are venturing into this space. Companies like Panasonic have aggressive plans to strengthen the charging infrastructure and is targeting to set up around one lakh charging stations for EVs across 25 top Indian cities by 2024. Targeted at commercial electric vehicles including 2- and 3-wheelers, which don’t have access to the domestic electric supply, the company 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.

Further, the government's plan to delink battery with the electric two- and three-wheelers is likely to spur the segment sales. It will give flexibility to electric vehicle customers as they’ll not have to worry about the battery, and it can also propel the battery-swapping infrastructure.

On the same lines, Sun Mobility is creating a universal energy infrastructure which offers battery swapping facility to electric vehicles. 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 electric vehicles: high price and range anxiety. “Batteries make up to 45 percent of the total cost of the electric vehicles as compared to an ICE vehicle. By removing batteries, the price reduces by almost half, and swapping batteries at interchange stations offers an unlimited range to electric vehicles. 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 two- and three-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.

Sun Mobility has tied up with Indian Oil Corporation to set up 20 battery-swapping stations at its fuel pumps across 12 cities and has plans to scale it up by the end of this year.

Road Ahead

The electric vehicle market is likely to be Rs 50,000-crore opportunity in India by 2025, with two- and three-wheelers expected to drive higher electrification of the vehicles in the medium term, according to a recent market report.

In addition, the consumer mindset is evolving in favor of green solutions to counter growing pollution, which will ultimately lead to healthy growth for electric vehicles. Indeed, electric vehicles will become mainstream over the next 2-5 years.

With government push and an influx of startups, the electric vehicle market is indeed a hot segment to invest in.

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