EV Industry Faces Uphill Battle Without Government Incentives

Established automakers and startups alike face mounting challenges, with incentives proving essential for survival in the competitive market.

India’s transition to electric mobility is fraught with challenges, according to a Bernstein research report, which highlights the difficulty automakers face in generating profitable margins and scaling up in the EV segment. The report points out that despite significant government incentives, most original equipment manufacturers (OEMs) are still operating at a loss in the EV space.

Bernstein’s analysis emphasises that the EV industry in India currently hinges on these financial incentives and subsidies. Without them, it warns, the sector would be largely irrelevant in the market. The report further outlines that breaking the dominance of internal combustion engine (ICE) vehicles requires a sustained focus on scaling up, cost reduction, and industry-wide innovation.

The report predicts that while niche startups may survive in the EV space, their long-term market share will likely remain small. Instead, competition will largely be between established OEMs. However, even these traditional players are struggling.

Bajaj Auto and TVS Motors, two of India’s leading two-wheeler manufacturers, are on similar footing within the EV sector, while Hero MotoCorp lags behind. Eicher Motors, which is expected to launch its electric vehicles soon, is projected to be sub-scale and less relevant in the market. Despite these struggles, Bernstein has given Bajaj Auto an “Outperform” rating, citing its lower valuations, while TVS, Hero, and Eicher were rated as “Market Perform.”

The report delves into the financials of various companies in India’s EV sector, highlighting significant challenges to profitability. Ola Electric (Ola-E), a notable startup, has managed to generate positive operating earnings (EBITDA) from its premium models like the S1 Pro and S1 Air. However, it is incurring losses on its mass-market model, the S1X.

Similarly, TVS Motors, despite achieving a gross profit margin of around 7 percent (without subsidies), is estimated to be losing approximately 7.5 percent in EBITDA, amounting to a loss of around Rs 11,000 per vehicle. Bajaj Auto, on the other hand, faces an even steeper EBITDA loss of 10.5 percent, translating to a loss of approximately Rs 15,000 per vehicle, and is also losing money at the gross profit level without subsidies.

According to Bernstein’s analysis, the EV two-wheeler industry in India generates an estimated $1.3 billion in annual revenues but incurs EBIT losses of around $300-400 million without government incentives. The additional benefits from GST have helped narrow the price gap between electric and internal combustion engine vehicles, but the report stresses that government support remains crucial.

In conclusion, Bernstein’s report highlights that India’s EV industry remains heavily reliant on subsidies and financial incentives. To stay competitive, the sector must focus on scaling up operations and reducing costs significantly. The report also suggests that while dominant startups may eventually establish themselves in the mainstream market, traditional automakers will continue to compete for market share in the evolving EV landscape.