Economics of owning an electric two-wheeler in India

The demand incentive on electric two-wheelers was up to Rs 30,000 till May 2021, however with the FAME 2 revisions, the prices of all electric two-wheelers were further decreased, with a 50% increase in this incentive.

Updated: Oct 21, 2021 11:01 AM

Consumer awareness, government support, high petrol/diesel, public charging infrastructure that’s beginning to scale, and strong products in the pipeline. Things have never looked brighter for the EV business. This optimism is reflected in the consumer buzz around EVs. However, for this excitement to convert to actual sales, the last hurdle that we needed to cross was economics. With the recent developments in the ecosystem, that last piece of the jigsaw puzzle is also in place and the picture is now complete.

The most accurate assessment of the economic efficiency of EVs is the ‘total cost of ownership (TCO) that is the sum of all costs involved in the purchase, operation, and maintenance of a given asset during its lifetime. A TCO comparison of electric vehicles and ICE vehicles provides valuable insights for decision-makers in various roles, including policymakers, fleet operators, and prospective vehicle owners. While the upfront cost of EVs is higher, their operating costs are significantly lower. And hence, Total Cost of Ownership is an important aspect of “EV purchase decision.”

The higher upfront purchase cost of high-performance electric vehicles has been one of the major barriers to EV adoption in India. However, technological advancements, growing economies of scale, and, most importantly, government policies and fiscal incentives are driving down EV prices. The total cost of ownership of an EV has been the lowest in 2021 due to the policies and initiatives introduced by the government to encourage the adoption of electric vehicles (EVs).

The demand incentive on electric two-wheelers was up to Rs.30,000 till May 2021, however with the FAME 2 revisions in June 2021, the prices of all electric two-wheelers were further decreased, with a 50% increase in this incentive. To make the deal even sweeter, the government has decided to provide a 1.5 lakh additional income tax deduction for interest paid on loans used to purchase electric vehicles.

In addition to the central government’s FAME 2 demand incentive, many state governments have taken the initiative to provide an additional incentive on top of the FAME 2 incentive. Many states have exempted the vehicle registration fees for all EV 2-wheelers and have also reduced the road and motor tax for EV to 1%.

Such initiatives from the state government help us in lowering the after purchase expense for a customer and also reducing the TCO drastically. In fact, these initiatives make EV prices in those states incredibly attractive even on sticker-price basis, let alone on TCO.

Petrol and diesel prices are at an all-time high across the country. According to IndiaSpend’s analysis of data from 2019-2020, fuel prices in India remain high despite fluctuations in global crude prices, nor do they shift along with exchange rates. The cost of electricity is Rs. 10/unit and the cost of petrol is Rs. 100/L. This means that after 7800 kilometers your EV would essentially cost 60% less than an ICE to operate, including maintenance. Petrol cost an average person would spend in 5 years is Rs.98,893 while an electric vehicle will cost you Rs.53,252.

Despite fluctuations in global crude prices, fuel prices in India are likely to remain high. It is improbable that electricity prices will shoot up like petrol or diesel, as the energy portfolio for India is shifting towards less import-dependent renewable energy sources. Hence, an individual weighing the statistics can easily make a calculated bet on electric fuel prices remaining low.

Compared to ICE vehicles, EVs require less maintenance, therefore the service and maintenance costs are also very low. The battery, motor, and associated electronics require little to no regular maintenance. The battery has a life of over 50,000 km, which is 6-7 years at an average run rate of 6,000-8000 km per year, so owners don’t have to worry about battery degradation. Furthermore, the battery does not run out of power and becomes unusable. Its capacity is reduced just like that of a phone battery.

With all this, while the consumer pays a 10-20% higher upfront cost, the cost of owning an EV is much lower. Electric vehicle owners can break even on the total ownership costs over 2-3 years as the operational cost of EVs is much lower than petrol vehicles.

While the medium-term benefits are quite evident, we now need an increased focus on reducing the higher upfront cost of EVs. Today, many EV 2-wheeler companies have introduced multiple ownership models, exchange programs, assured buyback, private leases, and deals with financial institutions to make buying and owning an EV accessible for more Indians. Additionally, the resale value of an EV will undoubtedly be higher than that of an ICE vehicle. Experts estimate that EVs will retain upwards of 60 percent of their original value after three years.

Efficient planning of charging infrastructure and fast charging options will also aid in accelerating the adoption of EVs in India. From a product and end-user perspective – EVs are winning the battle on all fronts. Book your electric vehicle today.

Author: Ravneet Phokela, CBO, Ather Energy

Disclaimer: The views and opinions expressed in this article are solely those of the original author. These views and opinions do not represent those of The Indian Express Group or its employees.

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