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Expect e2W sales to slow down at least in 1QFY25

*After witnessing an almost 3x YoY jump in FY23 to 728k units, the electric 2W (e2W) segment posted a much slower growth rate of 30% YoY in FY24 to 944k units.

*The deceleration in e2W growth was attributed to multiple headwinds in FY24, which included: 1) FAME-II subsidy cut with effect from Jun’23; 2) OEMs were asked to upgrade their vehicles to meet new safety norms; 3) few OEMs were denied FAME benefits and penalized for not following localization norms; and 4) fire incidents created negative sentiment about electric vehicles (EVs).

*Ola Electric has been the biggest gainer as its market share increased from 21% in FY23 to nearly 35% in FY24, driven by continued new launches and aggressive discounting toward the end of the year. Incumbents TVS Motor (TVSL) and Bajaj Auto (BJAUT) now command 19% and 11% market share, respectively (vs. 11%/4% in FY23). Ather Energy also gained 100bp market share YoY to reach 12%.

*Mar’24 saw a significant pre-buying in EVs as the FAME subsidy would be phased out by the end of the month. The e2W segment posted record-high sales of 136k units in Mar’24.

*While the FAME-II policy expired in Mar’24, the government has extended the subsidy for four more months to Jul’24, albeit at a reduced rate.

*We believe the industry will need government support in the form of subsidies for at least one more year, and thereafter, a combination of operating leverage benefits, a reduction in input costs, localization and PLI benefits would help the industry stand on its feet.

*Given the sharp pre-buying in Mar’24 and uncertainty around the government subsidy after Jul’24, we expect growth in e2W volume to slow down at least in 1QFY25

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