The transition to EV industry mobility is not going to be easy for automakers as it is tough to make profitable margins and get scale in the electric vehicles segment, says a research report by Bernstein.
The report maintains that it’s not an easy feat to build up sufficient margins and scale in the EV space, even with all the powerful financial incentives. It further reveals that most traditional automakers are suffering from losses while only a few have a possibility of remaining relevant in the long run.
“It is challenging to generate adequate margins and achieve scale in EVs. Even with generous incentives, incumbent OEMs are still making losses,” the report stated. “The EV Industry is not relevant without incentives today, and to break the ICE sector, it requires intense focus, scale, and ongoing cost downs,” it noted.
The report suggested that whilst a niche startups might survive, the long term market share is unlikely to be large. On the contrary, it stated that the competition in the EV space will come from the established OEMs.
As per Bernstein, Bajaj Auto and TVS Motors are at par with each other of India’s largest two-wheeler companies in the EV space, while Hero MotoCorp is lagging behind. Eicher Motors, which is likely to foray into electric vehicles soon, will likely remain sub-scale and less relevant. Bernstein keeps a rating of “Outperform” on Bajaj Auto due to lower valuations, while TVS, Hero, and Eicher have been rated as “Market Perform.”.
According to the report, out of the several EV two-wheeler startups, Ola Electric (Ola-E) has managed even to deliver positive operating earnings (EBITDA) from its premium models such as the S1 Pro and S1 Air to date, while it continues to incur losses on its mass-market model, S1X.
On the other hand, TVS is says to be losing around 7.5% in EBITDA. Even though it is making a gross profit margin of around 7% without subsidy on its product.
Bajaj Auto is facing a more monumental loss of EBITDA to the tune of 10.5%. It costs approximately Rs 15,000 per vehicle and is also losing money at the gross profit level without subsidies.
“Our analysis shows that Ola-E is making positive operating EBITDA from its premium models. In the likes of S1 Pro and S1 Air. While making a loss on its mass-market model, the S1X,” said Bernstein.
According to the report, the overall EV two-wheeler industry in India generates some USD 1.3 bn in annual revenues. However, incurs an estimated EBIT loss of USD 300-400 million without incentives.
This narrowed the price gap of electricity from a GST surplus.
This report further pointed out that in the current situation. The EV industry is still heavily dependent on government incentives and subsidies. Large-scale operations and significant cost reduction must form the spearhead for a sustained competitive advantage. For the EV industry to enter the traditional ICE market,
In concluding the outlook, the report stated that only dominant startups will likely become mainstream. Whereas traditional OEMs would compete for further market share in the EV space.
FAQs
- Why is it difficult for carmakers to make money in the electric vehicle market?
There are three strong reasons: high cost of manufacture, lacking scale, and dependence on government incentives.
2. How does this play out in the form of incentives, for instance?
The industry is largely dependent on government incentives, which turn out to be profitable for most players in the EV space. Most traditional automakers lose money without them.
3. How do things look financially for Ola Electric in the EV market?
That Ola Electric managed to turn positive EBITDA on its prime models like S1 Pro and S1 Air but the same could not be said about the mass-market model S1X.
4. TVS Motors’ performance in the EV segment-how financially?
TVS Motors is also making 7% gross profit margin but still losing 7.5% in EBITDA without subsidies.
5. Bajaj Auto’s financial loss in the EV segment.
Bajaj Auto loses about 10.5% in EBITDA, or about Rs 15,000 on every vehicle and is not even profitable at the gross profit level sans subsidy.
6. What is the collective revenue for the Indian EV two-wheeler industry?
Indian EV two-wheeler industry generates roughly USD 1.3 billion per year.
7. How much EBIT loss does the Indian EV two-wheeler industry suffer sans incentives?
Without the government’s encouragement, the industry will incur an estimated USD 300-400 million in losses in terms of EBIT every year.
8. What will it take for the EV industry to compete with the traditional ICE (Internal Combustion Engine) Vehicles?
Large operation and sizeable cost cuts are a must-to-be for the EV industry to enter into the arena of traditional ICE vehicles.
9. Will start-ups or traditional automakers take the lead in the long run?
Only a few startups will survive, while the majority of established traditional automakers will be sure to corner the EV market in the long run.
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