The IDTechEx report "Micro EV 2025-2045: Electric Two-Wheelers, Three-Wheelers and Microcars" reveals that India will become the next major power in the production and sale of E2W vehicles, contributing to the rapid growth of the micro EV industry, valued at $90 billion globally by 2045.

Today, China is the undisputed leader in global E2W sales. Over 85% of all sales in 2023 were made in China, and E2Ws have achieved widespread acceptance in the country. China began adopting the technology as early as the 1990s and has maintained its lead ever since. China is also home to many of the world's largest E2W manufacturers, such as Yadea and Niu, which produce affordable, low-power electric mopeds for the average consumer, well-suited to the country's dense urban areas.

However, the IDTechEx report highlights several trends that point to a less promising future for the Chinese E2W sector.

The Chinese market is stagnating

The country's domestic market has long been driven by a large population and rising income levels, experiencing rapid growth in the late 20th century. But China's demographics are changing rapidly, and it now faces a declining and aging population. At the same time, individual wealth and consumer purchasing power have increased significantly. Both factors are shifting people away from buying two-wheelers and toward larger forms of transportation.

In fact, this doesn't just affect two-wheelers; other types of electric microvehicles, such as three-wheelers and microcars, are also feeling the pressure as larger sedans and SUVs replace them. For these reasons, the Chinese market is expected to stagnate in the short term before experiencing a definitive decline, as cars gain momentum and the potential customer base for two-wheelers continues to shrink.

India on the rise

Compared to the Chinese market, where more than half of moped sales are electric vehicles, the Indian E2W market is much more nascent, less saturated, and has greater room for future growth.

India is one of the world's most polluting countries, and many of its cities regularly experience dangerous levels of air pollution. Over 70% of emissions come from vehicle sources, and in a market where far more two-wheelers are sold than passenger cars, the population is turning to electric two-wheelers (E2W) to combat air pollution.

High fuel prices also influence this trend. While fuel prices in India have been quite volatile in the years following the pandemic, electricity prices have remained fairly stable, offering customers a cheaper and more reliable total cost of ownership.

The rise of e-commerce will also drive demand for E2W. India's rapid population growth, rising income levels, and modernization have created a robust e-commerce sector. Many companies in this sector have their own environmental commitments and sustainability goals, and electrifying their two-wheeler fleets contributes significantly to achieving them.

Response from original equipment manufacturers and governments

India's local original equipment manufacturers, along with federal and state governments, are paying attention to the increased demand for E2W and responding accordingly.

India is home to many long-established and historically significant manufacturers of combustion-engine two-wheelers, which have long been very popular in the country. However, many of these companies, including market giants like Mahindra, Bajaj, and TVS, have embraced electrification and have produced or plan to produce electric-to-wheelers (E2W). The country also boasts a thriving E2W startup industry, with relatively new manufacturers like OLA Electric, Ather, and Ampere having secured significant funding and becoming market leaders.

Meanwhile, the Indian government has been far more proactive than most in creating a regulatory environment conducive to the growth of electric-to-wheelers (E2W). Its major commitments have materialized in subsidy schemes, such as the FAME II program, followed by the EMPS program. The IDTechEx report concludes that these programs are among the most generous in the world, having made E2W vehicles more affordable compared to combustion engine vehicles and contributing significantly to quadrupling domestic E2W sales.

The government also has separate plans to expand charging infrastructure nationwide, while 27 state and local governments offer their own subsidies for purchasing E2W chargers or installing them. These policies have fostered partnerships between original equipment manufacturers and charging startups, benefiting E2W's broad customer base.

Finally, there are some areas where OEMs and the government have collaborated to reshape the E2W ecosystem in India. Since the country is not a major battery producer, domestic OEMs have to import lithium-ion cells. This poses a significant barrier to the market, as imports are more expensive and present logistical challenges, driving up E2W prices. In response, many companies are looking to develop their own lithium-ion production capacity. OLA Electric is establishing gigafactories in India dedicated to producing its E2W, while Mahindra is considering doing the same. The Indian government is incentivizing this transition with additional financial support. It has allocated over US$2 billion in incentives for domestic lithium-ion cell production, which will accelerate E2W growth in the long term.

Author: Pranav Jaswani, technology analyst at IDTechEx