While speculations are rife that Chinese players will pose a threat to domestic electric two-wheeler segment, the latter may not face much competition from Chinese manufacturers in near term, according to a Kotak Institutional Equities report.
At least 96 per cent of e-bike market in China is lead acid because of its lower cost even as the lithium-ion battery technology is scaling quite fast, said the report.
With lower penetration of lithium-ion battery, it’s still a long time for Chinese players to enter India. Also, Chinese firms are reeling under stress due to weaker profitability. As compared to just four players which dominate the two-wheeler industry — Hero Motocorp, Honda Motorcycle and Scooter, TVS Motors and Bajaj Auto, China has over 200 individual firms producing motorcycles nationally indicating increasing competition, it said.
At a time when the two-wheeler segment declined at a CAGR of seven per cent over CY13-18 in China, the domestic-two-wheeler segment has grown at a CAGR of seven per cent during the same period led by increase in acceptance for two-wheelers as means of transport for daily commute, increasing rural penetration, and rise in disposable income.
This resulted in domestic players to enjoy superior profitability and return ratios as compared to Chinese counterparts which continue to reel under high competition. Moreover, the Chinese government has set a limit on the total permissible weight of electric two-wheelers (including the weight of battery) to 55 kg from April 2019 and this would render the existing lead-acid operated electric two-wheeler non-compliant pushing all manufacturers to shift to lithium-ion battery-operated models first in their own country.
Meanwhile, it takes a long time for new entrants to build a solid and widespread distribution network. In India, however, firms such as Hero MotoCorp, Bajaj Auto, Honda Motorcycle and TVS Motor already have a strong distribution network, with deeper and wider marketing channels in both urban and rural areas.