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EVs: Hoping for a buyers' surge

Consumers are more open to buying electric vehicles now but are grappling with issues of price and after-sales service.

At its Bangalore showroom, Mahindra & Mahindra's electric car Reva got 400 enquires in a week following the Rs 5 hike in petrol prices recently.

A recent report, Gaining Traction: Will Consumers Ride the Electric Vehicle (EV) Wave? by Deloitte Touche Tohmatsu Ltd clearly points out that the new breed of consumers, particularly educated urbanites are  willing to consider purchasing EVs as a practical commuting option.

The survey, covering 13,500 respondents and spanning 17 countries, noted that a little over 70 per cent of the respondents in India were willing to consider purchasing EVs if the fuel price crossed Rs 85 per litre.

“On a typical usage of 60 km per day, our scooters save more than Rs 12,000 per year compared to a petrol-driven scooter,” says Ayush Lohia, CEO, Lohia Auto Industries, which manufactures electric bikes brands such as Fame, Oma Star and Oma Star DX.

The demand for its vehicles has nearly doubled, from approximately 500 units sold between April and June 2010 to more than 1,000, during the corresponding period this year. In some markets such as Delhi and Lucknow, sales have increased threefold.

With demand fuelled by helpful subsidies from the Government (the Ministry of New and Renewable Energy gives 20 per cent subsidy of the vehicle cost to EVs), more players are entering the segment.

The major players in the bike segment include Hero Electric, Yo bikes, Lohia Auto Industries, and TI Cycles' BSA Motors. Mahindra Reva is the only domestic electric car brand.

Frost & Sullivan forecasts the market for electric passenger vehicles in India will reach 20,400 units by 2014-15 from 810 units a year in 2009-10. Similarly, the two-wheeler EVs market will grow from 0.14 million units in 2009-10 to 0.45 million units in 2015-16.

The fuel advantage is undeniable - the running cost of an electric two-wheeler is one-tenth of a conventional petrol-driven scooter at Re 1 ($ 0.02) per 100 km, which is just the cost of charging the battery.

But offsetting the fuel advantage is the consumer perception that the EV is often more expensive than its petrol counterpart. 

“While the fuel and maintenance cost of a plug-in vehicle is lower, the upfront cost should also be attractive enough to lure the customer. Honda Civic, for instance, was way too expensive,” says Rakesh Batra, Auto Practice Leader, Ernst and Young.

According to the Deloitte report, a third of Indian customers expect to purchase EVs at around Rs 4 lakh and another third are willing to go up to Rs 7 lakh.

Making it a selling proposition
Consumer awareness of electric vehicles is still low in India. So how are manufacturers pushing the concept?

Mahindra is positioning Reva as the second car of the household. “Owing to the 80 km range of the car, we see Reva as the second car that is used for daily routine commutes within the city environs. Easy to drive, turn and park (fully automatic), it is the perfect car for a congested city with stop and go traffic,” says R. Chandramouli, Chief of Operations, Mahindra Reva. Reva is positioned for a niche market that is willing to look at alternative fuel vehicles and is comfortable with the idea of a two-plus-two (children) car.

The communication strategy uses a mix of PR, ground events and online marketing.

“M &M's total turnover is Rs 25,600 crore, out of which Reva accounts for only Rs 150 crore. They are increasing the capacity by 30,000 units a year over a period of time. So they are definitely building a product for the future,” says Vijay Kaul, Business Strategies Professor, University of Delhi. Reva currently sells 3,500 units a year which M&M wants to take up to 5,000 a year soon.

M&M, he says, needs to work on the car's aesthetics and exploit the glamour that one associates with a car, in order to woo consumers.

Electric two-wheelers
The market for electric scooters in India has dropped over the years. In 2008-09 the numbers were around 75,000 as per the numbers provided by the Society of Manufacturers of Electric Vehicle. This included a number of unorganised players trading in this category, numbering about 85, accounting for 34 per cent of the sale. However, in the subsequent years the unorganised players exited and there was consolidation  between the organised players. The number for 2009-10 came down to 55,000 and 2010-11 it dropped further to 40,000 .

D. Raghuram, President, TI Cycles and BSA Motors, confirms that sales of BSA electric bikes mimicked industry trends with sales dropping. “This year we are seeing a significant improvement in category acceptance by our target consumers and our outlook for the year is a number close to 8,000 scooters,” he says. Apart from awareness, the main deterrent to this industry is the availability of reliable after-sales service. This has been the bane of this industry and the unorganised players are blamed for bringing disrepute to this category by not offering reliable service, dissuading potential consumers from considering the segment.

“As a part of our strategy, we lay a lot of emphasis on the after-sales service facility for these products, opening attached service stations with every outlet,” explains Raghuram.

The company has been following an aggressive below-the-line campaign which includes demonstrations at residential colonies, schools and colleges and factories and holding press conferences.

Most electric two-wheelers in India have not really employed advertising as a way of promotional strategy, relying mainly on ground events and word of mouth.

 “I see them as neighbourhood vehicles used for shopping and dropping kids to school. Women are the prime target segment and positioning these bikes as ‘cool' can draw a decent market from the youth as well,” says V.G. Ramakrishnan, Vice-President (Automotive and Transportation Practice), Frost and Sullivan. The product has potential in places with limited driving distances, which is the tier-2, and tier-3 cities. However, consistent power availability is an issue in these towns. 

Is the consumer biting?

Customer buy-in also depends on how close the nearest recharging station is. An electric vehicle needs eight hours to fully recharge and carries range anxiety, fear of battery running out. A plug-in hybrid vehicle electric range, such as Chevrolet by GM, would offer 64 km of electric range and 800 km per gasoline engine!

“Studies to get consumer insights in the US and Britain clearly showed that buyers were unwilling to pay more for an electric car,” informs M. Anand, Professor (Strategic Marketing), Faculty of Management Studies, Delhi.

Interestingly enough, in China acceptance is high. China, which has the world's largest number of charging stations, plans to have 20 to 30 per cent of its on-road vehicles converted to EVs by 2030 and has already invested $15 billion for promotion of the concept.

“The target may appear to be ambitious but is based on thorough consumer research.  An average city dweller in China does not travel more than 80 km per day and his intercity travel is limited. Besides it has planned to provide charging facilities at more than 10 million electric charging stations. It is worth noting that China has already 100 million light electric bikes and scooters,” elaborates Prof Anand.

A cyclical phenomenon?

This is probably the third coming of the electric vehicle. During the late 19th and early 20th century people in the UK travelled by electricity-driven vehicles. The development of the internal combustion engine killed the industry overnight. The petrol-driven vehicles were cheaper and offered unlimited range and easy fuelling and service at umpteen gas stations. The sudden jump in oil prices during the '70s and '80s once again created interest in electric vehicles but it was short-lived. Now, riding on the back of fuel price hikes, electric vehicles are revving up again. But will it be a temporary phenomenon like before – or is it here to last?

“I hope like the earlier examples it does not fizzle out if the prices of oil dip significantly,” says Prof Anand.

This time around, what's going for the electric vehicles is that they are not just riding on the price issue, but also the green angle.

A conventional vehicle creates 2.5 gm pollutant per km, while a 100 per cent efficient electric vehicle generates 1.2 gm of pollution.

Thermal plants which are used to generate electricity for charging are not located in congested areas. So an electric vehicle definitely improves the local city environment. With much strong logic going for it, the industry is hoping consumer purchase would see a sharp surge.