Three-Wheelers Leading India’s Electrification Journey, Reaching 53% Penetration In FY2023 – ICRA Report


ICRA, a leading credit rating agency, has released a report highlighting the increasing adoption of electric three-wheelers in India as a key factor driving the country’s electrification journey. According to the report, the electric three-wheeler segment is expected to grow at a CAGR of 36% over the next five years, reaching a market size of 1.5-1.6 lakh units by FY2026.

The report notes that the Indian government’s focus on promoting electric mobility through various initiatives such as the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme, and the provision of subsidies and incentives to electric vehicle manufacturers and buyers, has played a significant role in the growth of the electric three-wheeler market.

Furthermore, the report highlights that the adoption of electric three-wheelers has been particularly strong in the last-mile delivery segment, where they are increasingly being used for e-commerce, food delivery, and other logistics services. The report predicts that this trend will continue, with the last-mile delivery segment accounting for a significant share of the overall electric three-wheeler market in the coming years.

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The three-wheeler (3W) segment has been one of the early adopters of electric vehicles (EVs) in India, reaching penetration of 53% in 10MFY2023, compared to 4% in the two-wheeler and 1% in the passenger vehicle segment. While sales had contracted sharply in the aftermath of the pandemic, they revived at a healthy pace in the current fiscal, crossing pre-pandemic levels by a comfortable margin.

The segment is expected to witness increased traction going forward with 14-16% of new three-wheeler sales (excluding rickshaws) expected to be in the electric segment by FY2025. Electric three-wheelers are at the forefront of India’s EV journey, supported by favourable operating economics, and the Government’s focus on cleaner modes of transport, especially in the commercial segment.

The growth within the 3W segment has been led by the unorganised e-rickshaw, which currently accounts for ~90% of the 3Ws sold in the country. Given the lower upfront costs and operational savings, coupled with minimal compliance needs, this segment has flourished over the past 5-7 years. However, e-autos, with a higher load-bearing capacity and top speed vis-à-vis rickshaws, are also gaining prominence now.

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Multiple factors remain supportive of e-auto adoption, including the favourable policy environment with Central and state government subsidies to reduce capital costs, reduction or waiver of registration fees, road taxes, and permit requirements. These result in a significantly lower (40-45%) total cost of ownership (TCO) as compared to conventional diesel/CNG 3Ws, offering a compelling proposition for shifting to e-autos. Nevertheless, a key challenge is financing availability. Given the nature of the user segment and the uncertainties of the product (being a new and technology-driven product), the financing options available so far have been relatively limited.

ICRA’s channel checks suggest that large banks and larger financial institutions are shying away from financing this segment, and those that are providing loans are at high-interest rates. However, ICRA expects the penetration of e-autos to increase from the current levels of 8% to 14-16% by FY2025, and to 35-40% by FY2030 as these challenges ease out in the medium term and the product becomes more established in the market.

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Overall, the report suggests that the increasing adoption of electric three-wheelers in India is a positive sign for the country’s efforts to reduce carbon emissions and promote sustainable mobility. With the right policies and initiatives in place, the electric three-wheeler segment has the potential to become a key driver of India’s electrification journey.

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