Electrifying India’s and Southeast Asia’s transportation backbone
Two- and three-wheelers account for a large proportion of personal transport in India and Southeast Asia, especially among low- and middle-income populations. These vehicles also serve as a critical component of the informal transport sector.
Two- and three-wheelers account for a large proportion of personal transport in India and Southeast Asia, especially among low- and middle-income populations. These vehicles also serve as a critical component of the informal transport sector.
In India, for example, two-wheelers constitute over 74.7% of the total vehicle fleet, with similar figures in Southeast Asia, particularly in countries like Indonesia, Vietnam, and the Philippines.
Source: Bloomberg
Two-wheelers and three-wheelers enable millions of livelihoods in Asia, from delivery drivers to small-scale entrepreneurs. However, they are also major contributors to greenhouse gas emissions, with transport accounting for 12% of Asia’s greenhouse gas emissions and 40% of global transport emissions as of 2023.
The rise of electric two-wheelers (E2Ws) and three-wheelers (E3Ws) in India and Southeast Asia more broadly presents a significant opportunity. These regions, where E2Ws and E3Ws dominate the streets as primary modes of personal, commercial, and informal transport, are witnessing a pivotal transition from conventional internal combustion engine (ICE) to electric or hybrid alternatives. In the last five years alone, the penetration of electric two-wheelers in India has increased from less than 0.1% to 3.5% (ICRA India). In Vietnam, electric two-wheelers capture a 9% market share of the E2W fleet. The electrification revolution has the potential to transform the transportation backbone of both South and Southeast Asia.
Given the price sensitivity of customers in these regions, lowering the cost of electric vehicles is key to driving the uptake of these vehicles. The Government of India has recognized the importance of improving the affordability of the E2W and E3W segments and has rolled out a variety of incentives to accelerate the transition. In India, the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) – II scheme offered approximately US$837M in demand-side subsidies for the purchase of electric vehicles, almost 90% of which were electric two-wheelers. Similarly, in Southeast Asia, countries like Thailand and Indonesia have introduced corporate tax breaks (Indonesia), import duty exemptions on production-related capital goods (Indonesia and Thailand), registration fee exemptions (Vietnam), and other financial incentives to reduce the cost of electric vehicles.
Government policies, combined with increasing investment in charging infrastructure and battery technology, have created a favorable environment for the electric vehicle market to flourish. However, to achieve widespread adoption, further efforts are necessary to improve access to affordable financing and reduce the upfront cost barrier for low-income consumers. Innovative business models in financing and offering batteries as a service could be key to driving adoption.
In India and Southeast Asia, several startups and financial institutions are offering innovative leasing, rental, and microfinance solutions tailored to the needs of electric vehicle buyers. For example, some companies provide “pay-as-you-go” models that allow consumers to pay for their electric two- or three-wheelers in instalments, spreading the cost over time. This not only makes EVs more accessible to those without large amounts of capital, but also aligns with the earning patterns of many users, such as delivery drivers and micro-entrepreneurs who rely on daily income.
Another innovation shaping the EV landscape is offering batteries as a service (BaaS). Batteries comprise ~35% of the vehicle cost for two- and three-wheelers. By offering batteries as a service, the upfront cost of vehicles can be significantly reduced. Moreover, BaaS also enables the development of battery-swapping networks.
In India and Southeast Asia, where three-wheelers are a popular choice for cargo or ride-hailing services, battery swapping has been particularly well-received, allowing drivers to pay for their usage, and minimize downtime to keep their vehicles in operation throughout the day. Companies like SUN Mobility in India and Swap Energy in Indonesia are leading the way, setting up battery-swapping networks that cater to both individual riders and fleet operators.
Expanding investment into these innovative business models can improve the affordability of electric two- and three-wheelers, ultimately leading to an increased uptake of these vehicles. The 2W and 3W electric revolution could serve as a blueprint for other emerging markets, offering a scalable, sustainable solution to the global challenge of decarbonizing transport.
