In the first part of this series, we looked at why profitability, or the lack of it, is the biggest hurdle to the Indian E2W industry growth. No one, but startups burning private money, would push electrification aggressively unless they can start making double-digit net from the new energy source.
InsightEV – Global Electric Mobility
And there are not too many startups burning private money nowadays.
The solution? As the big four routinely tell their clients, we should cut costs and grow sales to improve profitability.
Except that cutting costs in E2Ws is not that easy, and often when we cut BoM costs, we are offloading them onto the customer. That, as we shall see, is not a pleasant experience. And when customers have unpleasant experiences, they take the brand down fast.
The Cell Cost Illusion
The conventional wisdom about E2W profitability is that cells are the biggest BoM item, and cells are going to keep falling in price, so the problem will eventually solve itself.
That is partially true, and entirely dangerous to believe without interrogation.
Yes, cell prices have been falling. As Bloomberg NEF data shows, the trajectory has been consistently downward. LFP cells from China can be sourced at INR 6,000 per kWh or below. For a 4.0 kWh scooter pack, that puts the cell cost below INR 25,000. That sounds like progress.
The problem is threefold.
First, the falling prices are largely a Chinese story. That country has massive overcapacity — by one estimate, only 22% of Chinese cell capacity is consumed internally. Everything else gets loaded on a ship. Chinese manufacturers are pricing to keep their lines running, not to make a healthy margin. That is not a sustainable pricing floor. When Chinese domestic demand recovers, or when geopolitics introduces supply chain turbulence — and both will happen — those rock-bottom prices will not hold.
High crude prices don’t help. They may bring a temporary spurt in E2W sales, but when you take a step back and look at the big picture, it is clear that high crude prices will eventually trigger a geopolitical and economic avalanche, eventually leading to higher cell prices.
Second, the falling price trajectory is beginning to flatten. Cell prices are not falling at the rate they once were. The steep decline of 2022-2024 has moderated. Each incremental improvement in chemistry and manufacturing yield is harder to achieve and is being fought for at the margins. The easy gains — switching from NMC to LFP, basic improvements in energy density — have largely been harvested.
We’d go out on a limb and say that probably we have achieved bottom-of-the-barrel prices. As in the case with computing systems and microprocessors, we may be building better cells from here on, but not cheaper cells.
Third, and this is the sting, as cell prices fall, their contribution to the overall BoM shrinks. That sounds like a good thing. But it means that the cost savings from further cell price reduction are becoming smaller and smaller as a proportion of the total vehicle cost. You cannot simply wait for cells to become cheap enough to solve your profitability problem. The other cost components — electronics, motors, software — are now proportionally more significant than they once were.
The hope that India will be able to substitute Chinese cells with domestically manufactured ones at a competitive cost is a separate challenge. Ola’s Gigafactory is producing at pilot-line scale — roughly 30 MWh per year, against an installed capacity of 6 GWh. Log9 Materials announced cells in 2022, raised USD 227 million, and went into insolvency by 2025. Domestic cell manufacturing at a meaningful scale is at least three to five years away, if not more. The same, where we have an edge over imports, is maybe ten years away.
Unless there is regulatory intervention. The timing for that is questionable. Do you build the capacity first and then have regulatory intervention, or do you do the intervention first and then build capacity? Both paths seem suicidal.
Until that scale arrives, the Indian E2W industry is dependent on Chinese cells. That dependency is both a cost risk and a geopolitical one.
The Electronics Problem Nobody Talks About Loudly Enough
If cells get most of the attention in BoM discussions, electronics get far too little. And that is a strategic oversight.
The electronic architecture of an electric two-wheeler is fundamentally more complex than that of an ICE one. You need a Battery Management System (BMS). You need a Vehicle Control Unit (VCU). You need motor controllers, DC-DC converters, chargers, and, in any modern scooter worth its asking price, telematics and connectivity hardware. The software running all of this is not trivial to develop or to maintain.
Almost all of these components are now locally assembled. In most cases, the child parts are imported. The MCU, BMS, and VCU are the most critical and expensive. India does not have a credible domestic supply chain for automotive-grade power semiconductors or for the microcontrollers that sit at the heart of every modern VCU. The global semiconductor supply chain is dominated by a handful of players — primarily European and American fabless designers with Asian foundries — and the Indian automotive industry is a price taker in this world, not a price setter.
This matters for several reasons.
The first is pure cost. A BMS for a 4.0 kWh E2W pack with adequate cell balancing, thermal management sensing, and communication interfaces costs nearly the same as the entire engine assembly of a 100 cc ICE motorcycle.
At this point, go back to what we told the customer: the electric two-wheeler is better because the ICE engine has a gazillion moving parts that could break. In comparison, nothing in the EV moves and would break.
Except they do. Chipboards crash. I typed this on my backup computer because my 5-year-old MacBook Pro suffered a motherboard failure. The worst thing about any chipboard is that they are not modular or repairable. So now the MacBook will get its entire motherboard replaced and will cost me about 60% of the original price of the computer itself.
Same for any of the chipboards on an electric scooter. Controllers crash. They will fail one day. That failure will likely happen once the scooter is past its warranty. The customer would realize that now he has to shell out about INR15,000-20,000 for a replacement, all from his own pocket. This would likely be in the fifth or sixth year of ownership, way past warranty, and the customer now feels cheated.
Did you notice that everyone wants to give an extended warranty on batteries but not on chipboards?
In comparison, the gazillion-moving-parts-ICE-engine that should break after a few thousand kilometers does not. And even when it does, the beauty is that the gazillion parts don’t all break. Only one or two of them would do, and everything is replaceable.
Add to that the fact that the service ecosystem in ICE is so evolved that the replacement part would come with many options, and you don’t even have to wait at the company-owned service center for the repairs. Independent shops can do the job just as well. The customer never feels cheated. This is predictable, and the cost is manageable.
In most cases, there would be warning signs: loud noises, mechanical grinding, and a general high NVH from the engine that should not have been there. This gives the customer enough time to predict, react, and protect.
In comparison, the E2W chipboard would simply not wake up one day, likely the day when the E2W was most needed.
Then there is the service cost multiplier. An ICE motorcycle with a fault can often be diagnosed and repaired by a roadside mechanic. An E2W with a BMS fault, a VCU error, or a motor controller problem needs trained technicians, proprietary diagnostic tools, and potentially a component that has to be waited for because the supply chain was not optimised. As we have consistently argued, the ICE world spent decades building a dense, reliable service ecosystem. The electric world cannot skip that investment and pretend the problem doesn’t exist. It just defers the reckoning.
The third is the durability question. Power electronics in harsh conditions — tropical heat, poor road surfaces, dust, monsoon rains, voltage fluctuations from inconsistent charging infrastructure — take a beating. Electronics that are designed to automotive-grade standards for European or American conditions are not necessarily validated for the stresses of Indian roads and weather. This is not an abstract concern. It is why we see boneyards of broken E2Ws.
A broken controller is not a wrench-and-grease problem. It is a replacement part problem. And in India’s current E2W ecosystem, replacement parts for electronics are expensive, slow to arrive, and not always available.
In any of the above cases, what typically happens, apart from the financial loss to the customer, is an erosion of confidence in E2Ws as a future. That is also one of the reasons why E2Ws are better suited for B2B fleet or commercial applications. Right at inception, I can mathematically model how many controllers, chipboards, or batteries are going to fail in Year 1, Year 2, and Year N. I can build a cost and profitability model around that. I can tweak the model when I see the field data not matching the forecast.
Modeling the damage done by a mad customer is not possible.
The industry needs to solve for electronics the way it has been (partially) solving for cells. That means domestic design capability, local validation for Indian conditions, scale that drives cost down, and a service ecosystem that can actually handle the complexity of electric drivetrains. None of that is happening at a meaningful speed. None of that is being driven by the big players. They are still navigating turn one and turn two in this 100-mile journey.
