A couple of days back, we looked at Vmoto setting up a joint venture in Pakistan and remarked that “the country has a promising outlook as far as two-wheeler electrification is concerned.”
Since then, we have received a lot of flak feedback seeking our logic behind the assumption.
In InsightEV’s Global Fleets: Opportunities for Electric Two-Wheelers (purchase link) we introduced and defined two basic metrics. These measure the core conduciveness of any country to electrification.
Most electrification in the near future would be driven by commercial use two-wheelers in developing markets. Environmental concerns are a movement but that doesn’t pay the bills. The real force that would push electrification is the commercial promise it brings. Electric two-wheelers have the potential to deliver Total Cost of Ownership (TCO) benefits for the riders, operators and delivery platforms. The advantage is profound and we are witnessing a mass move to electric delivery fleets across the world.
The above report measures all of that, and more.
But when an investor evaluates the conduciveness of any market to mass-electrification of the commercial fleets, what exactly should we measure? For us, the two basic metrics are the Fuel Affordability Ratio (FAR) and the Two-Wheeler Affordability Ratio (TWAR).
Fuel Affordability Ratio (FAR)
In any geography, how commercial E2Ws would propagate in the future would depend on the TCO advantage they bring, or do not. Fuel prices are an important aspect of deciding the TCO. In countries with low fuel prices, there is little incentive to switch to electric two-wheelers. So in a very simplified outlook, investors should be looking at how affordable fuel is in that country. The way we do it:
“We took the pump prices (USD/liter) and found the ratio of that to the GDP per capita (USD, PPP). To make the resultant number meaningful for discussion, we multiplied it by a million. That is the Fuel Affordability Ratio (FAR).”
The higher the FAR, the worse the affordability, the better the case for E2Ws. A lower FAR indicates a low incentive for making a switch.
Here, instead of considering the absolute pump prices, we peg them against the GDP/Capita on a PPP basis to get a relative measure.
it is likely that an oil exporting country would have a low FAR. In the Global Fleets Report (another purchase link), the countries with low FAR are Egypt, Turkey, Indonesia, Vietnam, Brazil, Thailand, and Mexico. The ones with moderate FAR are the Philippines, Nigeria, India, and Bangladesh. The countries with high FAR are Pakistan, the Ivory Coast, and Kenya.
FAR is very important for a country. A high FAR is often indicative that the country is a net oil importer and oil imports (in USD) are a major part of its import bill. With fragile economies, and a large part of the densely populated developong world is that, the oil import bill has a direct impact on the value of the currency. As we have seen in our analysis on Kenya, this is a cascading disater.
InsightEV – Global Electric Mobility
FAR is also representative of the most important pain point that a two-wheeler rider, especially one using the vehicle for commercial purposes, will have. It affects the TCO severely and is experienced on a daily basis, unlike the acquisition price which has a high hurt but one that happens only once in the lifetime of the two-wheeler.
Which brings us to the Two-Wheeler Affordability Ratio (TWAR).
Two-Wheeler Affordability Ratio (TWAR)
The TWAR is a simple measure. We define it as:
“the ratio between the retail price of the most popular two-wheelers in the country (in USD) to the GDP per capita in PPP terms (USD).”
It is a good indication of how affordable two-wheelers are in that geography. The higher the TWAR, the less the affordability. In all geographies, ICE 2Ws are the most popular models as the electric journey has just started.
TWAR is also a good indicator of how easy/difficult it would be for E2Ws to sell. Any E2W is at least 30% more expensive than a comparable ICE machine.
A low TWAR means that the affordability of ICE 2Ws is high and there would be little incentive to move to electric. In this analysis, the countries with lowest TWAR are Mexico, Thailand, Egypt, and Turkey. Then, Vietnam, India, Indonesia, and Pakistan have moderate TFAR values.
However, the TWAR is not as clean cut as the FAR is. When the TWAR is low means the country likes buying low cost two wheelers. These are also likely to be low-spec machines in the 50cc-125cc range. Any comparable E2W would drive up the cost by 20-30% and that dimninishes the attractiveness comprehensively.
Meanwhile, a high TWAR can mean two things. In most cases, it indicates that the affordability of two-wheelers is low. This is likely due to low industrilization, no local manufacturing, high logistics costs, high import duties, etc. that make two-wheelers less affordable. In this analysis, such countries are Kenya, Ivory Coast, and most other African economies.
The second reason may be the terrain and buyer preferences. They may simply be going for high specced, higher power motorcycles, driving up the purchase prices. Brazil and Dubai are such economies.
Arguably, delivery fleets should not be using high specced machines, but in our analysis we found that most delivery fleets are young and work on the Bring Your Own Bike (BYOB) model. It’s only after 5-7 years of operation and after one delivery two-wheeler lifetime that fleet operators and delivery riders start rating operating costs above acquisition prices.
It is also with maturity that delivery fleets start moving to complex deployment models like subscription, leasing, pay-as-you-go, etc.
A high TWAR market is also not directly conducive for electrification. A high-spec electric motorcycle has a much higher price delta over a similar ICE machine. For example, if a 250cc dual sport is the most popular motorcycle in a market, an equivalent electric motorcycle would easily have a 40-50% delta.
As an extreme case, if a 1300cc ADV motorcycle is your most popular two-wheeler, as is the case in Germany, a similar specced, simiilar capability, machine does not exist. if it did, there may be a 60-70% price delta.
In any such market, E2W adaption can only happen by offsetting the TWAR gap with FAR, that is offsetting the high acquisition prices against the lower operating costs. Any form of subscription model works very well.
We plotted a number of prominent economies on a graph against the TWAR and FAR scores.
In the above, the Quadrant I represents High TWAR, High FAR countries. They cannot afford fuel and cannot afford motorcycles. We can extend and say that they are weak economies and the grid may not be stable as well. Any electrification, and a lot of which is possible, would rely on a specialised GTM model. Motorcycle taxi fleets and delivery fleets can electrify fast.
The Quadrant II represents High FAR, Low TWAR. Electrification is possible but the target should be low specced commuter E2Ws. Motorcycle taxi fleets and delivery fleets may electrify fast.
The Quadrant III is challenging as the low FAR and Low TWAR scores are countering each other. At times, the local political will can define how fast the country would electrify. Vietnam is such a case where the country leads all the other ASEAN economies in electrification.
Quadrant IV is the most challenging. The Low FAR indicates that these are likely oil exporting rich countries. The high TWAR indicates that there is low industrialisation and very little local production. They may also be inclined to higher priced, higher specced machines. The Middle-East and North American economies are good examples. In such cases, any electrification of commercial two wheelers would be driven by political will or the business case of the delivery platform.
Global Fleets: Opportunities for Electric Two Wheelers
In the InsightEV Global Fleets: Opportunities for Electric Two Wheelers report, we counted the TWAR and FAR scores of 74 of the most populated geographies. That are the two pillars on which our evaluation stands on.
Things Don’t End Here
The other two pillars are the local politcal will, and the grid capacity and suitability. The TWAR and FAR are just the start of things. They are the basic qualifiers. The conduciveness of any geography to E2W adaption also depends on local factors like the political will (more important than anything else) and the grid capacity (important, but can be built).
The other, though very minor, factor is pollution. In countries where the share of renewables, clean energy is replacing unclean energy when we switch to E2Ws. Such countries have a greater incentive to move to E2Ws.
What is not captured in this country-level data is that there may be stronger reasons at the local level like a high concentration of two-wheelers in a city may be causing localised high pollution, a strong incentive to move to E2Ws locally.
