Electric two-wheelers, with their affordability, ease of access, and environmental benefits, are leading the charge to vehicle electrification around the world. Electric two-wheeler markets in Asia are loaded with potential. Annual sales in the Indian electric two-wheeler market, the second-largest globally, are expected to increase from one million micromobility units in 2023 to seven to nine million units in 2030. Southeast Asian (SEA) countries are expected to have combined sales of another three to four million units (Exhibit 1).
Meanwhile, Europe is also pushing the adoption of electrified micromobility en masse. European OEMs have entered the market, albeit more slowly, with high-performance electric motorcycles. This premium subsegment of the electric two-wheeler market has the potential to reach annual sales of 500,000 to one million units by 2030. In both regions, promising trends in regulation, increased numbers of micromobility start-ups, and rising interest from consumers and investors signal that the electric two-wheeler market has valuable staying power.
However, OEMs in Asia and Europe face sizable challenges in securing their share of the market. Despite the appeal of greener technology, consumers still want the affordability and performance of an internal-combustion-engine (ICE) vehicle, a demand OEMs struggle to meet as they build out their electric-vehicle (EV) capabilities. OEMs also face heavy competition from China and a shortage of scalable, high-performance products.
Navigating the evolving electric two-wheeler landscape suggests OEMs could benefit from strategic partnerships across regions. This article will discuss the new realities, challenges, and opportunities for European and Asian OEMs as well as how collaborating could harness their unique strengths to effectively address the complexities of the rising electric two-wheeler market.
The main growth drivers and the move toward electrification in the electric two-wheeler market
Three catalysts of sustainable and profitable growth have emerged in Asian and European electric two-wheeler markets.
Early and bold policies have encouraged EV manufacturing and adoption
Government policies are propelling the growth of EV markets. Some SEA countries introduced subsidies in 2022 and 2023 that quadrupled EV penetration, resulting in total EV sales of about 70,000 units in Thailand in 2023. Thailand’s government is also offering tax holidays and reduced import duties to global OEMs as incentives for manufacturing in the country.
Similar trends have manifested in electric two-wheeler markets. For example, the Indian electric two-wheeler market gained speed with the FAME II subsidy hike in 2021, which helped push unit sales from 100,000 to one million annually. The government of India has encouraged local manufacturing with recent initiatives such as incentive schemes for automotive manufacturing worth $5.5 billion, which ultimately attracted much more ($9.6 billion). As such, the electric two-wheeler market in India is highly competitive, with four OEMs capturing almost 80 percent of the marketplace (Exhibit 2).
Similar policies have been implemented in Europe. Italy’s renewed subsidy scheme focuses on scrapping older and less environmentally friendly ICEs. Spain’s subsidy scheme also focuses on scrappage, with additional support for lower-income individuals. And in Finland, import and annual taxes for EVs have been significantly reduced.
Consumers want greener, smarter mobility solutions
Consumers are increasingly wanting alternative and sustainable options for mobility. In McKinsey’s Mobility Consumer Survey 2023, 62 percent of respondents in Europe said they are more likely to purchase an electric two-wheeler in the future, while the shift is even stronger in India, at 86 percent (Exhibit 3).
The number of mobility start-ups and interest from investors is rising
Thanks to supportive policies and consumer interest, local entrepreneurs are making significant headway in Asian electric two-wheeler markets. Between 2011 and 2021, the Asian electric two-wheeler market gained more than 50 electric two-wheeler start-ups, which made up more than 10 percent of all electric two-wheeler start-ups in the world. Europe has also seen significant activity. European electric two- and three-wheeler start-ups have raised about 5 percent of total funding in the sector in the past five years, and European micromobility start-ups are among the most well-funded, with 33 percent of the top micromobility start-ups globally being of European origin.
This tracks with global trends. From 2018 to 2022, micromobility received about $8 billion in investments. Market volatility as a result of COVID-19 has caused the number of deals to decrease in the past few years, but the median size of deals has more than quadrupled, from $1.0 million in 2018 to $4.23 million in 2022. High-speed scooters are also attracting investments from private equity and venture capital funds, as well as smart-mobility service providers. For instance, one company focused on two-wheelers in India raised more than $1.5 billion during this period.
Competition from new entrants has disrupted incumbents and prompted nontraditional players to enter the EV value chain. For example, in 2021, a major Thai oil and gas player expanded into the EV space via multiple partnerships, including with an electronics manufacturer and an EV start-up, and announced its own EV mobility e-commerce business. In 2022, a major energy company in Indonesia set up its EV arm and launched a mass-produced electric motorcycle.
The changing realities for OEMs
Against this backdrop of rapid growth, OEMs face immediate challenges to their progress. McKinsey market analysis has found three critical challenges for OEMs: increasing pressure to lower costs, lack of scalable high-performance products, and competition from China.
Increasing pressure to lower costs
Pressure is mounting for OEMs to focus on cost efficiency and product redesigns (Exhibit 4). Electric two-wheelers have yet to achieve parity with the total cost of ownership and performance of ICE two-wheelers. This presents a significant barrier because 40 to 50 percent of Indian and European respondents in the McKinsey Mobility Consumer Survey 2023 ranked pricing as one of their top three concerns when switching to an electric two-wheeler.
Consumer price sensitivity is coupled with receding government subsidies after initial electric two-wheeler sales have been boosted. To compensate for the removal of subsidies, for example, Indian electric two-wheeler OEMs would have to lower their products’ average bill of materials to less than $1,000, a 40 to 50 percent reduction from today’s average costs of $1,500 to $1,600. Reducing costs would involve making design, procurement, and manufacturing changes.
European OEMs do not face this challenge as acutely, given the lower price sensitivity in the region. Instead, European OEMs are primarily challenged by their lower scale because electric two-wheelers are typically used for recreational purposes in Europe but as utility vehicles in Asia.
Lack of scalable high-performance products
Despite the influx of newcomers and increased momentum shown by established brands, new product launches for electric two-wheelers have been slow across all regions as subsidies have been reduced. Both European and Asian companies share the common challenge of the absence of a scalable product, with European companies facing a lack of commercial scale in the electric two-wheeler market and Asian companies facing cost premiums, changing technologies, and irregularities in the supply chain.
Increased competition from China
While Chinese electric two-wheeler OEMs have not been active in India, they have established manufacturing in Indonesia, Malaysia, Thailand, and Vietnam. In fact, in all these countries, at least one out of the top five electric two-wheeler brands is Chinese. In Europe, Chinese companies have similarly established a presence in major EU cities in e-scooter and micromobility segments.
Strategic opportunities for collaboration between European and Asian OEMs
Collaboration between European and Asian OEMs can help both groups capitalize on their strengths for their mutual benefit. Currently, only a few OEMs have made investments in the electric two-wheeler market in Europe. Regulations such as incentives and tax breaks provided by Asian governments present European OEMs with new opportunities for investments and joint collaboration with local companies. By establishing local manufacturing of EVs in Asia, European OEMs could benefit from economies of scale unavailable in their home region. Asian OEMs that are already well established in electric two-wheeler manufacturing can benefit from exploring alternative ways to generate revenue by monetizing their existing platforms and securing needed technology through partnerships with European OEMs.
Strategic opportunities for European OEMs
European OEMs have strategic opportunities in two areas: establishing manufacturing in India and SEA and partnering with Asian OEMs to become competitive in respective home markets.
Explore opportunities to optimize production costs through manufacturing in India and SEA. Evaluating Asian markets for opportunities to enable more efficient and cost-effective manufacturing could help European OEMs as they seek to establish electric two-wheeler production. India and SEA markets represent an annual demand of ten million to 11 million units, but reduced subsidies have resulted in consolidation of market share. By producing for Asian markets, European OEMs could create an entry point to this large demand base. Moreover, they could improve their competitive presence in the European market as they build economies of scale. This would be difficult to achieve in European markets because of low electric two-wheeler demand and, consequently, low production levels. In addition, with increased European competition, especially from European premium brands, Asian electric two-wheeler buyers will have more purchasing options as European and local players innovate.
These investments have become common in the personal-vehicles and auto components space, with the following examples: one European component manufacturer that supplies American and Japanese multinational car manufacturers doubled the size of its production unit in Pune, India; a South Korean multinational car manufacturer is deepening its capabilities in India to position the country as a global hub for developing its small cars; and a leading European manufacturer of electric two-wheeler components has set up a manufacturing facility.
Pursue joint product development to gain shared access to the annual market, with a size of 12 million to 14 million units. Partnerships between European and Asian OEMs can unlock cost efficiencies, increase automation, reduce time to market, and create synergies within the growing EV ecosystem. A few such partnerships are emerging across the EV landscape. Locally, an Asian four-wheeler player and a European multinational company are collaborating to develop powertrains for zero-emission vehicles. European companies can develop similar relationships with local Asian players. For example, the European components manufacturer described above is partnering with a local player to develop a presence in the region, and two leading four-wheeler companies from Europe and India have promised an exciting collaboration to develop a modular electric-drive-matrix platform.
Strategic opportunities for Indian and SEA OEMs
Indian and SEA OEMs have strategic opportunities in two areas: establishing alternate revenue streams by monetizing their platforms and partnering with European OEMs to secure technology for battery innovations, system integration, and vehicle to everything (V2X).
Establish alternate revenue streams by monetizing platforms to scale up faster and mitigate cost pressure in the near term. To scale up both markets faster, Asian OEMs could supply their cost-effective powertrains to European OEMs, unlocking additional monetization avenues and mitigating cost pressures stemming from rising input and manufacturing costs in the near term. By catering to demand from European companies, Asian OEMs could distribute their increased costs over a larger number of goods.
Innovation could unlock further alternative revenue streams. Although EV four-wheeler manufacturers are already developing modular skateboard platforms to sell to third parties, the electric two-wheeler space still has white spaces. Indian companies, in particular, are well positioned to capture this opportunity by leveraging scale and cost efficiencies.
Secure needed technology by partnering with European companies for latest battery innovations, system integration capabilities, and V2X. Manufacturers in India and SEA could ensure secure technologies for EVs by partnering with European companies to develop the latest battery technology, system integration capabilities, and V2X. For example, European and American battery developers and manufacturers are working to innovate across the battery value chain and could add an edge to the offerings of the Asian OEMs. Similarly, engineering and R&D companies can offer access to highly specialized technical expertise in mechanical and digital engineering.
As the electric two-wheeler market charges ahead globally, a joint effort between European and Asian OEMs becomes a compelling prospect. This collaborative front not only navigates challenges such as cost pressures and market competition but also harnesses the unique strengths of each region. Together, European and Asian OEMs can foster innovation, access shared markets, and contribute significantly to the sustainable evolution of the electric two-wheeler industry.
