A Strong Market for Electric Two-and-Three-Wheelers

The sales figures for electric two-and-three-wheelers may seem modest at first glance. The electric two-and-three-wheeler market was valued at approximately $97 billion, or 4 percent of global automotive sales. The sector has momentum, and global sales of these vehicles are growing at more than 14 percent annually.

It’s impossible to generalize about global sales trends because transportation patterns and preferences vary widely from place to place, but some country-specific developments are striking. China, for example, now accounts for about 30 percent of the global market for light-duty vehicles. What’s more, more than 80 percent of China’s two-wheelers are electric, making it by far the dominant market in this category. The story may soon change, however, as electric two-wheeler growth is plateauing in China and surging in the European Union, Latin America, the Middle East and North Africa, and Southeast Asia.

India sells by far the largest number of electric three-wheelers, which now account for about half of all rickshaws in the country. By 2026, about 80 percent of India’s three-wheelers will be electric. One caveat: As more light commercial vehicles become electrified, they could become the default option for freight transport, provided their performance and economics improve.

The forces driving electrification

Electrification is being driven by a mix of regulatory push (policies designed to create demand) and consumer pull (innate features or sales models that attract consumers). Here are the elements shaping the EV market:

Falling battery prices and lower total costs of ownership

Battery costs typically account for about 40 percent of the bill of materials for EVs, but that could change. Over the next few years, prices are expected to drop to $90 to $130 per kilowatt-hour, from the current $220 to $280 per kilowatt-hour. This shift will reduce the total cost of ownership and potentially stimulate demand, particularly among B2B buyers and members of the lower and mid B2C segments.

Emergence of innovative go-to-market models

Some new models, such as those involving battery-as-a-service (BaaS), could reduce the upfront acquisition costs of electric two-and-three-wheelers. In addition to lower prices, consumers may also appreciate the convenience of BaaS, as emerging battery solutions allow refueling in less than a minute. Future market share will increasingly depend on pairing one of these innovative models with the right product.

Appeal of high-end connectivity

Several players have created connected electric two-wheelers, and more are in the works. One company in India, for example, has created a popular second-generation e-motorbike. For consumers in the premium-2W segment, a high-end EV with connectivity can be much more appealing than a standard ICE vehicle.

Of course, other powerful forces are also shaping the market. McKinsey research shows that electric two-and-three-wheelers have surged in popularity worldwide since COVID-19 began to spread, in part because people are avoiding subways and other shared mobility solutions. That said, the growth of shared mobility and micromobility can also benefit the sales of electric two-and-three-wheelers, as has been seen in India, Southeast Asia, and other regions in recent years.

A highly fragmented and evolving landscape

The electric two-and-three-wheelers landscape contains multiple players, all competing fiercely for market share. New entrants dominate in many regions and can prevent original equipment manufacturers (OEMs) from achieving the same lead they have in ICE vehicles. For an OEM, using a scalable, modular open-architecture platform will minimize costs and complexity while enabling differentiation, as shown in the following table:

Click to expand. Types of platforms and vehicle types with their corresponding requirements. PEM Motion (2024)

For infrastructure, OEMs could work with battery-swapping companies, charging-solution providers, and others to develop the ecosystem. Such open business models that include partners are already becoming more popular because they offer so many benefits. In the next picture, you will see a sample of a business model for a battery-as-a-service (BaaS) provider:

Click to expand. Business Model for a BaaS provider. PEM Motion (2024)

In addition to established OEMs, many other industry participants across the value chain will find new opportunities related to electric two-and-three-wheelers.

First, consider energy companies and utilities. As fuel demand declines, these businesses could hedge their positions by developing or acquiring EV charging infrastructure. They could also capture upstream value by building capabilities in areas such as battery development and battery management systems.

Conclusion:

The electrification of two-and-three-wheelers continues to gain traction around the world, particularly in emerging markets. Both established OEMs and startups will find opportunities to capture value in this competitive but exciting market, and other industry players could also see strong growth. Equally important, two-and-three-wheelers will provide many consumers with affordable, environmentally friendly transportation options for the first time. By following the strategies we have outlined, industry players can contribute to the momentum of this promising sector.