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Friday April 12, 2024

Giving e-bikes a boost

By Syed Akhtar Ali
January 23, 2023

The government has announced a financing package to promote the sale of e-bikes. These environmentally friendly bikes have the potential to contribute towards achieving environmental objectives, industrial growth and reduction of petrol imports and consumption.

E-bike manufacturing is a volume business, and the Pakistan market has the required potential volume. There are 26 million petrol bikes on the road, and around two million new bikes are sold every year. Also, it is relatively cheap to own and operate an e-bike than a conventional motorcycle. While the upfront purchase cost is higher than that of conventional motorcycles – at least 30-50 per cent, the fuel cost is lower.

In this regard, an affordable financing scheme with some interest rate subsidy may be beneficial. It is also a good omen that there is continuity of policy in this respect, irrespective of political changes.

E-bikes have a large market share in the developing and poor countries of Africa, South America and Asia-Pacific. It appears that the EV car market is small and possibly not feasible either for imports or for progressive manufacturing. The story of progressive manufacturing of automobiles is not a successful one. Small volumes have been a major constraint in building a viable automotive industry.

There has been some success in small cars where the price and volume factors are dominant. There have been quite a few successes in the area of agricultural tractors, which are being manufactured and even exported. The price and volume factors are visible in this case also although there is an added factor of the peculiarity of the tractor market. Cheap credit financing has also promoted the tractor market and its local manufacturing. The tractor industry has also benefitted from a lack of dominance and oligopolistic market, something that has been seen in the case of cars.

The import promoting policies of the last two-three decades under the WTO regime and the IMF-World Bank ideology and the entry of cheaper Chinese goods has not only slowed down local manufacturing initiatives but also damaged the timely emergence and strengthening of the industrial base. The result and consequence is obvious in the prevailing economic circumstances focusing around current account deficit – imports of $80 billion vs exports of $36 billion. High energy imports are one of the leading causes of this problem.

EV expansion may help alleviate these problems to some degree. EV initiatives ought to be associated with the localization of energy sources as well. The fast-track solar PV programme may help achieve some targets to a great extent. Progress in solar PV has been slow in the last few years partly due to the over-capacity issue, which is a common problem in electricity generation due to the lumpy nature of supplies involving 1000-1300MW capacity power plants in the fossil fuel sector. E-bikes have an especially attractive aspect, and can boost and encourage roof-top solar which would be much more economical for e-bike users. One or two panels without an inverter might be a good package for DC systems. A subsidized electricity tariff for e-bikers in off-peak periods may also be considered.

Another market for EVs are trucks and buses. These vehicles consume high volumes of diesel. These are expensive items, operating in a tough and competitive market. These would also require a well-spread charging network. Recently, the Sindh government bought a fleet of EV buses for Karachi’s public transport network. Authorities have installed charging infrastructure in bus garages. For a government, upfront costs which may be as high as $300,000 may not be as big an issue as it may be for the private sector.

International subsidized financing lines can be found for financing EVs. The conversion of diesel buses can be a viable approach since diesel engines are to be replaced every five years. At this replacement juncture, the conversion of diesel buses to the EV system may be a feasible approach. Only institutional operators may be able to own and operate EV buses due to the issue of expensive charging infrastructure.

If one starts with an initial production rate of 175,000 units per year with a growth rate of 10 per cent per annum, one would get the annual sales of 341,000 units. It is much lower than the required sales of 2 million per year by FY 2030 (50 per cent market share of e-bikes). One would have to start with an initial production of 400,000 units per year with an annual production growth of 25 per cent per annum to be able to get the required production rate of 2 million units per year. More aggressive policies may have to be designed in the mid term to achieve these targets.

This shows that it may not be feasible to achieve the 2030 target of a market share of 50 per cent in new e-bike sales. It may be worthwhile to explore other policy options as well, such as conversion of the existing motorcycles to e-bikes; it costs Rs50,000 for one such conversion. These rates may go down if the market expands. Many countries, including Indonesia, have made conversion a part of their policy programme. In India, conversion is being pursued in the bus sector; one conversion costs INR6 million. There are plans in Karnataka to convert 30,000 diesel buses to e-buses by 2030.

India has 200 million plus motorcycles. In FY2022, 231,338 units of e-bikes were sold. In India and Indonesia – two countries with a large e-bike market – there are 10-12 e-bike manufacturers. Contrary to this, in Pakistan, with a much smaller market, licences have been issued to 23 companies for e-bike manufacturing. It would certainly reduce the individual market shares of manufacturers to an uneconomical capacity. While companies may be making profits, the goal of 90-100 per cent local manufacture will remain elusive if this trend continues. Hopefully, some licence holders may not turn up, ultimately reducing the prospects of market segmentation.

The e-bike market provides a rare opportunity for localization. It should not be lost in market fragmentation. The government may like to explore the feasibility of auctioning two or three licenses for a 100 per cent e-bikes production under an incentives package. It should not be a long-drawn deletion programme, and should be attractive enough for large international companies to make significant FDI. There are three major parts of e-bikes: batteries, motor and electronics in addition to the body, wheels and steering etc. These three items may be bought in. Separate licencing may be done for these parts. There may be separate programmes for these components.

There is another perspective as well. The motorcycle and e-bike industries have the same requirements of body-making, which is already well-developed in the country. E-bike manufacturing requires three main components. Does the e-bike policy mean encouragement of the production of these three components? It gives a totally different complexion to the policy design, away from product to components.

Also, motorcycles are one of the top 10 product sectors for exports. It has not happened yet, or very little has happened, but the country has some potential. Africa, Middle East and South America are the potential export destinations. There is a transition period between motorcycles and e-bikes. All production policies in this sector have to be designed keeping export potential in mind.

The writer is a former member of the Energy Planning

Commission. He can be reached at: akhtarali1949@gmail.com