A case for last mile electrification

A recent visit to Delhi to attend an electric vehicle (EV) forum, confirmed the need to move away from conventional IC engine vehicles. An AQI above 380 is a clarion call towards electrification. Last mile delivery is one of the low hanging fruits that can be quickly electrified due to the favourable total cost of ownership (TCO) for electric vehicles. With more than one million two wheelers engaged in last mile delivery, which is poised to double to two million over the next couple of years, the carbon footprint is substantial. 

With an average of 80-120 kms of ridership per two-wheeler, the economics also work out very well. Project “Shoonya” by the Government and commitment of companies to green deliveries are tailwinds towards EV adoption.

Along with the TCO and environmental benefits, the integration of innovative technologies in electric two wheelers (e2ws) are another factor driving their prominence in last mile delivery. From GPS tracking systems for route optimisation to smart features enhancing rider safety, these technological advancements streamline operations and improve the overall delivery experience. Fleet management systems provide real-time data, enabling companies to monitor and optimise their delivery networks efficiently.

Challenges of EV Adoption

Shifting from internal combustion engine (ICE) to EV in the last mile delivery ecosystem has multiple challenges. Range anxiety, lack of charging infrastructure, lack of battery interchangeability are some of them. However, for last mile rider, the biggest challenge is shifting to a new technology with all the associate risks of battery life and uncertain resale value of the asset. The current model where in the rider brings in his own asset (the bike) will
not work.

Adaption rates will remain low unless a ‘Ridership’ model is created. In short, the ecosystem has to shift from ‘Ownership’ to ‘Ridership.’

Ridership model

The entire landscape of the last mile delivery is changing and new players such as fleet operators, rental companies, third party logistics (3PL) are driving the ridership model. Riders are able to get all advantages of an EV without the associated risks of battery life as well as resale value. Delivery companies are now facilitating their rider’s shift to EVs, by tying up with these companies. While this appears to be a win- win situation, a key question that remains to be answered is ‘who owns the asset?’

New age financing

The big paradigm shift in EV last mile delivery is the asset ownership. All ICE delivery companies are asset light with riders bringing in their own asset. A typical rider buys a second-hand two-wheeler for around Rs 45,000 (facilitated with a loan from likes of Bike Bazaar) and starts deliveries. Many of them over a period of time decide to move away and are able to get a decent resale value for their two wheelers. This obviously is not possible in the EV ecosystem due to reasons enumerated above.

Newer asset ownership and financing models will have to emerge to facilitate EV transition. With GST at five percent, it is the right time to lease electric vehicles.

In a county where leasing is in its infancy this needs specialist companies to create appropriate leasing models. Similarly special purpose vehicles will have to be created to own the assets.

All of this will need a flow of dedicated green funds and require operating expertise much beyond what a Finance company possess today. Specialised two-wheeler life cycle company like Bike Bazaar which will own, operate and lease EVs in the last mile delivery eco systems will lead the drive towards zero emissions.

This blog was first published in Autocar Professional's December 15, 2023 issue.