Resale of electric 2Ws and 3Ws in India – Secondary market for electric vehicles

This article talks about the resale of light electric vehicles, i.e. two-wheelers and three-wheelers powered by Lithium-ion batteries. It covers re-selling the pre-owned vehicles during the warranty period, after the warranty period and issues with establishing a secondary market for EVs.

While the resale value of a vehicle is a valid consideration for customers, this is a point of concern for financial institutions as well. Electric vehicles go for secondary sale in two scenarios:

– During the expected lifetime of battery and vehicle – In case of vehicle loan default, the financier takes ownership of the asset or if the EV owner wants to sell the in-warranty vehicle for any reason. 

– After the battery warranty has expired and battery life is over.

1. Re-selling the vehicle during the battery warranty period 

What is the current infrastructure for second-hand sales in case of a loan default when financier takes over the asset? 

a. Financing – a problem area for EVs

The financing institutions, banks, NBFCs are reluctant to finance EVs. One major reason is the quality of vehicles. The EV space has been dominated by low-end imports from China which offer easy market entry with low investment, making financers wary of the life of the vehicle. However, financing support is critical to developing a sizable EV ecosystem in the country.

“In India, as much as 80% of personal vehicles and more than 90% of all commercial vehicles are sold through financing options. Financers concerns are understandable and EV industry needs to address those by offering robust high-quality electric vehicles, ” says Deb Mukherji from Omega Seiki Mobility. Financing companies are worried about their EMIs being paid on time as well as the realisation of asset value in the case of NPA as they look to cover their risks by way of resale.

b. Pandemic exacerbates financers’ woes

Financers have also reported an increase in loan defaults post-pandemic. Sameer Aggarwal from Revfin shares,  “From a loan perspective, we were getting 80% of the outstanding principal back prior to lockdown. Now, it has come to about 60%”.

This post-pandemic Increase in loan default further exacerbates the financers’ difficulties given the very limited demand for second-hand passenger 3Ws. Sameer shares that, “Prior to lockdown, it was possible to sell an almost new vehicle in good running condition in a couple of weeks for up to INR 1 lakh, with an average sale price around INR 70K. However, post lockdown with lower incomes for drivers, there is very little interest in second vehicles. The price has gone down and a running vehicle can take 3-4 weeks to sell at an average sale price of INR 55K”.

One of the reasons for the lower price is degraded battery quality as vehicles were out of use for a prolonged period during the pandemic, leading to battery packs losing efficiency. To counter this, Manappuram Finance is reselling the repossessed vehicles through original dealers. 

“The vehicles are refurbished by the dealership. We take an advance from the dealers to ensure they regularly charge the batteries to maintain it so the vehicle can be re-sold at a decent price”, says Dhirraj Agrawal of Mannapuram Finance. This way the financers can avoid the loss on the asset. From a buyer’s perspective, a discount in the range of INR 50K for refurbished vehicle acts as an incentive.

c. More demand for electric loaders and 2Ws

With delivery services using EVs rapidly picking pace, sometimes repossessed passenger 3Ws are converted to loaders to make a quicker sale. It does entail extra expense in re-doing the vehicle and registration changes, but the vehicle is sold easily in comparison to a passenger 3W.

It is not as challenging to handle repossessed 2Ws, given the rise of electric 2W fleet start-ups country-wide. Micro-mobility services providers and electric 2W aggregators are ready to lap up the repossessed electric 2Ws available at discount.

2. Re-selling the vehicle after the battery warranty period

We spoke to industry leaders and consultants on their views on how to handle the EVs after their battery warranty and life is over? Does it make sense to add a new battery to a 4-5-year-old vehicle or is it better to scrap?

We received mixed opinions. One reason for that is the nascency of EVs in India and the lack of case studies to determine the best way forward.

Nishanth Dongari – Founder of Pure EV, told us that vehicle warranty runs for 30,000 km to 40,000 km depending on the model of the high-speed electric scooter. Their company is currently studying the vehicle and powertrain data from customers who have driven more than 25,000 km to understand the behaviour of different parts (powertrain components, battery, BMS, connectors etc) over time upon usage.

Battery and motor cost make up for more than 60% of the EV cost. After 5-7 years of usage, the battery reaches the end of their first life and can be refurbished to suit a secondary use. At the same time, the motor and other drivetrain parts also wear out, along with the metallic and plastic parts of the vehicle. Nishanth informs that a high-speed electric scooter provides a saving of INR 60K to 75K over its lifetime of around 5 years. “Given the rate of advancement of EV powertrain technology, I believe it is best to invest in a new vehicle at this time rather than refurbishing an old one”, he adds. While the battery goes for reuse, the other parts need to be systematically taken apart and handled.

Nitin Shrotri, CEO at automotive consulting firm Quantum Leap Consultants feels differently. He feels that although it will take time considering the product maturity and life cycle of EVs, a market of pre-owned EVs will surely come up in India. “The batteries (most expensive part of the EV) are warranted for 5 years on an average, and the vehicles would still have a lot of usable life left before it needs to be scrapped. Normal allowable life of ICE-powered 2W/3Ws is around 15 years. As of now, none of the e-2W or 3Ws has reached this point, hence the trend is yet to occur and be observed”, says Nitin.

Establishing secondary market for EVs

Currently, EV market is fragmented with small independent dealerships which makes it difficult to create proper infrastructure for second-hand sales. On top of it, the warranties, quality and strength of the vehicle vary significantly by the OEM, vehicles many times lose form because of rough use or the batteries degrade.

At present, there is hardly any formal infrastructure for the sale of pre-owned EVs. While chains like Mahindra First Choice and Shriram Auto Mall have started providing valuation and storage facilities, the sales part requires more support. “Players need to display and actively sell EVs in their showrooms after proper refurbishment, just like Maruti True Value”, feels Sameer.

EV secondary market can benefit from multi-brand chains. Multi-brand, multi-segment outlets e.g. Sahara Evols, CK Motors are already coming up in primary EV sales. EV secondary market needs similar formal push through an organised multi-brand chain to standardise the processes of refurbishment and re-selling of pre-owned vehicles.

After initial use of 5 years, factors like vehicle specs as compared to latest offerings in the market, distance covered, vehicle condition (body, tyres, power train etc) will all play a part in determining the next step for those EVs. According to Jeenit Mehta, who owns a dealership of Kinetic Green in Chandigarh – The scrap value of an electric vehicle is between INR 5,000 to 15,000 excluding battery depending on the condition of the parts. Replacing the batteries and other worn-out parts rather than scrapping the vehicle altogether could be both economical and environmentally friendly, however, this will need OEM support, foresightedness and an enabling ecosystem.