India’s transportation landscape is experiencing a seismic shift, driven by the explosive growth in the logistics and shared mobility sectors. This surge, fueled by a growing middle class with rising disposable income and the e-commerce boom, has led to the emergence of a diverse range of players catering to India’s evolving transportation needs.
In the logistics sector, established third-party logistics (3PL) providers and fleet operators like DHL and Blue Dart manage large-scale freight movement. However, new-age companies like Delhivery and Porter are disrupting the landscape by utilizing a wider range of vehicles, from large trucks to nimble delivery vans and bikes, to address the diverse needs of modern logistics.
The shared mobility sector has witnessed a similar boom in the last decade. The rise of ride-hailing giants such as Ola and Uber, bike taxi services like Rapido, intra-city bus solutions offered by players like Chalo and inter-city bus aggregators such as Zingbus point to increasing urbanization, digitalization, and changing consumer preferences.
This vibrant ecosystem caters to a wide range of use cases, from last-mile deliveries for e-commerce giants like Flipkart and Amazon to intra-city logistics for businesses of all sizes, food delivery, and point-to-point ride-hailing services to carpooling apps that optimize resource utilization. However, despite impressive growth, these sectors face unique challenges threatening long-term sustainability and profitability.
The roadblocks
To begin with, logistics companies grapple with low average order value (AOV) and limited profit margins. Indian consumers are price-conscious and many are new to online shopping, leading to a preference for lower-priced items. The cash-on-delivery option, popular especially in smaller cities, encourages smaller, trial orders. Free shipping and low-value essential goods exacerbate this problem, reducing profit margins, cash flow issues, and operational inefficiencies.
In the fiercely competitive logistics sector, margins are razor-thin. Companies often rely on economies of scale to achieve profitability, which pressures them to keep operational costs low, sometimes at the expense of driver well-being. This leads to driver unions advocating for better working conditions, higher wages, and job security. While these demands are legitimate, they add complexity to operational management and increase costs for companies. The logistics industry is also plagued by inefficiencies in supply chain management, poor infrastructure, and regulatory bottlenecks, which hinder seamless operations.
Shared mobility players face additional hurdles. Short-distance trips further impact their order values, making it difficult to generate a healthy profit margin, especially considering driver commissions and operational costs. Ride-hailing companies frequently face resistance from drivers when they attempt to raise take rates. Drivers argue that a higher take rate, which is the percentage of gross merchandise volume collected by the platform, reduces their earnings. Raising prices for customers isn’t a solution either, as it will lower customer demand. This creates a precarious balance for companies, which must ensure driver satisfaction while maintaining a healthy profit margin. Regulatory pressures further complicate the operational landscape for shared mobility players.
In both sectors, maintaining a balance between operational efficiency and cost-effectiveness is a constant struggle.
The rising cost of operating a fleet of internal combustion engine (ICE) vehicles doesn’t help either. Fuel prices are a significant concern, with consistently high global oil prices impacting profitability. Frequent maintenance needs and other operational expenses make matters worse. These challenges affect drivers’ earnings and the overall sustainability of the shared mobility business model, highlighting the need for a more economical and sustainable alternative.
Advantage EV
Electric Vehicles (EVs) present a compelling solution to many of the challenges. To begin with, EVs offer significant economic benefits over traditional ICE vehicles, including substantially lower energy costs and reduced maintenance expenses. The price of electricity is typically more stable than petrol or diesel, making budgeting easier and reducing exposure to fuel price volatility. Additionally, EV motors have fewer moving parts compared with ICE engines, resulting in less wear and tear. This translates to lower maintenance costs and less downtime for vehicles, leading to increased operational efficiency. EVs are also known for their reliability, further enhancing uptime and fleet productivity.
AVERAGE ELECTRICITY BILLING RATE BY TATA POWER ACROSS CATEGORIES (Rs / kWh)
The cost efficiency of EVs is particularly evident in urban settings, where stop-and-go traffic and short trips are common. EVs perform exceptionally well in these conditions, as they consume less energy and incur lower wear and tear compared with ICE vehicles. This makes them an ideal choice for last-mile delivery services and shared mobility platforms operating within city limits.
For logistics and shared mobility companies, transitioning to EVs can lead to considerable cost savings and improved profitability. The lower total cost of ownership (TCO) for EVs compared with ICE vehicles means that businesses can achieve higher margins and more sustainable operations. Furthermore, the longer lifespan of EVs contributes to better asset utilization and investment returns.
In the global pursuit of climate and sustainability agendas, electric mobility has also found itself at the centre of policy push. Be it the National Electric Mobility Mission Plan (NEMMP), 2020, which was launched in 2013, or the two phases of Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME India) scheme in 2015 and 2019, or the more recent production linked incentive (PLI) scheme for Advanced Chemistry Cell (ACC) Battery storage and auto/auto-components, or the reduction in the Goods and Services Tax (GST) on EVs from 12% to 5%, the Indian government has been actively promoting the adoption of EVs by offering various incentives and subsidies.
In addition to direct cost savings, EVs offer indirect financial benefits. EVs produce zero tailpipe emissions, contributing significantly to cleaner air, especially in congested urban areas. This aligns perfectly with the growing demand for sustainable transportation solutions and allows companies to demonstrate their commitment to environmental responsibility. Companies that adopt EVs can enhance their brand image and attract environmentally conscious customers. This can lead to increased market share and customer loyalty, further boosting profitability. Beyond the brand image, it is becoming increasingly necessary as the climate crisis worsens.
The climate call
Sample this: commercial fleets—including buses, trucks, and light commercial vehicles such as minivans, account for only 5% of India’s total vehicles, but produce nearly 80% of the country’s total particulate matter (PM) emissions. According to CII, India adds about 2.5 billion metric tons of carbon or ~7% of the global emissions. The ICE vehicular pollution contributes PM2.5 (having a width of less than two and a half microns), which amounts to ~40% of the total pollution in India.
Naturally, calls have intensified for an increased focus on environmental sustainability and the demand for eco-friendly transportation solutions.
Customers, including corporations, multinational companies (MNCs), and individual consumers, are increasingly focusing on environmental sustainability and the demand for eco-friendly transportation solutions. For instance, many MNCs have committed to reducing their scope 3 emissions—indirect emissions that occur in a company’s value chain—which includes transportation and logistics. EVs offer a compelling solution.
Globally, momentum is building to boost the use of electric vehicles for last-mile delivery. It is seen as driving faster adoption of EVs, according to Olaf Sakkers of New York-based RedBlue Capital, an early-stage investor in clean mobility startups. And companies have responded. Aligning with major sustainability goals, industry giants like Amazon, UPS, and DHL are pushing for the electrification of their fleets, with major changes by 2030.
A similar script is playing out in India. Amazon has set a target of deploying 10,000 electric vehicles on the road across India by 2025, while Flipkart, now owned by Walmart Inc., has announced plans to deploy a fleet of more than 25,000 electric vehicles and achieve complete electrification by 2030. Big Basket, a grocery delivery company owned by the Tata Group, has plans to electrify 90% of its fleet. Food delivery company Zomato partnered with Jio-bp to help it electrify its entire fleet by 2030. Its rival Swiggy partnered with Taiwanese battery-swapping company Gogoro in August 2023 to switch to electric intelligent scooters.
In the shared mobility space, Gurugram-based BluSmart uses only EVs in its fleet and claims to have half a million customers. Its larger peers, Uber and Ola Cabs have also ramped up their EV push. Uber launched its Uber Green service in June 2023, planning to add 25,000 electric cars to its platform and roll out 10,000 electric two-wheelers. In addition, Uber has also led a $20 million investment in Everest Fleet, a leading fleet manager with a large focus on EVs. Uber’s homegrown rival, Ola Cabs also announced its entry into the premium EV category with a fleet of 10,000 electric cars. It is also getting electric scooters on its platform from its sister company, Ola Electric. Last year, the government launched a $7 billion initiative to support 10,000 new electric buses across 169 cities under the PM-eBus Sewa initiative. Buoyed by the policy push, manufacturers like Tata Motors and Ashok Leyland are ramping up production of e-buses to help the government reach its target of 50,000 e-buses by 2027.
In some regions, regulatory pressures are accelerating the shift to EVs. Take Delhi, for example. In November 2023, the Delhi government notified a cab aggregator and delivery service provider policy, which mandates all cab aggregators and delivery service providers to switch their fleets entirely to electric by 2030. These measures are designed to reduce the city’s air pollution levels—which are among the worst in the world—and encourage the use of sustainable transportation modes.
However, Delhi’s aggregator policy transition timelines may not adequately reflect how fast vehicle owners are adopting EVs to allow aggregators to make the shift. Forced adoption without adequate support will only lead to resistance, operational challenges, and may push drivers into the unorganized sectors. Policy intervention, therefore, becomes a crucial component in this entire puzzle.
Policy push
So far, the central government has been supportive of the EV push, at least for the most part. Be it the FAME policy, PLI, or rebate in GST rates, the government has already been instrumental in driving the adoption of green mobility. But there is still some ground to be covered.
To begin with, a simplified and transparent regulatory framework is essential. Another crucial area is workforce development. The government can provide more support for skilling and training programs, creating a workforce with the necessary expertise for EV production. It could also facilitate technology transfer and collaboration between domestic and international players.
Finally, a robust energy infrastructure is critical for the widespread adoption of EVs. This includes the development of extensive charging networks and battery-swapping stations to address range anxiety and ensure the convenience of EV usage. Investment in renewable energy sources to power these charging stations will further enhance the sustainability of the EV ecosystem.
The current charging infrastructure in India is inadequate to support large-scale EV adoption. Therefore, significant investments are needed to expand the network of public and private charging stations. Strategic placement of charging stations in urban areas, highways, and commercial hubs will be crucial to ensure accessibility and convenience for EV users.
Battery swapping stations offer a viable alternative to traditional charging stations, especially for light commercial fleets and shared mobility services. These stations allow for quick battery replacements, minimizing downtime and maximizing vehicle utilization. Collaboration between EV manufacturers, battery suppliers, and service providers will be essential to develop and scale battery swapping infrastructure.
In addition to physical infrastructure, advancements in smart grid technology and energy management systems are necessary to optimize the integration of EVs into the power grid. These technologies can help manage peak demand, ensure grid stability, and enable the use of renewable energy sources for EV charging.
The future of fleets is electric
The transition to EVs in India’s logistics and shared mobility sectors is not just inevitable; it’s essential for creating a more sustainable and profitable future. Embracing EVs can result in increased profitability, a cleaner environment, and a competitive edge in a rapidly evolving market. I would add to what the founders of RedBlue Capital have said and say that last-mile delivery and shared mobility will drive faster adoption of EVs. Of course, challenges like range anxiety, limited charging networks, and overdependence on imports remain, but it is encouraging to see fleet electrification in India gaining momentum, as organizations acknowledge the need to reduce carbon emissions and adopt sustainable practices. With concerted efforts from both the public and private sectors, supported by favourable policies, sufficient charging infrastructure, and growing awareness, the shift to electric fleets is not only inevitable, but it will also play a crucial role in steering India towards a greener and more sustainable transportation sector.
