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Booming Market Spurs Africa EV Investments

Africa's electric two and three-wheeler market with opportunities for venture capitalists and financial institutions
June 12, 2024

Africa's electric two and three-wheeler (E2&3W) market is witnessing remarkable growth, creating substantial opportunities for venture capitalists and financial institutions. According to the Cleantech Group, the market's expansion is driven by increasing demand for more than half of all motorcycle sales and presents both significant opportunities and challenges.

The motorcycle landscape in Sub-Saharan Africa has transformed dramatically, with the number of motorcycles skyrocketing from fewer than 5 million in 2010 to over 27 million in 2022. While electric models currently make up only a small fraction, their market share is projected to reach 50% of all motorcycle sales by 2040. This surge is primarily fueled by the lower operational and fueling costs for commercial fleets and individual riders.

Commercial usage dominates the motorcycle market in Africa, with up to 90% of motorcycles serving as taxis, delivery vehicles, and more. The balance between individual ownership (B2C) and fleet ownership (B2B) varies by country, reflecting diverse local needs. Two primary business models for charging these vehicles have emerged: outright vehicle sales or leases, and vehicle sales or leases excluding the battery, paired with battery-swapping services.

This rapid growth in the E2&3W sector is not only boosting direct economic opportunities but also generating indirect employment. The commercial use of these electric vehicles has become a major employment source in several African countries, where as many as 60% of riders are under 35 years old. This trend is helping to address the youth unemployment crisis faced by many African nations. Furthermore, the E2&3W market is creating auxiliary jobs in areas such as vehicle maintenance, financing, sales, and charging infrastructure.

"Africa's electric two and three-wheeler market presents a tremendous opportunity for venture investment and sustainable economic growth," said Noah Ross, Senior Consultant at Cleantech Group. "The most significant innovation is battery swapping, which addresses barriers around price and electricity access. Other key innovations include vehicle design and ownership models tailored to the African context."

Demand-Side Drivers: The appeal of E2&3W vehicles is enhanced by their total cost of ownership approaching parity with traditional internal combustion engine (ICE) motorcycles, increased profitability for riders and fleets, and the growing demand for products suited to local conditions.

Demand-Side Barriers: Challenges remain, including the high upfront cost of electric vehicles, lack of buyer incentives, range anxiety, and limited charging infrastructure.

Supply-Side Drivers: Tax reductions for locally assembled EVs, lower energy tariffs for electric mobility, and the massive potential customer base of 30 million motorcycle taxi and delivery riders in Africa are significant growth drivers.

Supply-Side Challenges: However, the market faces hurdles such as insufficient financing, especially from equity investors, skill gaps in EV operations and maintenance, and policy bans on two-wheel taxis in certain countries.

Africa's E2&3W market is at a pivotal moment, offering vast opportunities for investors and entrepreneurs ready to navigate its unique challenges. As the market matures, innovations like battery swapping and locally adapted vehicle designs will play crucial roles in overcoming barriers and driving sustainable growth. This dynamic sector not only promises financial returns but also contributes to solving critical employment and environmental issues across the continent.

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