On August 15, when India celebrated its 78th Independence Day, Ola Electric founder and chairman Bhavish Aggarwal showcased the ‘Roadster’ series of electric motorcycles with deliveries commencing from the March quarter of next year. “People are willing to bet on the future and don’t want to live in the past,” Aggarwal said at the launch. While Ola’s e-motorcycles are still some time away, legacy player Bajaj Auto unleashed a formidable challenger that could further stall the transition of motorcycles to electrics. On July 5, Rajiv Bajaj, the Pune-based automaker’s outspoken managing director, took the stage, flanked by Union minister of road transport and highways Nitin Gadkari, to introduce the world’s first CNG (compressed natural gas)-powered motorcycle ‘Freedom’.

The Pulsar maker is betting big on CNG-powered vehicles even though there aren’t any state incentives for these unlike electric vehicles. At the launch, Bajaj said ‘Freedom’ offers freedom from range anxiety and charging concerns and freedom from the “paradoxically unsustainable subsidies” for EVs. “Here there is no concern for range, charging. We don’t need no subsidies,” he told the gathering, stating that electrification doesn’t hit the sweet spot as yet.

But Bajaj’s first CNG-powered autorickshaw, launched about 25 years ago, wasn’t a runaway success either. Recounting an incident soon after its launch, Bajaj said a group of autorickshaw drivers shattered the facade of a dealership in Delhi. “They were upset because at that time there was only one CNG fuel pump in all of Delhi and the autorickshaw drivers had to stand in queue for 10-12 hours a day to fill CNG,” he narrated, saying it more than negated the savings that were expected to be made because of cheaper running cost of CNG. Over two decades later, Bajaj has been able to corner almost 80% share of the CNG three-wheeler market.

And now the company is itching to repeat this with its CNG motorcycle. “We are at the right place at the right time with the right product,” says Bajaj. Since its launch, the company has sold over 33,800 units of Freedom. In comparison, electric motorbikes, produced by only a handful of start-ups, are finding fewer takers, mainly because no large automaker has entered the market yet. Revolt Motors is the biggest player in the tiny e-motorcycle market. The company sold 7,350 e-motorcycles last fiscal, as per Vahan data. Cash-strapped Tork Motors, in which Bharat Forge wrote off over ₹150 crore investment, stood a distant second with sales of 2,158 units in FY24. Bengaluru-based high-performance motorcycle maker Ultraviolette, which is backed by TVS Motor, sold 248 units last financial year.

What makes Bajaj bullish on CNG is the increasing penetration of CNG cars in India’s major cities. Every third car sold by India’s largest carmaker Maruti Suzuki is CNG. If 30% is the penetration that CNG motorcycles achieve then that 30% of 7 lakh annual commuter motorcycles sales is 2.1 lakh, says Bajaj. “But these things take time because consumer behaviour has to change,” he says.

However, changing customer habits is not going to be a cakewalk. The biggest challenge with CNG motorcycles is the number of gas stations, says Hemal Thakkar, director, Crisil. “If you see passenger vehicles, the penetration of CNG has already gone up to about 15%. But if you look at the waiting period at CNG stations to fill gas, the lines have gotten longer,” says Thakkar. “Two-wheeler volumes are 5X in numbers compared to passenger vehicles. Handling so many CNG vehicles at gas stations is going to be a big challenge one will have to overcome. But we will have to see how it will play out practically,” he says.

There are usually three separate queues at CNG stations: for personal vehicles; commercial vehicles and taxis; and three-wheelers. “If supply-side challenges are overcome, we feel CNG will have a future in the two-wheeler space. But if supply-side challenges aren’t overcome so easily, then it will increase the queues at gas stations. How many more queues will you add and how many vehicles will you be able to tank up in a particular time?” asks Thakkar.

But despite all these challenges CNG motorcycles still have a better chance of catching on than electrics, believes Thakkar. “One, there is an incumbent brand which has launched CNG motorcycles. Supply-side network is not a big challenge as there are more than 7,000 CNG stations compared to fewer charging stations for electric two-wheelers,” he explains. Around 335 Indian cities are covered with varying degrees of CNG network, constituting 70% of the overall two-wheeler market.

While the government is targeting to increase CNG stations to 17,500 by 2030 (versus 6,200 in FY24), delays in network ramp-up could impact faster adoption, says Aalok Shah, managing director and co-head India, Rothschild & Co. Higher refilling frequency coupled with longer re-fuelling times will be a critical challenge for users shifting towards CNG two-wheelers, says Shah. “The adoption will be heavily dependent on CNG Infrastructure penetration in India. In 2023, only 47% of districts in India had CNG penetration.”

In a contrarian view, Rohan Kanwar Gupta, vice president and sector head - Corporate Ratings, ICRA, says the existing CNG infrastructure is expected to be enough to cater to any demand emanating from the segment given that the penetration of the CNG powertrain is expected to increase only gradually with metros and Tier-I cities taking the lead. Gupta, however, says as with any new technology, it takes time for consumers to build confidence and take the leap to experiment it.

But it’s not just about gas infrastructure. Affordable pricing will be a key factor to crack the segment. Pricing of CNG two-wheelers has to be right because it is in the commuter segment where affordability plays a huge role, says Sridhar V, partner, Grant Thornton.

Bajaj’s Freedom, priced from ₹90,000 (ex-showroom), could potentially be a competitor to both e-motorcycles and ICE counterparts, believes Shah. “Freedom 125 offers similar operational performance and price parity with ICE models in the 100-125cc segment. Given high customer stickiness in this category, the evolution of customer behaviour over the next 6-12 months will be a determining factor that drives CNG adoption,” he says.

India’s two-wheeler EV story has largely been driven by scooters. E-motorcycles haven’t taken off because they don’t offer much differentiation in terms of driving experience compared with scooters, says Crisil's Thakkar. “There is hardly any differentiation between electric scooter and electric motorcycle. The experience of driving is largely similar. But when it comes to ICE, there is differentiation in terms of power, speed and torque. Lower engine capacity motorcycles are better for higher mileage and higher cubic capacity motorcycles are better for higher performance,” says Thakkar. “Electric scooters, which have got a head start, give a very similar performance to what motorcycles offer, hence motorcycle electrification will be a challenge,” he says.

But Thakkar believes that this may change when Ola Electric enters the fray. “E-motorcycle startups have been struggling to ramp up volumes. Ola is significant in terms of size. It has reached some scale. It has got a certain level of traction in the market. People will be more receptive to something coming from an existing or incumbent player rather than something coming from a so-called startup,” he says. Ola, however, is already facing flak from India’s consumer protection regulator for allegedly violating consumer rights of its e-scooter buyers.

Other than Ola, HeroMotoCorp, TVS Motor and Royal Enfield are also working on electric motorcycles.

While e-motorcycles may not offer much differentiation compared to e-scooters, Bajaj is hopeful that his company’s strategy of differentiation will pay off sooner or later. “My father was a staunch believer that the same deep differentiation that brought us success with sports motorcycles, three-wheelers and the Chetak more recently and with our exports markets. It is the same strategy of differentiation that one day will bear the fruit of success in the commuter motorcycle market as well,” he says.

Bajaj, who leads the world’s most valuable two-wheeler company, says there is a clear line of sight to achieve profitability in CNG motorcycles but it will take some time. “When we start something we don’t like to be in cash burn state of mind like some so-called upstarts want to be. But we recognise when we start off with something new there are so many costs such as cost of development, investment, getting the word out in a cluttered marketplace. Certainly, we will never put a product out if it has to go out from Day 1 at 20% EBITDA. We see a line of sight that over a period of time we can achieve that kind of bottom line with CNG motorcycle,” he says.

Electric two-wheelers, on the other hand, are yet to achieve profitability despite getting PLI (production-linked incentive) benefits and other demand subsidies. Ola Electric’s net loss widened 7.6% to ₹1,584 crore in FY24.

Bajaj’s electric two-wheeler business is also not profitable. "One thing which is not in our hands is product pricing," says Dinesh Thapar, chief financial officer, Bajaj Auto.

Prices of electric two-wheelers have only come down in recent months. These price reductions have outstripped the cost cuts, making EVs a drag on profitability, says Thapar. “We have a full-fledged programme in place on value engineering and rationalising cost lines but the eventual profitability will be a function of where consumer pricing settles down,” says Thapar. Profitability of electric two-wheelers is still some distance away if this is where consumer pricing is likely to be at, he says.

Not surprisingly, TVS Motor is also looking to invest in CNG-powered two-wheelers even as it continues its focus on electric vehicles. “There is a room for CNG as well. We have seen the recent launch from Bajaj on the CNG two-wheeler. I am sure more will come and we will invest in that as well,” Venu told Fortune India in an interview. TVS already makes CNG-powered autorickshaws.

Anjali Rattan, chairperson of RattanIndia Enterprises, the maker of Revolt, says buyers of electric motorcycles are different from users of ICE motorcycles as they are attracted towards fuel cost savings and tech features. Revolt’s Rattan says large automakers ignored the electric motorcycle market because of their investments in internal-combustion engine (ICE) technology. “When you are making a lot of money, you overlook disruption somehow and sometimes you don’t want to embrace it for the reason that you have invested so much in ICE. So today if they have to shut their ICE shops and make EVs, can you imagine the kind of losses they will do? Would they want to disrupt their own market?” asks Rattan.

“If they launch an EV motorcycle, it’s a no-brainer that people will buy those because of better technology and fuel cost savings. That’s the only reason I don’t think they will really aggressively work on EVs. They will wait it out. Not that they are not working. Everybody is working,” says Rattan.

Electrification of motorcycles is crucial to achieve the government’s 80% EV penetration target for two-wheelers as motorbikes account for two-thirds of total two-wheeler volumes. While CNG-powered vehicles are relatively cleaner, they are not entirely emission-free.

Rising CNG prices have added to the woes as India’s domestic gas production struggles to keep pace with growing demand. India’s LNG imports rose 10% year-on-year to 2,941 million standard cubic metres (MMSCM) in October while domestic production declined 1.5% to 3,112 MMSCM, according to the Petroleum Planning & Analysis Cell. The government too slashed its supply of cheap gas under the Administered Price Mechanism (APM) allocation to city gas distribution companies amid domestic production shortages. This led to Indraprastha Gas and Mahanagar Gas raising prices of CNG, diminishing the lower running cost proposition of CNG vehicles. EVs, on the other hand, are expected to cut down India’s fuel imports which stood at ₹22 lakh crore last year.