Breakers On The EV Road

There is good news and bad news on the electric vehicles (EV) front in India. First, the good news. More than a million EVs were sold in the country in the fiscal year ended March 31, 2023. To be precise, a total of 1,152,021 EVs were sold during the fiscal, as per data shared by the Society of Manufacturers of Electric Vehicles (SMEV), an Indian electric vehicle industry lobby. The figure did not include low-speed electric two-and three-wheelers (E2W & E3W), though. In fact, in the E2W segment alone, 7,26,976 units were sold across manufacturers during the fiscal. 

While the million-plus figure is certainly a landmark that calls for cheer, things have slid back in terms of EV adoption and its growth projections. The adoption of EVs actually fell on a month-on-month basis over the annual minimum targets set by NITI Aayog and other research organisations. As per NITI Aayog’s target for FAME-II (from April 20 to March 23), the E2W adoption should have reached 1.93 million units. The actual E2W adoption has been 1.02 million. And that is a cause for worry for the industry for now. We will circle back to the reasons, challenges and the way forward in just a bit. 

First, let’s soak in the good news. According to Tanvi Shah, Director, CareEdge Advisory & Research, the E2W segment has witnessed significant growth over the years and today accounts for around 62 per cent of overall EV sales in FY23. E2W sales grew 188 per cent in FY23 compared to the previous year, whereas for the FY19 to FY23 period, the category clocked a CAGR of 92 per cent. 

“Favourable state government policies coupled with central schemes have aided increasing penetration of EVs in states like Delhi and Maharashtra. These states are also relatively better placed in terms of the availability of charging stations, though they are still far behind in terms of actual requirements. Delhi, Maharashtra, Haryana, UP, Delhi, and Punjab have the most holistic EV policies while Arunachal Pradesh, Manipur, Himachal Pradesh, Ladakh, Kerala, and Uttarakhand's policies are the least comprehensive," says Shah. 

Experts say the sales of low-speed E2W are higher as compared to high-speed E2W. Another critical growth driver is the rise of numerous brands in the E2W space, such as Ather, Ola, Hero Electric, Bajaj, TVS, Okinawa, Pure EV, and Revolt.

So far, E2W have been more popular than E4W (EV cars). And this trend is likely to continue in the near future as numerous launches are expected in the high-speed electric motorbike market, especially from the established players which will provide impetus to this segment. 

Charging stations do play a significant role in the faster adoption of EVs. Says Jeetender Sharma, Founder & Managing Director, Okinawa Autotech: "The growth trajectory of the EV industry heavily relies on the availability of a robust charging infrastructure. In the next 6-7 months, it is likely that the number of charging stations will witness a surge across cities and major highways, aimed at facilitating convenient and accessible charging options for EV users."

Growth, Hurdles & Worries

Over the last five years or so, the incentives granted by the government under the FAME-II scheme have been the key demand driver for E2Ws. Under FAME-II, the incentive for E2Ws was raised from Rs 10,000/kWh to Rs 15,000/kWh, while the cap on maximum incentive was extended to 40 per cent from 20 per cent earlier. Besides, many states topped these sops with their own subsidies and incentives such as registration fee and road tax waiver for electric vehicles. 

Now, the bad news. In a move that has surprised one and all, the Ministry of Heavy Industries recently reversed the subsidy for E2Ws to Rs 10,000 per kilowatt-hour of battery fitted from Rs 15,000/kWh earlier; it also capped the total incentives at 15 per cent of the value of the vehicle instead of 40 per cent earlier. 

In fact, the government has been in a punishing mood during FY23. It withheld subsidies under FAME-II for non-compliance with the Phased Manufacturing Programme (PMP) guidelines under the scheme, thereby impacting the sales of E2Ws in FY23. As a result, from June 1, 2023, the price of E2Ws that were earlier eligible for subsidy under FAME-II will go up after the amendments made to the FAME-II scheme that includes reducing the subsidy. 

Reacting to the cut, Ayush Lohia, CEO, Lohia Auto, says, "While the government aims to create more room for two-wheelers in the market, this substantial reduction in subsidies poses a significant challenge for the nascent EV industry. It could potentially dent the sales of electric two-wheelers, hindering their growth and adoption in the country." 

Lohia’s fears are not entirely misplaced. With the subsidy getting slashed significantly, manufacturers will likely hike prices by as much as Rs 30,000 for popular high-powered scooters. Experts say the price of popular high-selling Ola S1 Pro and Ather 450X may shoot up beyond Rs 1.5 lakh. Which simply means that buying such E2Ws will cost more to the end consumer compared to a 125cc petrol-engine scooter with similar performance, such as the best-selling Honda Activa 5G, the on-road cost of which in Delhi stands at around Rs 92,000.

While major E2W players are geared up for a price increase and are putting a brave front stating 'no major impact' on the sales, the SMEV thinks the decision will slow down EV adoption in the country further. Sohinder Singh Gill, Director General, SMEV says that this sudden subsidy cut might lead to a major decline in EV sales, impacting the entire industry for a considerable period of time. "The EV two-wheeler segment is still highly price sensitive, and the increasing gap in prices of ICE models and EV models will eventually hit sales," he says.

Agrees Sanjay Behl, CEO & Executive Director, Greaves Electric Mobility. “The reduction in FAME-II subsidy does pose a momentary challenge to sustain the rate of accelerated adoption of electric scooters for the industry,” he says, adding that it is imp to consider the larger picture and the government's perspective. “While the increased EV prices might temporarily slow the adoption, we believe that the industry's overall growth trajectory remains intact,” says Behl. 

Gill, who also heads Hero Electric, sounds worried about the prospects of EVs. "In the first five months of 2023 the E2W adoption was 3.4 lakh units, at 65,000 per month," says Gill, adding, "At this rate, and with reduced subsidies, we expect E2W adoption in the year FY24 to close at a maximum of 1.2 million. And if that happens, it will be against the FY24 NITI Aayog target of 2.3 million." 

Gill concedes that in the past E2Ws have seen higher sales and faster adoption. Yet challenges remain. "Mass adoption of EVs is hindered by inadequate infrastructure, limited high-performance EVs, and high upfront costs that are perceived as a high cost of ownership," he says. 

What's with eCars, eCVs?

While major carmakers such as Tata Motors, Hyundai, Mahindra & Mahindra, Honda, Nissan and others have launched electric/hybrid cars, market leader Maruti Suzuki believes that EVs are not the only solution to lower carbon emissions. Maruti is yet to launch an electric car in the India market even as its competitors including Hyundai India, Mahindra & Mahindra, MG Motors, Tata Motors and others have launched electric variant options for the customers. In a recent interaction with this magazine, Bhargava predicts that the Indian car industry will become the third-largest in the world in the next three years. With a market share of 41 per cent Maruti has been the dominant auto player in India over the years. It has publicly expressed its ambitions to increase its market share to 50 per cent. 

“We get into the EVs from 2024-25 (with the launch of six EVs in six years – there would be one new model a year, broadly speaking). I'm sure these models will be very well accepted, and will give us a leadership position in the EV segment also,” Bhargava told BW Businessworld. He has been making a point that for a country like India, where coal is the major source of electricity, there could be better options for reducing carbon emissions in addition to EVs. Bhargava has talking about hybrid, compressed natural gas (CNG), bio-CNG, ethanol, hydrogen and other technology options as the potential options. 

The Indian arm of Chinese owned MG Motor India, a SAIC Motor Corp subsidiary, has laid down the roadmap for expansion and indigenisation of its Indian operations over the next 4-5 years. 

Rajeev Chaba, MG Motor India CEO Emeritus says: The first step is to get Indian shareholders on board as majority shareholders, it could be HNIs, domestic financial institutions, dealer network and employees. Next step will be listing." Chaba said the company aims to launch 4-5 new cars with focus on EVs. The company expects its EV portfolio to contribute up to 65-75 per cent of total sales in India and is doing everything to build an ecosystem for EV so that more components could be sourced locally. It is also exploring setting up of cell manufacturing and hydrogen fuel-cell technology through joint ventures or third-party manufacturing.

On the commercial vehicle (CV) front, Ashok Leyland says it was first to align itself with the government's decision to turn to cleaner fuel technology as well as EV fleet in CV category. It plans to spend around Rs 500 crore every year towards the development of alternate and clean solutions for the CV segment, says Shenu Agarwal, MD & CEO, Ashok Leyland. "We have lined up our EV-CV roadmap, setting a target of becoming one of the world’s top-10 CV brands. We will roll out electric LCVs very shortly. We remain very optimistic about the future of the CV industry in India," says Agarwal. 

Ashok Leyland recently launched its Switch EiV12 electric bus platform for the Indian market. Currently, the company has firm orders for 600 electric buses and around 50 of these are in production for the Karnataka State Road Transport Corporation.

Roadblocks & Challenges

Limited range, and poor charging infrastructure have been the bane of India’s E2W market.  Experts as well as the industry players are in agreement over this point. Despite strong market tailwinds, challenges remain for faster adoption of E2W, from both the demand and supply side, says Shah of CareEdge Advisory. The primary challenges faced by electric two-wheeler users in India are poor battery charging infrastructure, limited top speed, unavailability of prompt support network, less range and poor build quality. 

As of January 2023, India had 5,254 public electric vehicles (EVs) charging stations, to cater to a total of 20.65 lakh EVs. Till date, the FAME-II subsidies have helped develop almost 2,900 charging stations across 25 states with Delhi reporting the maximum number of vehicles per charging stations, followed by Goa and Karnataka. The gaps need to be addressed through better regulation, improved monitoring, mechanisms, and capacity building across the policy value chain.