India Dealt A Blow To Its Best-Selling Electric Vehicle. But All Is Not Lost
India’s new policy to boost cleaner transport is expected to hurt demand for e-scooters, the most-selling electric vehicle, even as carmakers don’t see the shift to shared mobility causing any change in their plan.
A two-wheeler sold with a lead-acid battery will no longer be eligible for benefits worth around Rs 9,000 under the Faster Adoption and Manufacturing of Electric (and hybrid) Vehicles or FAME II scheme, according to a report by Crisil. The subsidy on lithium-ion battery-powered scooter too has been lowered to less than half, the report said.
India is pushing cleaner vehicles as the nation looks to pare reliance on fossil fuels to curb pollution and reduce oil imports. While the new policy will reduce the sales of electric scooters, the state-run Energy Efficiency Services Ltd. has already delayed its second tender for purchasing 10,000 electric cars. That’s because FAME II will now focus on taxis and buses.
The government claims that it has offered incentives for 2.78 lakh electric vehicles sold under the first phase of the scheme that ended on March 31. But only 6,000 electric cars are plying on Indian roads, according to Bloomberg New Energy Finance data. About 90 percent of the vehicles that availed incentives under FAME I between 2015 and 2019 were electric scooters, Crisil said.
India will provide Rs 10,000 per kilowatt hour of battery for a two-wheeler, reducing the incentive by Rs 2,000-7,000 per unit as the average size of a lithium-ion battery in electric scooters sold under FAME-I was 1.5 kWh, according to the rating agency. Earlier, the incentive for a lithium-ion-battery-based scooter ranged between Rs 17,000 and Rs 22,000.
The change in eligibility criteria will make battery-powered two-wheelers costlier. “Our assessment of the product portfolio of various EV manufacturers indicates that the electric two-wheeler segment would be impacted the most by FAME-II rules,” Crisil said. “We believe more than 95 percent of the electric two-wheeler models being produced now won’t be eligible for the incentive.”
Pankaj Tiwari, business development head at electric scooter company Avan Motors, said the reduction in incentives and 50 percent local sourcing norms under FAME II will have an impact for a while.
Tarun Mehta, co-founder of Ather Energy, another electric scooter maker, said the government should have given some transition period for the players to adapt to the changes. “It will be a painful period, and we could see sales dipping for four to six months,” he said. The policy, however, will build a healthy vendor ecosystem in the long term, according to Mehta.
The government has increased the outlay to Rs 10,000 crore for the second phase of the scheme even as it shifted the focus towards shared mobility.
Vishnu Mathur, director general of Society of Indian Automobile Manufacturers, told BloombergQuint over the phone that the change in priority stems from the objective to focus on vehicles where utilisation is higher. He expects automakers to invest with confidence as the overall incentive is huge and the target is clear.
Tata Motors Ltd. and Mahindra & Mahindra Ltd., which won the first EESL tender to supply 10,000 electric sedans, also don’t see much impact due to a delay in the second tender and from change in priorities.
“The primary market for EVs for the next four to five years is going to be fleet,” Shailesh Chandra, president -electric mobility business and corporate strategy at Tata Motors Ltd., said. The company is already looking at multiple products in the fleet segment. “The Tigor EV, apart from serving the EESL order, is also being sold in the fleet segment.”
Agrees, Mahesh Babu, chief executive officer of Mahindra Electric. “The advantage with FAME-II is that it is a three-year programme, and now people know there is clear a road map.” Mahindra Electric gets more than 90 percent of the sales from the fleet segment.
Cab aggregator Ola, earlier this month, said it raised Rs 400 crore to develop platforms and infrastructure for electric vehicles and has partnered with several original equipment manufacturers and battery makers. Korean carmaker Hyundai and its subsidiary Kia, too, have together invested nearly Rs 2,000 crore in Ola to jointly develop the electric vehicle ecosystem and fleet services.
Not Many Options
The ride-hailing service, which plans to place an order for 10,000 battery-powered two-, three- and four-wheelers by the end of this year, is already a facing supply challenge. “There aren’t that many options as there isn’t a lot of competition for better vehicles with longer range,” Anand Shah, head of Ola Electric Mobility, said. “With stable policy more vehicles are expected to come up.”
Two-wheelers, shared and public transport vehicles are also the easiest and the most economic to electrify in the next three to five years, according to Allen Tom Abraham, a New Delhi-based analyst with Bloomberg New Energy Finance. But electric vehicle manufacturers in India will need to scale up their capacities by two to three times to meet the sales target under FAME II, he said.
Bumpy Road Ahead
Affordability and limited charging infrastructure, is another challenge. High upfront costs, limited EV charging infrastructure along with challenges in retrofitting existing buildings and lack of choice for consumers make large-scale adoption of battery-powered transport challenging, Abraham said.
Agreed, R C Bhargava, chairman of Maruti Suzuki India Ltd., which is testing 50 electric vehicles in the country. Penetration of electric cars will depend on the solutions to these problems, he said. “Cash subsidy can never push the large penetration of any vehicle, it is just the start. They have to be inherently economical.”
For rapid penetration of electric vehicles, it is imperative for ordinary buyers to also adopt EVs, he said.
Chandra of Tata Motors is optimistic. “Private electric vehicle segment is five to six times larger than the fleet segment,” he said, adding the company will bring choices for private buyers in the market. “We believe it will be an important step in order to avoid a long-term perception of EVs as a category being seen as non-aspirational and meant for commercial use.”
Still, the electric car prices aren’t viable for Indian buyers, Ashish Modani, vice president and co-head of corporate ratings at ICRA, said. “In India the average ticket transaction car price is Rs 5-6 lakh and there is not a single electric vehicle in that price,” he said, adding that the government’s focus towards fleets will have no major impact on investment plans of automakers. The industry, he said, wasn’t anticipating any major volumes to come from EVs for private car owners.