Revving Up For A Green Future: Mapping India’s EV Landscape & Progress

Despite the setbacks and challenges faced by India’s electric vehicle (EV) industry initially, the sector seems set to grow by leaps and bounds in the coming years as adoption is on the rise, helped by the entry of newer players and the launch of new and better products.

The domestic EV landscape is booming with the presence of over 100 players in the electric two-wheeler segment and over 400 players in the electric three-wheeler space, including both transport and non-transport categories.

The global EV space, which shot to the limelight over the last decade as countries doubled down on their efforts to reach their respective net zero emission goals to mitigate the effects of climate change, is still in its nascent stage. 

In India, the EV industry is even more nascent. While initial EV adoption started almost a decade ago with electric three-wheelers, largely in the transport category, and lead-acid batteries, the idea of electrification of vehicles has started receiving mainstream attention – even among daily commuters – over the last two years. 

While the number of electric two-wheelers has seen a sharp increase over the last few years, these vehicles currently do not even account for 10% of the total two-wheeler registrations in the country. Meanwhile, a Redseer report projects electric two-wheeler penetration in India to grow to 60%-80% of the total two-wheeler market by 2030.

Total EV registrations in India grew to 10.2 Lakh units in 2022 from 3.3 Lakh units in 2021 and 1.2 Lakh units in 2020. The number of EV registrations stands at 4.2 Lakh so far in 2023, with two-wheelers contributing a significant 62% to the total and three-wheelers contributing 33%.

While the growth in EV registrations may look staggering on an absolute basis, India’s target of having 30% electric private cars, 70% electric commercial vehicles, and 80% electric two- and three-wheelers by 2030 looks far-fetched. As per the government’s latest data, as of March 6, 2023, there were a total of 21.7 Lakh EVs on the country’s roads, a mere 0.6% of the total number of vehicles (33.8 Cr).

While EV sales grew at a rapid pace in the first few months of 2022, the growth started slowing down from September last year, hurt by the Centre tightening the noose around two-wheeler EV players for allegedly violating localisation norms under the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME-II) scheme.

Despite the slowdown, total EV registrations jumped 29% to 3.4 Lakh units in the December quarter of 2022 from 2.6 Lakh units in the previous quarter. However, in the March quarter of 2023, the sequential jump was merely 2% to 3.5 Lakh units.

While there is a decline in the growth rate of EV registrations in the last few months, the overall numbers also show that the Centre’s FAME-II scheme and the incentives given by various state governments under their EV policies have been pushing up EV adoption in the country.

Why India Is Betting Big On EVs

At the COP26 summit in 2021, India pledged to cut its emissions to net zero by 2070. However, the target year was far ahead of the summit’s key goal of countries promising to achieve net-zero emissions by 2050.

Later, as per the updated Nationally Determined Contribution (NDC) of the country, which the Union Cabinet approved in August last year, India committed to reducing the emissions intensity of its Gross Domestic Product (GDP) by 45% by 2030 from the 2005 level.

The Ministry of Environment, Forest and Climate Change said at that time that the updated framework, coupled with various incentive schemes for the adoption of renewable energy, will augment clean energy industries in automotive, manufacturing of low emissions products like EVs and innovative technologies such as green hydrogen, among others. 

Reducing the usage of fossil fuels is one of the key steps in achieving the target of becoming carbon neutral and the Indian government seems to have doubled down on this front in recent years. This is where EVs come into the picture. Needless to say, higher adoption of EVs would also help reduce India’s dependence on imported petrol and diesel and help bring down the import bill.

India imported 212.2 Mn tonnes of crude oil in FY22, up from 196.5 Mn tonnes in the previous fiscal, with import bill doubling to $119 Bn in the year, as per Petroleum Planning and Analysis Cell (PPAC) data. 

Consequently, India is promoting domestic EV players via various subsidies and incentives and has opened up the ecosystem for foreign investors and EV players. 

As per a report by Arthur D. Little, the country’s EV industry is set to attract foreign investments of about $20 Bn by 2030, fueling India’s economic growth.

Domestic players have already started receiving investments from foreign players. UK-based energy major bp recently invested in EV fleet aggregator BluSmart and electric mobility startup Magenta Mobility. US-based VC firm Rocketship and mobility technology company Magna International invested in Yulu.

Besides the startups, legacy automotive players are also catching up with the trend. Recently, British International Investment (BII) announced an investment of  $250 Mn in Mahindra & Mahindra’s four-wheeler EV arm.

While India is yet to catch up with the likes of the US, China, and several European countries when it comes to vehicle electrification, experts believe that the market will continue to grow. Despite the challenges, they believe that the stage is set for the EV sector to grow exponentially in the coming years. The rising interest of international EV players, including Tesla and Volkswagen, and foreign investors in the Indian EV market is a testament to this.

Decoding India’s EV Landscape: Startups Leading The Growth

Besides the established automotive players like Tata Motors, Hyundai, and Mahindra & Mahindra, the increase in EV adoption in the country has been led by startups which have mushroomed over the last few years. 

A quick look at India’s EV landscape shows startups across the spectrum fueling the industry growth.

The likes of Ola Electric, Ather Energy, Ampere Vehicles have carved a niche in the crowded two-wheeler EV market. Besides, these original equipment manufacturers (OEMs), several startups also work in other EV-related sectors like battery swapping and setting up charging infrastructure. While these startups don’t get talked about as much as the OEMs, they are playing a key role in developing a vibrant EV ecosystem in the country.

From battery and component manufacturers like Log9 Materials and Cygni to charging infrastructure providers like CHARGE+ZONE, Statiq, and CharzeBlock to fintech players like Vidyut and RevFin, a number of startups are working to improve the experience of owning EVs in the country.

In fact, amid the ongoing funding winter, players beyond the EV OEM segment raised a majority of funding in the EV space over the last few months. While battery-swapping platform Battery Smart, charging aggregator ElectricPe, commercial EV-focused fintech startup Turno raised $13.8 Mn and lithium-ion (Li-ion) battery recycling startup Metastable Materials secured funding.

This increasing investor interest beyond the OEM players is expected to bring maturity to the EV space in the country as these infrastructure and service companies would make EV penetration sustainable in the long run. However, it must be noted that these players are largely pioneers in their respective segments and have grown without any major incentives from the governments, which seem to be mainly focused on OEMs for now.

A look at the government’s battery swapping policy gives an indication on the relatively slow pace of progress when it comes to areas related to EV infrastructure. The policy was in the making for almost two years to streamline the process of swapping but has hit a roadblock now. While the draft is being restructured again, the industry is seeking subsidies, rationalisation of GST rate on batteries, and more.

The situation is the same when it comes to setting up charging infrastructure for EVs. “We have been seeing a major lag in charging infrastructure, which is a challenge both at the central and the state level. The PPP (public-private partnership) is going to be a key model in enhancing the growth in the area,” said Deepak Chowdhury, partner at IndusLaw. 

The local bodies in the cities will also need to make legislative changes for growth in charging infrastructure, he said, adding that regulatory changes and increase in consumer awareness are needed to improve the charging infrastructure in residential areas.

Chowdhury also called for the allotment of the budget for setting up EV infrastructure under the Atal Mission For Rejuvenation And Urban Transformation (AMRUT) scheme to increase the number of charging points.

Challenges Hindering India’s EV Growth 

While the FAME-II scheme has played a key role in increasing EV adoption in the country, the ongoing issues with the disbursal of subsidies under the scheme are affecting the industry’s growth.

While the scheme, which was started in 2019, is to end on March 31, 2024, unless the government decides to extend it, around half of the INR 10,000 Cr budget is still unused. The government has also suspended the subsidies for several electric two-wheeler manufacturers under the scheme for alleged violation of localisation norms.

The Centre is probing 14 OEMs, including Hero Electric, Okinawa Autotech, Ampere Vehicles, and Revolt for these violations.

“FAME-II scheme was the best catalyst to increase sales but as of now, it is a deterrent for some of the manufacturers. I think the government will have to redo some policies, which can be genuinely helpful for the market to boost EV sales,” said Vinkesh Gulati, chairman research & academy, Federation of Automobile Dealers Associations (FADA).

He said that at a time when India is largely dependent on imports of batteries and cells for EVs due to a lack of resources, raw materials, and infrastructure, it would be challenging for most companies to adhere to localisation norms under the FAME-II scheme.

Under the FAME-II scheme, domestic EV makers are allowed to offer a discount of up to 40% on the cost of their vehicles and claim it from the government as a subsidy. However, they also need to ensure that at least 50% of the components used in the vehicles are manufactured locally. 

“In a country that is still dependent on importing Li-ion batteries and many other such components due to lack of infra in India and also has to depend on other countries for crucial elements for EV batteries like lithium and cobalt, it is time for the government to rethink how it is approaching the localisation norm,” Gulati added. 

On top of that, the battery supply chain problems persist and are heavily impacting EV penetration across categories. He added that the impact is even worse for companies that use better-quality batteries and vehicles.

Starting from 2021, the prices of some of the critical minerals used in EV batteries, including lithium, nickel, and graphite, have risen sharply due to harsh Covid-19 lockdowns in China and the Russia-Ukraine war. Even in 2022, these factors continued to keep pressure on the global battery supply chain. 

As per a recent report, though the onset of surging battery raw material prices is now long gone, OEMs are still reeling from the impact, globally.

Where Does India Stand In The Global EV Landscape?

China continues to lead the global EV market in terms of sales. However, in some European countries, particularly in the Nordic region, 50% of the cars sold are EVs. 

India is far behind these countries not only in terms of EV adoption but also in domestic manufacturing of EVs and their components. However, the recent discovery of 5.9 Mn tonnes of lithium reserves (inferred estimates) in the Reasi district of Jammu and Kashmir can prove to be a game changer for India. Domestic availability of lithium would not only reduce the country’s dependence on imports but also solve the supply chain challenges.

Besides, it could also reduce the cost of batteries, making EVs cheaper and increasing their sales. 

However, India has a long way to go when it comes to producing and utilising this lithium. For now, experts believe that the industry can grow even without it if the policies for the EV sector are implemented in a better manner and new schemes are introduced for companies and startups which are not OEMs but are operating in other areas of the EV ecosystem.

“The government support is not as robust as in many foreign countries. Based on how the Indian government is allocating the budget for EVs, it doesn’t look like it has a very big coffer,” said Gulati. “But if they redefine the FAME scheme in a way that it is not so complex, that will be a major help.”

Gulati also believes that there are a lot of misconceptions about EVs, especially range anxiety, and there is a need to educate consumers and bring awareness.

As the world has started taking the climate change issue seriously, EVs are here to stay. However, it is imperative to set up adequate charging infrastructure and battery swapping stations to build trust among consumers in EVs and further increase their sales in order to achieve the country’s net zero goal. This calls for support from the government and better coordination with private players for a 360-degree development of the EV ecosystem to make India a leader in this space.