Insights | Knometrix

India has one of the largest automotive markets in the world. In 2021, more than 17 million units were sold. The macroeconomic growth and employment of the country have both been significantly aided by this sector.

Now, as India sets its sights on widespread electric vehicle (EV) adoption, the potential for further expansion is enormous. With two-wheelers dominating the market and allowing 100% foreign direct investment, India presents an untapped frontier for global investors in the EV 2-wheeler segment. The country has 592 startups functioning in the EV industry as of March 2022. The electric two-wheeler segment recorded growth of more than 400% in 2021, serving as a solid testament to the growing interest, innovations, and investment taking place in the EV ecosystem.

The sales of EVs in India are expected to increase from just over 400,000 units in 2021 to more than 10 million units by 2030, growing almost 25x in the next nine years.

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However hopeful the picture looks, there are several underlying fundamental challenges in the face of wide scale passenger EV adoption. Passenger EVs are anticipated to encounter severe resistance from their ICE counterparts, at least until 2030, despite adoption rates for electric three-wheelers, two-wheelers, and commercial vehicles predicted to increase significantly.

Need to Bridge Vision and Reality: Major Limitations Challenging at the Face of EV Adoption in India

The government of India first launched FAME India (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India) scheme in 2011 which lasted until 2019. Under the first phase of the scheme, the government spent nearly Rs 900 crores to install 427 charging stations across the country. Additionally, the government provided Rs 360 crores for subsidies for 2.8 lakh electric and hybrid vehicles. Nearly 140 different models across categories and 30 OEMs ( Original Equipment Manufacturers) were eligible for subsidy. The overall outcome from the scheme was not substantial and fell significantly lower than its targets for carbon emission and fuel efficiency. Parity across technologies as a result of the scheme, seems to be deluded.

Following the underperforming incentive scheme, the FAME II scheme which was introduced in April 2019, came with much more specifics to ensure that the nascent EV segment in India could build up its capabilities for not just domestic requirements but also become a preferred global EV hub. With a massive budget of 10,000 crores over 3 years, the scheme is primarily focused on demand generation by providing subsidies. More than 85% of the fund has been just allocated to support 7,000 e-buses, 5 lakh electric three-wheelers, 55,000 electric four-wheelers, and 10 lakh electric two-wheelers. One of the major shortcomings of the scheme is that it supports EVs only which use advanced Lithium-ion or similar battery chemistry. Additionally, the scheme's stringent requirement for localization or the (Phase Manufacturing Programme) PMP norms, which asked for 50 percent of components to be locally sourced, to avail incentives has substantially lowered the effectiveness of the scheme in guiding large-scale EV adoption in the country. Several big companies involved in the EV space have witnessed the halting of government subsidies, further exaggerating the current state of lack of feasibility for EV manufacturing given its inexpensive raw materials, technology, etc.

There is a conundrum between component manufacturers and EV makers. While EV manufacturers claim a need for more local suppliers as the reason for resorting to imports, component makers argue that it is challenging to introduce new products and invest in tooling for low-volume orders. The Ministry of Heavy Industries has received complaints against 12 companies, including Hero Electric and Okinawa Autotech, which led to a pause in the release of FAME-II subsidies in May.

‍Key Takeaways for Businesses:

By leveraging the following key insights, businesses can be positioned to gain the maximum out of the tumultuous EV landscape of India.

Leverage Incentives: The Indian government has introduced several measures to encourage EV adoption, including monetary benefits and tax exemptions. Businesses should capitalize on the various government incentives and subsidies available for EVs. These include monetary benefits and tax exemptions aimed at making EVs more affordable for consumers. By embracing these incentives, companies can stimulate demand and accelerate the transition to EVs.
Drive Product Innovation: To thrive in India's evolving EV market, companies need to focus on developing innovative EV products that cater to the specific needs of Indian consumers. This requires understanding the unique challenges and preferences of the Indian market, such as affordability, range, and charging infrastructure. By investing in research and development, businesses can create cutting-edge EV models that offer improved performance, longer range, and faster charging times. This will not only attract customers but also position the company as a leader in the industry.
Strengthen Supplier Capabilities: Building robust relationships with local suppliers and enhancing their capabilities are essential for a sustainable EV ecosystem. Businesses should collaborate closely with suppliers to ensure a reliable and efficient supply chain for EV components. By investing in supplier development programs, companies can help enhance manufacturing processes, quality control, and technological capabilities, fostering innovation and job creation.
Explore Secondary Offerings: Businesses should explore opportunities beyond EV manufacturing to maximize their presence in the market. For instance, companies can venture into the development of charging infrastructure, as the availability of charging stations is a critical factor influencing EV adoption. By investing in charging infrastructure, businesses can address the range of anxiety concerns of customers and create a more convenient charging experience. Additionally, companies can enter the battery recycling sector, as the demand for proper disposal and recycling of EV batteries is expected to rise. By offering these secondary services, businesses can diversify their revenue streams and contribute to the sustainability of the EV ecosystem.
Foster Customer Awareness: Educating consumers about the benefits of EVs and addressing their concerns is essential for increasing adoption. Many potential EV buyers still have concerns regarding range anxiety, the availability of charging infrastructure, and the overall cost-effectiveness of EVs. Businesses should actively engage in awareness campaigns to educate their consumers about the advantages of EVs, such as lower operating costs, reduced emissions, and a smoother driving experience. By addressing these concerns and providing accurate information, businesses can build trust and confidence among potential customers, ultimately driving greater EV adoption in the country.

Even though India’s widescale adoption of EVs is inevitable, the concern is particularly about the timelines. The sooner the country adopts EVs, it will be able to reap its numerous benefits. Given that, 21 of the top 30 most polluted cities in the world are in India, sustainable mobility no longer is a choice, sooner or later it has to be turned into a necessity. However, there are several fundamental challenges with large scopes for improvement, which can only be addressed if the government and private players work together cohesively.

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