As electric vehicle manufacturers grapple with the withdrawal of subsidies for fleet vehicles and the continued exclusion of private cars from government support schemes, the industry faces significant challenges in maintaining adoption rates and market momentum in the coming years.
25 Nov 2024 | 4668 Views | By Prerna Lidhoo
Electric passenger vehicle sales in India have been on a downward trajectory, with September 2024 marking a 17-month low of just 6,098 units sold. Month-on-month sales have been declining since March, when subsidies for fleet EVs were discontinued.
Sales in March stood at 9,769 units, but by September, they ...
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Electric passenger vehicle sales in India have been on a downward trajectory, with September 2024 marking a 17-month low of just 6,098 units sold. Month-on-month sales have been declining since March, when subsidies for fleet EVs were discontinued.
Sales in March stood at 9,769 units, but by September, they had plummeted 37% -- when they hit a 17-month low of 6,098 units (excluding a temporary boost during the festive season in October when it crossed the 10,000 mark). EV market leader Tata Motors held a 65% market share for the January-October 2024 period. However, this marks a significant year-on-year decline from 74%, highlighting the industry's struggle to adapt to a subsidy-free landscape.
Experts say that India's adoption of electric cars, especially in the fleet segment, is set to experience slower-than-expected growth due to a pivotal policy shift under the new PM E-DRIVE scheme. The exclusion of subsidies for electric cars represents a significant gap, potentially slowing the pace of electrification in this critical segment.
"Given that a reduction in subsidy benefits under the EMPS scheme (vis-à-vis earlier available benefits) had already curtailed the pace of adoption to an extent, the expiry of incentives would have acted as a major setback for the industry. Even as the quantum of incentives available per vehicle is being gradually lowered and points to a gradual phasing out of the subsidy support environment, the continuation of incentives is a timely boost for the EV industry," Rohan Kanwar Gupta, Vice President & Sector Head - Corporate Ratings, ICRA Limited said.
Under the earlier FAME 1 and FAME 2 schemes, fleet passenger electric vehicles benefited from subsidies, providing crucial initial financial support to fleet operators and fostering adoption. The removal of subsidies has cast doubt on the feasibility of accelerating electrification in India's car segment, particularly in a price-sensitive market where affordability drives buying decisions.
With this policy shift, the electrification of cars faces a slower and more challenging trajectory, especially when contrasted with the robust progress seen in the two- and three-wheeler segments. Carmakers say that challenges loom over achieving mass-scale electrification in India's car segment, citing the high upfront cost of acquisition as a major barrier.
According to Tata Passenger Electric Mobility's MD Shailesh Chandra, the newly elected president of the Society of Indian Automobile Manufacturers (SIAM), the right time to start lowering the subsidies is once the penetration hits about 20%. "Government subsidies should continue until a sufficient number of people have experienced the technology in a particular vehicle category, and spread positive word-of-mouth. It is certainly anticipated that with growing scale and certain reductions in the cost structure of these technologies will come down to a level that subsidies can be removed," he said.
Experts say that the government's push on charging infrastructure— which includes the installation of 22,100 fast chargers for four-wheelers—will help in adoption since around 80% of all EV charging takes place at home at present. "The focus has to some extent moved towards building public charging infrastructure, which was a hindrance in some pockets of adoption of the EVs, especially for the passenger vehicle segment. So that seems to be getting addressed by this new policy," Kumar Rakesh, Associate Director, Equity Research, BNP Paribas said.
Gwangu Lee, the new Managing Director of Kia India, acknowledges the optimism surrounding electrification in the country but urges a more pragmatic outlook. "When I came to join the India office, everybody was talking about electrification, but personally, it feels overly optimistic," he says, citing the need for fundamental infrastructure, advancements in battery technology, and policy alignment to support this transition.
Kia India is gearing up for this shift, with plans to introduce electrified models next year and full EVs in subsequent years. "Electrification is undoubtedly a structural trend, but it's also about timing," he explains, emphasising the need for customers to adapt to new technologies and for infrastructure to be adequately developed to meet their needs. Lee believes striking a balance between market conditions and the push for innovation is crucial: "Kia has the potential to manage both electrification and IC motor markets."
Existing GST support enough for EV growth?
Industry leaders say that the existing GST rates and exemptions are sufficient to sustain EV growth, even without additional subsidies. Kia India's Senior Vice President and National Head of Sales & Marketing Hardeep Singh Brar is optimistic about the future, citing falling battery prices and policy measures like maintaining a 5% GST rate on EVs as crucial for closing the cost gap with ICE vehicles.
"New technology always needs backing. Until EVs achieve economies of scale and become self-sustaining, policies like GST relief and road tax exemptions are critical for their growth," he says. For him, managing range and charging remains critical, but price remains a significant barrier. "To bridge this gap, we need continuous efforts to make EVs more attractive, affordable, and closer to ICE vehicles in terms of price and convenience," he adds.
Brar believes that prioritising EVs is essential for the sector's long-term success. "The more we support other technologies, the more it directly impacts EV adoption," he warns. Brar advocates channelling government support exclusively toward EVs to ensure the investments made in the segment yield results. "If we want EVs to succeed, all our focus should remain on them," he adds. Kia aims to align with the industry's forecast of 15% EV penetration by 2030.
Vivek Srivatsa, Chief Commercial Officer of Tata Passenger Electric Mobility, too, feels that the EV market is proving to be resilient, signalling the industry's readiness to thrive without reliance on additional subsidies. "The industry is showing that without these additional subsidies, EVs are continuing to grow. Yes, the great rate of growth has slowed down but the bottom has not fallen off. With GST rates and state-level exemptions that are available, probably the era of subsidies is gone. But I don't think the EV market will need to depend on it anymore. We'll have to learn to grow without those external subsidies," he said.
He added that technological advancements, combined with aggressive localisation efforts, have brought EV prices on par with automatic variants of internal combustion engine (ICE) vehicles, addressing two of the largest barriers to EV adoption—cost of acquisition and range anxiety.
According to ŠKODA's board member for sales & marketing, Martin Jahn, EV policy will play an important role in driving EV adoption in India. "In most parts of the world, the growth was based on policy, especially in China. In Europe also there was strong growth over the last two years. When the support policies slowed down, the electric market also slowed down. So I think that the policy will play an important part along with the development of the charging infrastructure," he said.
Skoda Auto India's Brand Director Petr Janeba, too, feels that EV would predominantly be defined by regulation. "EVs all around the world without government subsidies would struggle to reach such a high penetration as we want. And we know that the Indian government wants us to have this 30% in 2030. It's a very high threshold. Probably not achievable from the current perspective without any growth or any technological change. The growth will slow if policy support isn't there," he said.
Hyundai Motor India (HMI) is doubling down on localisation and versatility to carve a robust path in the evolving Indian and global automotive markets, especially in the EV segment. Tarun Garg, COO of Hyundai Motor India, says, "The kind of incentives the government is offering to the EV industry, whether it is through GST or state incentives, or the PM E-drive scheme on the charging infrastructure, the EV acceleration will happen and the penetration will go up very fast from here."
Betting on Localisation
HMI is doubling down on localisation and versatility to carve a robust path in the evolving Indian and global automotive markets, especially in the EV segment. According to Garg, the company is leveraging its iconic Creta brand to make a strong entry into the EV space with the upcoming Creta EV. He said that the company needs a diverse powertrain portfolio to cater to India's varied market demands.
"We have a vision to establish India as a global manufacturing hub for emerging markets. We aim to export cost-optimised EVs to over 80 countries, including the Middle East, Africa, South Asia, and Latin America," he said. To meet growing domestic and export demand, Hyundai has acquired the Talegaon plant, raising its production capacity from 800,000 to 1.1 million units annually. This capacity expansion will further solidify Hyundai's position as the second-largest exporter of vehicles from India, offering a natural hedge against geopolitical and market fluctuations.
Rajesh Jejurikar, Executive Director & CEO, Auto sector, Mahindra & Mahindra, too, believes that building a resilient EV supply chain for battery localisation is essential to ensure long-term sustainability, reduce dependency on global suppliers, and strengthen Mahindra's position in the growing Indian electric vehicle market.
The automaker is also prioritising localising battery cell production in India, actively engaging with industry players to explore partnerships. "We are focusing on a multi-regional battery procurement strategy, leveraging partnerships with global leaders to ensure consistent supply chains.
By diversifying our sourcing, we reduce dependency on any region and mitigate potential impacts from localised disruptions," he said. He added that cell localisation is M&M's priority, as it would further strengthen its supply chain.
Experts suggest that with increased product launches and localisation, PLI schemes will help make the EV sector self-sustaining in a few years, reducing the need for government incentives. "Gradually, as more and more products are launched and there is more localisation so that OEMs do not assemble and sell it and everything could be made in India, PLI will address that. PLI is taking a mainstay. And after 4-5 years, the government will not need to give any incentive either, through PLI or through PM E-drive. There would be an inflection point or a critical point where the production will be self-sustaining," Puneet Gupta, Director, India & ASEAN Automotive Market, S&P Global Mobility said.
He feels that the challenge with the PM E-Drive scheme is the lack of a long-term roadmap. "Carmakers need at least a four-year view in terms of policy roadmap. You know it (PM E-drive) is only till 2026. One needs to have a clear roadmap so that every OEM can prepare accordingly. If suddenly, it's increased like FAME 2 by three months and then another three months, then these ups and downs are bound to come in India's electrification journey," he adds.
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