India’s Electric Vehicle Push Has Not Gone As Planned For Two-Wheelers
It was expected that India’s electric vehicle revolution would arrive on two wheels.
The world’s biggest two-wheeler market targeted to sell 10 lakh electric scooters by fiscal year 2021-22 in the second phase of the government’s Faster Adoption and Manufacturing of Hybrid and EV plan (FAME). Nearly two years into its three-year tenure, the scheme has only achieved 4% of that.
Electric vehicles still comprise less than 1% of all automobiles, cars and two-wheelers included, sold in India. That's despite a subsidy of around Rs 8,596 crore—86% of total FAME-2 outlay and almost 19 times the funds used in the first phase of the scheme—to lure buyers.
At a Go Electric campaign recently, Arun Goel, secretary in the Department of Heavy Industries, said the Covid-19 impact has been a dampener in achieving the ‘big targets’ under FAME 2.
Industry doesn’t agree.
EV manufacturers and industry experts BloombergQuint spoke to blame sudden changes in policy and lack of a long-term road map for 10 years or more.
“Covid virus struck much later, but the bureaucratic virus came much earlier when FAME 2 policy was announced,” Sohinder Gill, chief executive at Hero Electric Ltd., India’s largest electric two-wheeler company and director-general of Society of Manufacturers of Electric Vehicles, told BloombergQuint over the phone.
FAME 2 excluded mass-market products and there were no added incentives to boost supply chain in the country, he said. “When the second phase of the policy was announced, we knew we would be nowhere close to the targets.”
While the FAME policies seek to incentivise sale of all types of electric vehicles, from cars to buses, the most ambitious targets were reserved for the two-wheeler industry as it is mass market and commuter-oriented, and can make do with limited charging infrastructure.
The first iteration of the FAME India scheme was announced in 2015, providing incentives to vehicles powered by both lead acid and lithium-ion batteries. A buyer of a lead acid-based unit received a cash subsidy of Rs 1,800-12,000, while a lithium-ion battery powered vehicle received up to Rs 29,000, according to data with ICRA Ltd. Most of the Rs 529 crore earmarked for the policy was towards such subsidies.
The two-year plan was extend four times, by six months each, eventually running for four years. In the last extension, lead acid battery vehicles were excluded. While the intentions were good—these have a limited life and lack adequate disposal facilities—the change ignored that most electric two-wheelers sold till then were powered by lead acid batteries because of lower upfront costs.
Yet, by the end of its four years, FAME 1 spent Rs 359 crore as incentives on 2.8 lakh vehicles sold, according to Department of Heavy Industries.
“The multiple extensions on FAME-1 were because the government was struggling to chart the road ahead. But since the first phase of policy ended up for four years, that led to a large number of vehicles using the subsidy and expanded their businesses,” Suraj Ghosh, who leads the South Asia division of powertrain and compliance forecasts at IHS Markit, said in an interview over the phone.
FAME 2 brought with it a much bigger outlay, Rs 10,000 crore, but also more conditions and restrictions. Excluding lead-acid batteries was just one.
Electric two wheelers eligible for FAME 2 incentives had to adhere to price thresholds, minimum top-speed requirements, a 50% minimum localisation content restriction. That eliminated about 70% of the e-2W models available in the market today. A third because they are lead battery scooters and the remaining because they do not meet minimum riding range or top speed requirement, data with ICRA showed.
About 70-80% of the demand among lithium-ion scooters has been low range, low-speed vehicles that are being largely used for short commutes of up to 50 kilometres with city speeds, by either fleet owners or for personal mobility, said Gill of Hero Electric.
“By keeping stringent rules like a minimum range of 80km-which means bigger batteries, and other rules, it further increased the cost of the vehicles as more than 50% of the cost of an EV is the battery,” said Gill.
As a result, sales of electric two-wheelers tanked. While under FAME 1 close to 1.65 lakh two-wheelers availed subsidy as per industry body SMEV, under FAME 2 only 40,000 two-wheelers have been sold between April 2019 and February 2021, according to data with the Department of Heavy Industry.
“If the government had provided incentives to lithium-ion scooters without restrictions, the demand would have skyrocketed by now, especially when a consumer is increasingly looking for personal mobility at a time when the fuel prices are at record levels,” said Ritu Goswami, senior analyst at ICRA.
Too Many Policy Changes?
While experts ascribe the poor policy performance to many reasons, the primary one seems to be a short-term approach. The first policy was a two-year one, though it was extended to four years. FAME 2 is a three-year policy.
“EV is a transition technology, where we are talking about an entire ecosystem movement, and it requires at least require a 5 to 10-year road map, and not a two, three-year vision, like in FAME 1 & 2,” Maxson Lewis, managing director at Magenta Pvt. Ltd.—a startup that develops and makes EV charging stations, said over the phone. There should be continuation of policy so that industry knows there won’t be any abrupt shocks, he said.
While agreeing with the policy intent, such as discontinuing lead acid battery vehicle coverage or mandating localisation of content, Gill said changes should have been made once the industry had reached certain volumes.
Goswami said the rules could have come in a phased manner with sunset clauses. “You have to be very realistic in terms of what is available in the market, and where is the industry right now.”
Then there are other concerns.
Not much has been done to boost the supply chain and battery infrastructure in the country. It is only last year that India approved a Rs 18,000-crore production-linked incentives scheme for manufacturing of advance chemistry cells, but again more clarity is needed, said Goswami of ICRA, adding that the PLI scheme will help in the long term.
Goel, who serves as chairman of the FAME 2 program, too, agreed that engineering R&D has not been to the desired extent in the country. “We couldn’t be the leader but are followers in auto sector, but we need to use the opportunity of disruption in EVs.”
Lewis pointed to smaller but equally important misses. “While the government provided incentives to fleet owners in electric four-wheeler policy, but in the case of electric two-wheelers, they did the exact opposite,” he said, citing exclusion of low-range scooters used by delivery fleet operators.
Other issues such as lack of awareness among consumers regarding e-2Ws and available incentives have also hampered sales.
“Awareness was the biggest bottleneck for us. From range anxiety, charging infrastructure, after sale service, upfront demand incentives, benefits of e-2W in terms of total cost of ownership etc. have been lacking,” said Jeetender Sharma, managing director of Okinawa Scooters, which has sold so far 90,000 electric scooters in the last three years.
In January the government launched the Go Electric campaign to promote e-mobility in the country. The timing is propitious. Petrol and diesel prices in India are at Rs 100 a litre.
States are also getting into the game—over 10 have so far announced or drafted EV policies, according to Goswami at ICRA. These have increased consumer interest.
Meanwhile, India continues to set ambitious targets.
Last week during the Go Electric Campaign, Alok Kumar, power secretary, reiterated that 30% of total EV’s in India would be electric by 2030, while Nitin Gadkari, minister of road transport and highways, said India would become the leading manufacturing hub for electric vehicles in the next five years.
“Setting targets is one thing but it quickly needs to be followed up with policies on ground which enables one to at least be able to achieve 70% of those targets,” Lewis said. For example, India approved battery-swapping but there has been no clarity whether someone can sell scooters without batteries, so the statement came but on ground, there was no clarity.
Ghosh of IHS Markit concurs. While the intent is there to become the largest manufacturing hub for EVs in India, he said, it is highly unlikely India will meet such targets.
China, according to Institute of Energy Research, owns 70% of the supply chain. And the access of raw material, Ghosh said, is limited for India. “In the absence of a clear policy road map, no breakthrough innovation, India will have to define its strength to become a hub,” said Ghosh. “We have to be realistic.”
“India might lose the opportunity to make a business out of EV opportunity,” Lewis said, citing the example of solar power. “It continues to be big focus in India, but the core manufacturing happens in China, not India.”