Local and foreign companies are fighting for a slice of India’s nascent market for electric cars and two-wheelers, despite worries ranging from limited numbers of charging stations to cases of scooters catching fire.
Indian authorities want EVs to make up 70% of sales of commercial cars and trucks, 30% of private cars, 40% of buses, and 80% of two- and three-wheelers by 2030. That would mean 102 million EVs plying the country’s roads, a dramatic increase from around 1 million in the 2022 fiscal year, according to estimates from researchers at the CEEW-Centre for Energy Finance (CEEW-CEF).
The electric car subsidiary of Indian auto giant Mahindra & Mahindra this month raised US$250 million from British International Investment, pushing the unit’s valuation above US$9 billion, about half the market capitalisation of its parent. That follows India’s largest electric car maker, Tata Motors, sealing US$1 billion of finance in October to back its EV ambitions.
“Global players definitely have the advantage of scale, but Indian businesses have done well at innovating despite staying frugal,” said Subhabrata Sengupta, executive director at Avalon Consulting.
“There will be enough capital flowing into them for product development that will lead to a strong product pipeline in the next four to five years. … we will see a strong uptake of EVs, maybe not enough to meet the government’s target, but not very far from it either.”
Indeed, SoftBank Group-backed Indian scooter maker Ola Electric last week said it would invest US$500 million to set up a battery “innovation centre” in the southern city of Bengaluru. Rival company Ather Energy, which raised US$128 million in May, is building a second factory to more than triple its annual production capacity to 400,000 scooters.
The shift to battery-powered vehicles comes as the government cuts taxes on electric cars and introduces two subsidy schemes, trying to clean up the notoriously polluted streets in some of India’s sprawling cities and hit its 2070 net-zero greenhouse gas emissions goal.
One is a nearly 260 billion rupee (US$3.3 billion) package to be rolled out from 2022 to 2027 to spur local production of vehicles powered by electricity or hydrogen fuel cells. The other is a programme worth around 180 billion rupees to boost local battery production.
Foreign companies, however, have also been flocking to a market they see as ripe with potential. CEEW-CEF estimates EVs accounted for just 2.6% of vehicle sales in India in the financial year through March 2022, leaving huge room for growth.
Japan’s Toyota Motor and South Korea’s Hyundai have announced a total of US$1.15 billion in investments in the burgeoning sector, while Japan’s Suzuki Motor has committed another US$1.26 billion to build a new factory for electric car batteries.
Suzuki’s Indian unit, Maruti Suzuki, is the nation’s largest passenger car company, with a nearly 43% market share in fiscal 2022. It aims to roll out electric cars by 2025.
Meanwhile, Kia Motors, one-third owned by Hyundai, and China’s MG Motors are also stepping up EV sales in India, with Germany’s Volkswagen aiming to launch an electric model in the country next year.
So far, it has mainly been scooters and other two-wheelers blazing a trail. The CEEW-CEF says only 16,853 electric four-wheelers were sold in the country in the last fiscal year, compared to 231,357 electric two-wheelers.
“With four-wheelers, the development costs are significant and the process is complex,” said CEEW-CEF Director Gagan Sidhu. “One of the reasons we are sitting at about 16,000 four-wheelers is because there are not a lot of models out there.”
Local scooter startups such as Ola, Ather and Okinawa have been locking horns with legacy manufacturers like Bajaj Auto, TVS Motors and Hero Electric. Japan’s Honda Motor, whose Indian subsidiary is the nation’s largest scooter manufacturer, aims to launch a string of two-wheelers as a springboard for electric car sales in the country, which it hopes to raise to 1 million units by 2030, local media reported.
But at least two-dozen high-profile electric scooter fires across India since March risk tainting the entire electric segment, with vehicles from manufacturers including Ola, Ather and Okinawa involved.
Ather said a preliminary investigation found that cracks in some of its battery packs had exposed cells to water. Ola referred to an “isolated” incident, while Okinawa said the company was committed to passenger safety.
At least four people have reportedly died in these fires, including a man and his daughter in the southern state of Tamil Nadu, who allegedly suffocated as smoke seeped into their home after his scooter short-circuited and caught fire while charging.
The government ordered recalls of some scooters and set up an expert panel to look into the fires, with penalties expected to be announced in the coming months.
Elsewhere, a Tata Motors electric car also caught fire last month in India’s financial capital, Mumbai. The company blamed an “isolated thermal incident”, saying it was conducting a “detailed investigation” into the cause.
The sector is also bracing for other headwinds. The rollback of a 100 billion rupee subsidy for electric two-wheeler buyers is slated for 2024, with analysts saying that could swing the balance back in favour of internal combustion engine two-wheelers.
“Sales of electric two-wheelers picked up because of government subsidies that lowered the cost of EVs,” said Jay Kale, senior vice president at Elara Capital. “When subsidies go away, the economics of two-wheelers go for a toss.”
A lack of public charging infrastructure is another big obstacle. The government estimates that India had 1,742 public charging stations as of March, with another 2,877 in the works. By comparison, the US – home to about 1.8 million EVs in 2020 – had about 42,000 charging stations, Pew Research Centre said last year.
The CEEW-CEF estimates India will need 2.9 million public chargers by 2030 for the government to reach its green mobility targets. Kale at Elara Capital calls it a “chicken and egg” problem – charging infrastructure providers want EV sales to shoot up before making hefty investments, while shaky infrastructure could hurt sales.
“Some car makers feel there will be no demand because charging infrastructure is not there. Charging infrastructure doesn’t get set up because there aren’t enough vehicles on the road,” Kale continued.
“That said, EV adoption will increase significantly, particularly with two-wheelers, but I think it will be challenging to achieve the broader goals within the targeted time frame.”