With India’s EV sales up 50% in 2023, the government weighs cutting subsidies as costs drop, but slow adoption raises concerns.
The indigenous electric vehicle (EV) industry in India has reached an important juncture as officials bicker over subsidies. While for Nitin Gadkari, Minister for Transport and Highways the subsidies might not be a necessity anymore, the experience of the uptake of e-vehicles paints a different picture.
Gadkari’s proposal to slash subsidies comes at a time when the EV market is rapidly evolving. He explains that renewable battery costs have tumbled while the GST on electric vehicles – just 5% in contrast to 48% on petrol and diesel automobiles – means consumers are not required to be subsidized to buy them. He said that battery prices have reduced greatly, and with five players having started lithium-ion battery manufacturing in India, more reductions in costs are expected. In the coming two years, he expects prices of EVs to be slightly lower than those of traditional ICE vehicles and no longer require subsidies.
Thus, although the Indian conditions are viewed positively regarding costs, the EV adoption rate remains low. According to government data from August 2023, the two-wheeler market share stands at 5.28%, while the car market share was at a meagre 1.99% as of 2018. This is far from the government’s ambitious target that it set out to achieve to have 30% of electric Vehicles by 2030. Not even India’s e-rickshaw sales, which are an important segment of the country’s EV market, could escape the slump, with the first quarter of 2024 recording a 21% drop.
In general, the world has shifted toward the use of EVs; the number of new registered EV sales accounted for more than 15% of total vehicle sales in 2023. Leading the pack is China which holds 60% of the global EV sales. Germany and France, for instance, have cut on production subsidies and retained purchase incentives for consumers. The shift has hampered electric transformation for European car manufacturers, and many users still doubt their respective governments’ capacity to fund essential charging infrastructure.
Yet, the United States has its challenges as well. While it has enjoyed the luxury of cheap oil in the recent past, it has lagged in EV adoption, with political polarization over climate change negatively impacting the industry. As for the shift to green energy, Japan is much more careful when it comes to EVs, which are being replaced by hybrids as a more efficient way to transition.
In many countries, there are fears that Chinese automobile producers who are backed up by their government might swamp the market with cheap models. Major importers such as the US, EU, and Japan are growing more circumspect about becoming the dumping ground for these vehicles.
India’s EV sector is younger compared to other developed nations, however, now the country has to choose what direction it wants to take to balance its growth and the new world. For instance, in the vision to make EVs ‘subsidy-free’, one can see some logic in what Gadkari wants to achieve. Manufacturing expenses may also reduce whereas battery technology is improving rapidly to make an electric car comparable with the ICE vehicle. The lowered operating costs will be able to deliver customers to EVs, without the need for any legislation to force them into the markets.
However, India’s slow demand for EVs serves as a reminder to be careful. As production costs seem to be lowering, consumers have not warmed up to EVs, and charging stations are grossly insufficient. The government’s leading Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) program has been continued up to March 2024 but with an ambiguous existence. The third phase of the scheme has to come out with solutions to issues arising from the earlier phases, but it is not known if they will concentrate on consumer subsidies or charging facilities.
