Government's New Policy Likely to Boost Electric Vehicle Adoption beyond FAME Scheme

The Indian government's new Production-Linked Incentive (PLI) scheme for electromobility vehicles and hydrogen fuel cell beverages is set to boost the domestic manufacturing of batteries and key components. This initiative, expected to support several companies in states like Tamil Nadu, Karnataka, and Gujarat, aims to promote local production rather than just offering purchase subsidies. While specific companies are not named, the program offers opportunities for international manufacturers to establish local production, marking a shift towards building a self-reliant industry.

The lower fuel costs and anticipated gradual decrease in battery prices contribute to the better total cost of ownership (TCO) of electric two-wheelers compared to their internal combustion engine (ICE) counterparts. The PLI scheme could support demand for electric vehicles and push manufacturers to make investments in capacity building. However, the exact impact of the PLI scheme on the TCO and sales of electric two-wheelers is not explicitly stated.

In recent years, subsidies have played a significant role in driving electric vehicle (EV) adoption in India. The FAME II subsidy, which is expected to be exhausted a year earlier than the government deadline in FY23, has accelerated EV sales, with more than 20% year-on-year growth in most segments over the past five fiscal years. The absence of the FAME II subsidy and registration incentive in FY25 could lead to a `45,000 increase in the total cost of acquisition (TCA) of electric scooters compared to FY23.

Despite this potential increase, electric scooters are expected to remain more affordable than ICE variants, with the TCA expected to be lower by `7,500-9,500 in FY22 and FY23. This, coupled with the strong adoption of electric two-wheelers due to better cost economics, availability of multiple models, and feasibility of home-charging options, means that electric scooters are expected to comprise a majority of electric two-wheeler sales.

By FY26, sales of electric two-wheelers are projected to reach three to four million units, and this figure is expected to grow to 14-15 million units by FY31. The penetration of electric two-wheelers is projected to rise from 2% in FY21 to 10-15% by FY26 and 37-42% by FY31. This increase in TCA could potentially affect the penetration of electric scooters, but it can be offset if electric two-wheeler manufacturers share the benefits of the PLI scheme with customers.

In conclusion, the PLI scheme for EVs and hydrogen fuel cell vehicles is set to drive electric vehicle adoption in India after the current subsidy regime is exhausted. This shift towards promoting local production and self-reliance is expected to have a significant impact on the electric two-wheeler market in India, with sales expected to soar in the coming years.

Government's New Policy Likely to Boost Electric Vehicle Adoption beyond FAME Scheme