Freezing out ICE

EVs have a long way to gain traction

Bhavish Aggarwal of Ola Electric is of the view that it is time to shut down the production of scooters that run on internal combustion engines (ICE) and focus on investing in “meaningful” and “quality” two-wheelers. This statement, in an interview with Business Standard, can be interpreted as fighting talk from India’s leading e-two-wheeler player to his ICE competitors, which still outsell him by a long margin, or the politically correct stance of a promoter mindful of the government’s target of having electric vehicles (EVs) account for 80 per cent of two-wheelers on the road by 2030. Having launched four e-scooters and showcased e-motorbikes, Mr Aggarwal has admittedly added heft to his statement. As a first move, the promoter of the SoftBank-invested manufacturer may be on a strong track, but the ground reality is that electric two-wheelers in particular and EVs in general have a long way to go in gaining traction in the Indian market.

Though India’s e-two-wheeler market has grown by leaps and bounds since 2019, it is still a minuscule segment of it. In 2022-23, for instance, e-two-wheeler sales grew two and a half times over the previous year to 846,976 units. This is impressive but some distance from over 15 million ICE two-wheelers sold in the same year. Worth noting is the fact that these sales are driven mainly by the government’s signature programme Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles, or FAME, the second edition of which was announced in 2019 and was to run to 2024. It offered manufacturers a subsidy that covered up to 40 per cent of the vehicle cost. FAME-II became a victim of its own success, powering rapid e-two-wheeler sales, which soon depleted the outlay earmarked for it. Being a subsidy paid to manufacturers rather than a consumer-focused incentive, it inevitably ran into problems with some makers resorting to such practices as charging consumers battery costs separately and so on. The result has been a sharp cut in FAME-II subsidies with effect from June 1 this year, with sales decelerating steeply.

The irony of the FAME experience is that EV penetration in India is just 5 per cent or so against an East Asian average of 17 per cent. Convincing a critical mass of Indians to buy EVs in general and e-two-wheelers in particular will require more fundamental changes than ICE manufacturers’ mass enlightenment. The creation of charging infrastructure is one issue that is slowly working itself out but with a presence of just 6,586 public charging stations to date is unlikely to galvanise the EV market just yet. This is a chicken-and-egg situation that China anticipated by focusing on this element early; the country now has 1.8 million public charging stations. This apart, a draft battery-swapping policy, put out by the government’s think tank NITI Aayog last year, awaits clarity on interoperability standards that manufacturers have strongly opposed. Confusion over treatment under goods and services tax (GST) adds to the problems. GST on batteries, comprising mostly imported materials, is levied at 18 per cent, though the rate on EVs is 5 per cent. These critical questions have to be answered meaningfully before Mr Aggarwal’s ICE two-wheeler competitors hasten to shut down production.