The electric vehicle market in India looks set to grow over 2024 and beyond despite a host of challenges, with government incentive-linked private-sector investment leading the way.
A rise in battery and electronic part prices since 2022 has impacted profitability atelectric vehicle (EV) manufacturers, Rohan Kanwar Gupta, vice-president and sector head (corporate ratings) at credit rating agency Icra told Argus.
"Achieving economies of scale in battery manufacturing will remain critical in lowering the cost of an EV and helping achieve pricing parity [with ICE vehicles in the future]," Gupta said. "Additionally, given that charging infrastructure penetration will only improve gradually, improvements in energy efficiency remain imperative."
The EV sector also faces a challenge from the lack of lithium processing in India, despite the discovery of lithium reserves in Jammu and Kashmir and Rajasthan states this year. It will take years for India to develop the technology to extract the lithium and process it in-house.
"As of now there is no lithium-ion production in India," Indian EV firmOkinawa Autotech's regional manager Uday N told Argus on the sidelines of the India eMobility Show in Bengaluru in October. "When lithium-ion production comes to India, simultaneously the battery cost will come down."
End-of-life of batteries is another challenge facing both manufacturers and consumers. EV batteries usually last only a few years, unlike ICE vehicles which can be continuously refuelled. The need to replace batteries every few years could deter consumers from opting for EVs over ICE vehicles in coming years.
Overcoming challenges
But the two-wheeler EV market will grow at a double-digit rate for the next 15 years, Indian EV makerOla Electric's regional head (west and north) Vishwash Sharma told Argus, as he made light of profitability concerns.
A subsidy cut in June 2023 impacted sales in the following few months, but the market has shaken off this impact, he said. This is evidenced by sales in November 2023 surging to their highest level since May 2023 to a revised 153,441 units, before falling back slightly to 140,842 units in December, data from government website Vahan show.
India already has subsidies on fossil fuels used in ICE vehicles, Sharma said, adding that EV subsidies will slowly be passed on to aggregators, and to companies which are into charging infrastructure and battery development, bringing down costs. There will be major investment in battery infrastructure in the next few years, Sharma added.
Major manufacturers continue to make losses because they are "cash burning" for the sake of market penetration, but once this is achieved cash burning will come to an end, Sharma said.
The government is also likely to introduce a third version of the Faster Adoption and Manufacturing of Electric Vehicles (Fame-3) scheme soon, with Fame-2 subsidies expiring on 31 March. The government is planning an outlay of 500bn rupees ($6bn) towards Fame-3, market participants told Argus.
Major industry body the Federation of Indian Chambers of Commerce and Industry (Ficci) has also proposed to the government the introduction of the Fame-3 scheme. Ficci wants the Fame scheme — which expires on 31 March — to be extended for five years, with a review at the end of three years.
But the rebound in sales of EVs a few months after the reduction of subsidies shows that consumers usually do not mind paying extra costs, especially for two-wheeler EVs, environmental consulting firmClimate Trends' industry engagement and research lead for e-mobility Archit Fursule told Argus.
A surge in the number of EV models in the market has also provided consumers with more choice, Fursule said. EV makers such as Ola Electric and Ather Energy have introduced vehicles with lower specifications to keep prices constant.
Investment from private-sector key
Governments of various states have begun to push growth of the EV market, using a combination of incentives, but 80pc of future incentive-linked investment will come from the private sector, Fursule said.
For example, the Tamil Nadu state government will develop EV charging infrastructure in six cities through collaboration between state-controlled and private-sector firms. The state will provide subsidies for new and expansion projects in the production of EVs, EV components and charging infrastructure, with producers having to choose one of the various subsidies available, among other incentives.
Indian aluminium producer Hindalco plans to commission a new 25,000 t/yr battery foil plant near Sambalpur in Odisha state by July 2025, aiming to cater to an expected rise in demand for EVs. US-based automaker Tesla will source $1.7bn-1.9bn worth of automotive components from India in the April 2023-March 2024 fiscal year, minister for commerce and industry Piyush Goyal said on 13 September.
There are nearly 300 OEMs in the Indian EV sector at present, with many plying their trade in regional markets. But the sector is likely to favour larger firms, which have higher spending power and can invest large sums to drive the Indian EV market forward in the years to come.
