India, a significant participant in the worldwide automotive business, has began specializing in transitioning to different fuels to curb air pollution after increasing its shopper and automobile bases and including native manufacturing services over the previous twenty years. On this journey, 2024 will be an important yr, because the nation — the third-largest automotive market — faces challenges to supply accessible progress capital to late-stage startups whereas attempting to lure Tesla and different overseas EV producers to enter its home market.
How EVs fared in 2023
In 2023, India, the world’s largest two- and three-wheeler producer, offered nearly 24 million autos, together with business and private four-, three- and two-wheelers, in keeping with the most recent knowledge on the federal government’s Vahan portal. Of the overall variety of autos registered, greater than 1.5 million had been EVs, capturing 6.35% of the overall base, together with 813,000 electrical two-wheelers. While the general progress was practically 10% from about 22 million autos offered in 2022, EV gross sales grew by near 47% from 1.03 million EVs offered final yr.
This brings the overall variety of electrical automobile gross sales in the nation to almost 3.5 million. Two-wheelers accounted for greater than 47% of gross sales, four-wheelers represented about 8% and the remaining got here from e-rickshaws and three-wheelers.
India’s EV gross sales grew from practically 125,000 in 2020 to over 1.5 million in 2023, per the info supplied by Vahan. Image Credits: Jagmeet Singh / Ztoog
India’s annual progress in EV gross sales in 2023 is critical; nevertheless, it’s not as excessive as in the earlier two years, which had been over 209% in 2022 and 166% in 2021. One of the explanations for the dip in the gross sales of EVs is the reduce in subsidies given to two-wheeler prospects by the motivation scheme referred to as Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles, generally referred to as FAME-II, that got here into impact in June and dropped the month-to-month gross sales of electrical two-wheelers in the nation over 56% in that month alone. The sudden drop in electrical two-wheeler gross sales has arguably impacted the nation’s general EV market, as India is predominantly a two-wheeler market and has restricted producers in the electrical automotive section.
Ravneet S. Phokela, chief enterprise officer of electrical two-wheeler startup Ather Energy, instructed Ztoog that the market took a success for about three months as a result of FAME-II replace, although it has rebounded to pre-subsidy change ranges as of October.
“From the bounce back, how the rapid growth is going to be remains to be seen, but we expect it to be more gradual than exponential. However, the days of 100% quarter-on-quarter growth are gone,” he stated over a name, including that the change would assist in the medium-term perspective.
“In a way, while the subsidy impacted us in the short term financially, if I just take a macro view, there has actually been a good outcome because now, the market pricing is close to non-subsidy levels, which means the market has gotten used to price levels that we can explore broadly when subsidy goes over,” Phokela famous.
The subsidy replace has additionally precipitated consolidation and sudden exits of many small-scale electrical two-wheeler manufacturers, together with those promoting rebranded Chinese autos. Phokela stated that the highest 4 market gamers, particularly Ola, TVS Motor, Ather Energy and Bajaj, presently seize about 80% of the overall electrical two-wheeler market. These gamers mixed had about 26% to 27% of the market about 9 months in the past (earlier than the federal government up to date FAME-II in May).
Ather Energy offered a median of about 80,000 to 85,000 models this yr and expects an analogous gross sales determine for 2024, Phokela stated.
Apart from electrical two-wheelers, the $1.38 billion FAME-II scheme applies to three- and four-wheeler gross sales to spice up EV consumption in the nation.
New Delhi has given greater than $628 million in subsidies by December 1 underneath FAME-II on the sale of 1.15 million, in keeping with the federal government knowledge shared in the parliament.
EV producers have demanded that the federal government proceed providing subsidies to let the market maintain its progress and increase additional to satisfy the nation’s electrification goal to have 30% EV penetration by 2030.
“Given that the costs are still not optimized yet for the supply chain, it is important for the government to continue the subsidy for two to three years and taper it down,” Phokela stated.
Sources conversant in the event instructed Ztoog that business gamers have requested the federal government present predictability in its insurance policies and keep away from bringing abrupt modifications, such because the case of FAME-II updates, to allow them to make assumptions and base monetary and enterprise planning accordingly.
“A lack of predictability is the biggest killer point for the industry,” one supply stated. “Even if you are saying six months, please tell us that it will be for six months and then turnaround, but don’t say two years and end in one year.”
In addition to FAME-II, the Indian authorities has supplied a $3.11 billion production-linked incentive scheme to draw investments and push home manufacturing of car and auto parts in the nation. Indian automotive producers Tata Motors and Mahindra & Mahindra have emerged because the early beneficiaries of the motivation scheme. The authorities reported greater than $1.43 billion of investments got here till the second quarter of the monetary yr 2023-24 on account of the scheme.
Tata Motors noticed a progress of 63% in EVs and elevated EV penetration in its portfolio to 12% this yr, an organization spokesperson stated in an announcement to Ztoog.
Automobile producers, together with Ather Energy and Tata Motors, launched their new EV fashions in the nation to increase their presence and appeal to new prospects.
Phokela underlined that “premiumization” emerged as a notable shopper development this yr, notably in the Indian electrical two-wheeler market. The development of premium fashions coming to the market will proceed in 2024, he predicted.
All 4 high electrical two-wheeler manufacturers have autos between the value vary of $1,400 to $1,800, whereas the normal inner combustion engine two-wheelers can be found at a median worth of $1,000.
In the final 12 to 18 months, the electrical two-wheeler market additionally noticed rising gross sales from the tier two and tier three cities. For Ather Energy, Phokela stated solely 43% of its gross sales got here from tier one cities, whereas 57% was from tier two and tier three cities — regardless of its restricted distribution in these areas. The startup is now increasing its distribution to get even greater gross sales.
Some market observers consider that the expansion of electrical two-wheeler gross sales in the creating elements of India is because of hefty electrical energy subsidies. However, Phokela argued that if that had been the explanation, there can be a major progress in the demand for low-end autos, not the premium fashions. People in non-metro cities think about EVs as standing validation and a solution to showcase, he stated.
Commercial use instances as a significant investor attraction
Although high electrical two-wheeler producers have to date focused the non-public mobility section in the Indian market, traders are bullish on the expansion of economic use instances.
“In the next two to three years, the majority of the traction will come from B2B use cases — whether it is three-wheeler cargo, three-wheeler passenger, eco-mobility, food delivery, hyperlocal delivery, fast/quick commerce, the use of EVs there is the one that’s accelerating much faster,” Kunal Khattar, founder and normal companion at Indian VC fund AdvantEdge Founders, instructed Ztoog.
He stated whereas the share of economic autos is about 30 million, or 10% of the overall variety of autos on the street in India, they devour nearly 70% of the vitality of all of the autos.
Commercial electrical autos devour a big proportion of vitality in India. Image Credits: Sanchit Khanna/Hindustan Times
“If you’re in the business of energy, whether it is battery manufacturing or swapping, energy storage or building charging infrastructure, your entire focus should be on B2B,” he famous.
Sandiip Bhammer, founder and co-managing companion at New York-based local weather tech VC fund Green Frontier Capital, instructed Ztoog that the chance to achieve sooner and extra fast progress in the business section is considerably greater than in the buyer section.
“The economic viability of two-wheeler and three-wheeler segments on the commercial side is much clearer than on the passenger car segment,” he stated.
Investors consider that in comparison with the buyer section, the business section is much less liable to be impacted by subsidy modifications. This is as a result of companies think about the overall price of possession slightly than the face worth of the automobile they buy.
Khattar stated the B2B section will be 100% electrical in India in the following two to 3 years, regardless of whether or not subsidies and different incentives can be accessible.
The nation plans so as to add 1000’s of battery-operated auto-rickshaws and e-buses to affect public transportation throughout states in the approaching months. Likewise, it appears to be like to supply EV charging stations at numerous native fuel stations.
Capital move in the market
Equity investments in India’s electrical automobile (EV) market decreased by 52%, from $2.1 billion in 2022 to $1 billion in 2023, in keeping with the info shared by VC analyst agency Tracxn earlier this month. The variety of funding rounds additionally dropped 62%, from 135 in the earlier yr to 51. However, EV funding was not as dire as in some top-performing sectors, corresponding to tech, SaaS, agritech and well being tech, the place fairness investments dropped by over 80%.
Bhammer of Green Frontier Capital stated the drop in EV funding this yr was primarily because of valuations that had been too excessive in lots of the current startups.
“If you look at new companies that are raising capital, they are actually raising capital at a much more reasonable valuation than the older companies doing extension rounds,” he stated.
India’s EV funding declined to $1.5 billion in 2023, per the info supplied by Tracxn. Image Credits: Jagmeet Singh / Ztoog
Investors are optimistic concerning the capital move progress in 2024 however cautious about muted numbers, notably in the buyer section, because of FAME-II modifications and lack of readability on subsidy extension.
“We need the support of the government, in terms of subsidies and taxes and all of that, because of the fact that we are not mainstream yet,” Khattar of AdvantEdge Founders stated.
One key motive for being hopeful is India’s rising international presence and changing into part of the China+1 technique for many international corporations.
“China has now started de-growing. So, India is the beacon of hope in an otherwise pretty dull emerging markets scenario,” Bhammer stated.
What’s developing subsequent?
While India continues to be a nascent marketplace for EVs, international EV corporations together with Tesla and VinFast are additionally seeking to enter the Indian market in the approaching months to leverage the scale of the world’s most populous nation. The Indian authorities is creating a brand new EV coverage to draw overseas carmakers to foray into the market alongside supporting home gamers to increase the nation’s electrical automotive base. Incumbents together with India’s high carmaker Maruti Suzuki are additionally intently observing the continuing strikes by worldwide gamers to search for the proper time to enter the market.
“Legacy carmakers are in no hurry. When they launch, they will distribute, and through their distribution, they will be able to start selling numbers as much as, if not more than, existing players,” a supply instructed Ztoog.
Companies together with Tata Motors, that are already in the EV market with their autos, are working to handle the present adoption challenges.
“Charging infrastructure growth remains the residual barrier for mass adoption of EVs. Tata Motors has initiated open collaboration with key charging players to accelerate the growth of chargers, which will deliver a better experience to the EV buyers,” the Tata Motors spokesperson stated.
Ravi Pandit, co-founder and group chairman of car tech firm KPIT Technologies, instructed Ztoog that software program and {hardware} have change into the automobile’s core and that development will proceed to develop over time.
“Now, the model is changing where instead of there being a lot of computers in a car, there will be a computer and around which there will be a car. That’s a fundamental shift,” he stated.
Similarly, electrical two-wheeler producers and infrastructure suppliers are engaged on standardized charging options. Ather Energy has already collaborated with Hero to supply interoperability on charging.
“We have about 1,400 fast chargers, and Hero Vida has about 500, and we are growing on a monthly basis,” stated Phokela. “We are in conversations with many other OEMs, and these discussions are at different levels of maturity.”
In addition to standardization and interoperability on the charging aspect, some corporations are exploring alternate options to lithium, together with sodium-ion-driven applied sciences and silicon anode.
“What is clear is that you cannot drive revolution in any sector unless you have access to the raw materials that power the industry. So, if China controls the refining capacity of lithium, how would India drive the EV revolution if it has to keep going to China for its batteries,” Bhammer stated.
He talked about that different incoming updates in the market embody vehicle-to-grid and clip-on gadgets that will be accessible on a subscription-based mannequin to assist customers convert an current two-wheeler from a non-EV to an EV with out charging the motor or battery completely.