Editorial: A blow to the EV industry

Central decision to reduce subsidies for electric two-wheeler makers is a step backwards

At a time when the use of cleaner fuels needs to be promoted, the central government’s recent decision to reduce subsidies for manufacturers of electric two-wheelers is certainly a step backwards and is bound to hinder the adoption of electric vehicles. The government has slashed subsidies for electric two-wheelers from 40 percent of the factory price to 15 percent from June 1, putting the industry in a bind. an unstable position. There is a need to revisit the decision as it could significantly dent demand for electric two-wheelers. In 2022-23, they will sell 726,000 vehicles, compared to 250,000 the previous year. As the two-wheeler market is price-sensitive, the reduction in subsidies will lead to a sharp drop in sales in the coming days. A gradual transition through continued subsidies will be the ideal way to ensure market growth and reach the international benchmark of 20% EV market share. However, a sudden and sharp cut to subsidies could lead to a sharp drop in sales that could affect the industry as a whole. In fact, the decision goes against milestones set by the government to steer two-wheeler manufacturers away from petrol engines and towards more sustainable options. It also presents a major challenge to achieving low-emissions targets through increased EV penetration. Electric vehicles now account for nearly 5 percent of total two-wheeler sales. The subsidy cuts have the potential to reverse the progress made so far and reduce the affordability of electric two-wheelers.

According to previous forecasts, the size of the Indian electric two-wheeler market is US$890 million in 2022 and is expected to reach US$6 billion by 2030, with a growth rate of 27-30%. But those figures could change after subsidies are reduced. This is especially worrisome for new entrants who rely on these subsidies to compete in the market. In addition, the reduction in subsidies places a heavy burden on consumers by increasing the cost of electric two-wheelers by 30% to 40%, making it more challenging to convince them to transition from internal combustion engine (ICE) vehicles to electric vehicles . India must follow the model of China, the United States and some European countries that offer more subsidies to promote the adoption of electric vehicles. To ensure the continued growth of the EV industry, the government must extend the FAME subsidy until EV penetration reaches a significant level of 10%. Additionally, reducing import dependence and building a strong localized EV ecosystem should be a priority. India’s ambitious plans for the electric vehicle industry show the country’s potential to become a global leader in clean and sustainable transportation. However, this vision can only be realized if a favorable policy environment is maintained, incentivizing domestic manufacturing and providing long-term support for the industry.