Electrifying the EV Industry into Action: An Analysis of India's EV Policies

FAME-II – what was it and what impact did it have?

The Faster Adoption and Manufacturing of Electric Vehicles in India Phase II (known simply as FAME-II) was launched in 2019 with the aim of developing the electric vehicle ecosystem in India. Broadly, it has been considered a success – there has been an explosion of electric vehicle production, sale, and demand in the last few years. FAME-II focused heavily on creating demand among the Indian public, banking on the increased demand to spur private investment.  

FAME – II subsidized the sales of electric two wheelers, three wheelers, four wheelers, and buses, in order of quantity.  

While the latter three categories did not use up their allocation, the sale of electric two wheelers exceeded the intended allocation by 2,00,000 units (selling 1.2 million).  The greatest activity and media buzz has also been around the E2W industry, with players such as Ola Electric, Ather, Bajaj, TVS, Hero MotoCorp, etc expanding production and engaging in aggressive marketing. Consider the following graphs; keep in mind that FAME-II was introduced in 2019.  

Data in this graph has been taken from here.

Nearly 86% of the funds under FAME-II were for driving demand. These subsidies made EVs, which have a higher upfront cost than Internal Combustion Engine (ICE) vehicles, more palatable to buyers. 

The 4-Wheeler industry has also seen big moves, especially from Tata Motors, which has been proactively launching EV models of existing ICE cars, and now has the largest market share in the E4W market. In FY2024, the Indian motor giant commanded 72% of the market share in EV private vehicles. Its most popular models such as Nexon EV, Punch EV, and Tiago EV have helped drive sales.

What are the future goals of the government? Which issues are troubling the industry?

By 2030, the Indian government expects: 

• 30% EVs in private cars

• 70% in commercial vehicles

• 40% in buses

• 80% in E2W, E3W. 

  
  

This means that by 2030, the government is targeting 80 million EVs on Indian roads. Minister of Transport, Nitin Gadkari has predicted ‘10 million annual sales’ in EVs by 2030. However, the immense recent industrial activity in the sector has also brought to light some issues that need to be addressed if the government is to achieve its lofty goals for the Indian EV industry.

Firstly, the main component of the lithium-ion batteries used in EVs, the metal lithium, is scarce in India. To pursue some degree of lithium independence, the government signed an agreement with CAMYEN SE, an Argentine state-owned enterprise, to explore and extract lithium deposits in the Catamarca province of Argentina. 

Secondly, India relies very heavily on imports of cells for use in batteries. Most of these imports come from East Asian countries, such as South Korea and China. This is due to a lack of expertise, facilities, and supplies in India. Moreover, countries such as China and South Korea have highly developed battery manufacturing ecosystems, with healthy research and development. Consider the fact that Bhavish Aggarwal, Chairman of Ola Electric, commented that 90% of the world’s capacity for cell manufacturing is in China. These cells are the most important component of an EV; batteries can also make up 30-40% of an electric vehicle’s cost. All these facts mean that India’s EV industry currently faces supply chain insecurity. In 2021, the government rolled out a Production-Linked Incentive for ‘Advanced Chemistry Cell Battery storage’. With an allocation of ₹18,100 crore, the scheme is focused on building 50 GWh worth of manufacturing capacity. Bids have been received by the government, and the government has awarded 30 GWh of capacity to a Reliance India Limited subsidiary, Ola Electric, and others. Ola Electric has already made operational its Battery Innovation Centre, following the announcement of the first indigenously-developed lithium-ion cell, NMC 2170.  

Potential buyers of EVs are also crucially unconvinced by the offerings due to range anxiety and the underdevelopment of EV charging infrastructure. Data shows that India will need 1.32 million charging stations by 2030; as of February 2024, there were approximately only 12,000 stations active in India. 

After FAME-II's expiration, the government introduced PM E-DRIVE to build on its successes and address emerging challenges.

PM E-DRIVE 

In September 2024, the government approved the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme, in effect from Oct 1 2024 to March 31 2026. This scheme has an outlay of ₹10,900 crore. 

Key features of this scheme include the incentivization of several categories of vehicle (with one notable exception – E4W), increased earmarked outlay for construction of the charging network, and upgradation of testing agencies to deal with new technologies emerging in the EV segment. 

Data in the following graph and beyond relating to PM E-DRIVE has been taken from here.

₹2,000 crore was earmarked for the development of charging networks in India, with nearly 73,000 charging stations aimed to be incentivized.  

More significantly, the scheme aims to cut emissions from public transport and trucks. ₹4,000 crore has been allotted for the upgradation of bus networks to EVs; cities such as Delhi and Mumbai already have a head start, with Delhi aiming for 80% electrification by 2025.  

The Indian automotive and technology sectors have responded proactively to the incentives and schemes launched by the government. Companies such as Ola and Ather have capitalised on these opportunities to grow explosively into billion-dollar companies. Companies such as Tata Motors and the Hinduja Group have also seized the opportunity in their respective niches. The Hinduja Group (owners of Ashok Leyland), operating in this segment as SWITCH, supplied the buses for Mumbai’s double-decker electrification push.  

PM E-DRIVE versus FAME-II

The most striking difference is the decrease in demand incentives. Subsidies for purchase of electric vehicles have decreased, now being completely absent for E4W. With an increased focus on buses and trucks (the latter in the future), and building charging infrastructure, PM E-DRIVE is focused more on building a market environment where EV sales are incentivized not through direct subsidies but through factors that are independent of upfront cost – ready availability of charging stations and achievement of economies of scale. PM E-DRIVE builds on FAME-II, and seeks to consolidate the gains made by the Indian EV market through continued government investment.

Conclusion

Some say that the most basic metric for consumer sentiment is sales, and if that is to be believed, then consumer sentiment in India regarding EVs is becoming rapidly more favourable. The double-pronged push by the government and the private sector have instilled some degree of confidence in the EV ecosystem; amongst Indian consumers, the purchase of a car is a big and significant investment done only after much consideration, so the fact that EV penetration is increasing year-on-year is a very positive marker.  

Some concerns remain, of course. India’s small charging infrastructure, the expansion of which will require massive capital expenditure, is a glaring issue affecting consumer confidence; moving forward, the government should devise systems that ensure that the private companies do not become dependent on the government for capex in such areas. India’s dependence on foreign imports for batteries, and its significant gap to Chinese battery science and technology, pose significant challenges for growth not only in the global market, but also within India. The most successful Chinese EV company, BYD, has recently begun operations in India, and is capable of offering feature-rich, reliable and attractive vehicles for cheap prices. It is clear that the Chinese EV industry will pose a challenge to the still-developing Indian players. The amount of expenditure required to gain the manufacturing and research expertise which enables cost-competitiveness is massive, and cannot be borne only by the government. There is hope that the cycle begun by the government’s infusion of cash (directly and indirectly) into the EV industry through its various schemes will allow the private players to stand on their own revenues quickly and expand at a competitive speed.