“India is a price-sensitive market. In such a situation, the withdrawal of subsidy may affect the sale of two wheelers. But eventually, the industry will learn to live without incentives, and to that extent, the long-term EV story remains intact,” said Arpit Agarwal, director of Bloom Ventures. The VC firm has invested in several EV startups including Yulu, Electricpay, and BatterySmart.
Last month, following in Goa’s footsteps, Maharashtra withdrew subsidies on electric scooters and motorcycles, making them costlier every year. 10,000 per vehicle. Goa ended its incentive policy in July 2022. Maharashtra had the highest number of two-wheeler registrations in India with 40,000 registrations in the first six months of 2022. State subsidies were being offered. 5,000 per kilowatt-hour (kWh) of battery capacity, with an upper limit of 10,000. According to two wheeler platform BikeDekho, initially the subsidy was for 100,000 vehicles, but around 64,000 buyers benefited.
EV sales in August showed demand remained unaffected by the decisions. According to the government’s vehicle registration portal Vahan Information, the registration of electric two-wheelers has crossed the 50,000 mark for the second time since March.
With 10,476 two-wheelers registered in August, Hero Electric topped the chart, with Okinawa and Ampere taking the second and third positions with 8,554 and 6,396 units respectively.
Okinawa Autotech, one of the largest selling electric two-wheeler manufacturers in the country, does not see any reduction in demand for its vehicles, said Jitendra Sharma, Founder and Managing Director.
“While we expected the state subsidy to continue for customers to accelerate EV adoption in India, the rollback should not impact overall sales,” Sharma said.
Apart from states, the Center also provides incentives for buying electric vehicles under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME II) policy. with an outlay of 10,000 crore, this scheme provides subsidy 15,000 per kWh on electric bikes and aims to boost sales of electric vehicles in the country. This scheme is valid till 31st March 2024.
According to a 2021 joint report by Indospace and Colliers, India’s EV segment is projected to receive an investment of $12.6 billion in the automotive supply chain over the next five years. The report also states that 64% of the investment will be in automakers and the rest in battery manufacturing.
Investment in the EV space has picked up after a brief slowdown in 2020. In 2021, total private equity and venture capital investments in the EV segment grew eight-fold to $1.7 billion in 2021, from $181 million in 2020. ‘Electrifying Indian Mobility’ by IVCA-EY-Induslaw.
Buoyed on rising demand, higher sales forecasts and a supportive regulatory environment around the EV ecosystem, investors are expected to double down on their investments.
There have been many deals in the first eight months of this calendar year. For example, last month electric two-wheeler maker UltraViolet raised $10 million from Amsterdam-based Axor Capital. Another two-wheeler maker, River, raised $11 million in a Series A round led by Chris Sacca’s LowerCarbon Capital with participation from Toyota Ventures. Meanwhile, ride-hailing start-up BlueSmart Electric Mobility said in July that it is close to raising $250 million from investors including BP Ventures.
However, things may change once the FAME II scheme ends. Ankit Kedia, founder, Capital A, said investors are expected to ask startups what their business would look like after the subsidy ends. “At that point, the valuation will turn right and the investment lens will change as well.”
While FAME II will be out in 16 months, the industry may take a little longer to come of age. Okinawa’s Sharma expects the Indian EV market to mature in the next few years. “Five years from now, electric scooters will be 20% of the ICE scooter market. In 2025, the total market will be around 26 million scooters, of which 5 million will be electric scooters.
Apart from this, there are many other factors for customers to choose an EV over petrol two-wheelers, notwithstanding the higher upfront cost. Lower registration fees for EV buyers and the Goods and Services Tax (GST), lower maintenance costs, and a significantly higher price of gasoline compared to the cost of electricity are some of the reasons, said Neeraj Rajmohan, co-founder and chief technology officer, Ultraviolette, A Bengaluru-based EV manufacturer that recently raised $10 million from Amsterdam-based Axor Capital.
Investors also expect rising prices to eventually push companies to seek cheaper technologies. “This (states ending incentives) will prompt manufacturers to innovate and optimize costs,” said Shailesh Vikram Singh, an investor at Climate Angels.
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