Policies and Subsidies Enhance Electric Vehicle Sales in India, But Market Share Faces Challenges

India's electric vehicle (EV) market has seen growth due to central and state policies from 2014 to 2023. However, these policies have not significantly increased EVs' share in the overall vehicle market. Challenges such as consumer preference for internal combustion engine (ICE) vehicles and insufficient charging infrastructure persist, according to a recent study.

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India aims to cut carbon emissions per GDP unit by 45% by 2030 and achieve net zero by 2070. The transport sector, responsible for 14% of energy-related carbon emissions, is a focal point. India also seeks to become a global EV manufacturing hub to drive growth, reduce imports, and create jobs.

EV Sales Goals and Challenges

The country has set ambitious targets: 30% EV sales in cars, 70% in commercial vehicles, and 80% in two- and three-wheelers by 2030. Despite policies and incentives, high costs, battery shortages, and unclear national targets pose challenges. The Institute for Energy Economics and Financial Analysis (IEEFA) examined government support's effectiveness for EV growth.

IEEFA found that higher subsidies under FAME-II significantly boosted electric two-wheeler (E2W) sales. A one-standard-deviation increase in subsidy intensity led to a 12.7% sales jump. States with supportive policies saw 54.5% higher E2W sales than those with only central policies.

Subsidies and Infrastructure Needs

Despite subsidies, E2Ws' share in total two-wheeler sales was just 4% by the end of 2023. IEEFA researchers suggest subsidies alone are insufficient to transform the market. To reach the goal of 30% E2W sales by 2030, India must invest in reliable public charging infrastructure.

Continued purchase subsidies are essential to maintain momentum but should be phased down over time. This approach will help consumers and manufacturers plan better while nudging the market towards cost parity and self-sufficiency, says Charith Konda, Energy Specialist at IEEFA.

Segment-Specific Insights

The electric three-wheeler passenger (E3WP) segment grew during FAME-I but saw little direct impact from FAME-II, indicating maturity beyond subsidies. Strengthening financing, local manufacturing, and urban integration can help this segment scale without broad-based subsidies, said Subham Shrivastava, Climate Finance Analyst at IEEFA.

For electric three-wheeler cargo (E3WC), sales rose due to lower costs and state policies. Adoption rates increased by 8.4% in states offering support. Electric four-wheeler commercial (E4WC) sales surged with FAME-II and Production Linked Incentives; supportive states saw 211% higher sales compared to others.

Future Policy Directions

However, adoption rates for E4WC improved only slightly. For electric four-wheeler private (E4WP), subsidies mainly targeted commercial use, keeping private vehicle adoption low at about 2%. As India transitions from FAME schemes to PM E-DRIVE and similar initiatives, policymakers must tailor interventions for each EV segment, Konda advised.

The study underscores the need for comprehensive strategies beyond subsidies to boost EV adoption across segments. Addressing infrastructure gaps and providing clear policy directions will be crucial for achieving India's ambitious EV targets.

With inputs from PTI