India's two-wheeler electric vehicle (EV) sales fell sharply in June from May following a government subsidy cut, although analysts told Argus demand is likely to recover in the medium term.
Indian manufacturers sold 45,806 two-wheeler EVs in June, down by 57pc from 105,357 in May and by 31pc from 66,791 in April but marginally higher from 44,372 units in June 2022, data from government website Vahan show.
The Indian government has cut the demand incentive provided under the Faster Adoption and Manufacturing of Electric Vehicles-II (Fame-2) scheme to 10,000 rupees/kWh ($121/kWh) from 1 June from Rs15,000/kWh earlier. It also cut the cap on incentives for electric two-wheelers to 15pc of the ex-factory price, down from 40pc earlier.
Sales had increased in late May after the government announced the subsidy cut from 1 June. Two-wheeler EV sales have historically comprised the majority of EV registrations in India.
But the subsidy cut could only temporarily affect two-wheeler EV sales, with market penetration projected to increase to 10-12pc of total vehicle sales by the April 2024-March 2025 fiscal year from around 4.5pc in 2022-23, said credit rating agency Icra's vice-president and sector head, corporate ratings Rohan Kanwar Gupta. But Icra has reduced the 2024-25 penetration forecast from 13-15pc earlier because of the cut in subsidies.
Two-wheeler EV sales will speed up in the medium term because of multiple factors including falling battery costs, he said.
"EV volumes are expected to be supported over the medium term by reduction in upfront price differential vis-a-vis the ICE [internal combustion engine] vehicles, benefitting from reduction in battery costs, vendor discounts/renegotiations as a result of increase in volumes, as well as various value engineering measures being undertaken by OEMs (original equipment manufacturers)," Gupta said. Manufacturers could launch new versions of existing products with lower specifications to reduce the price differential, he added.
Indian state-controlled oil marketing companies can look at reducing gasoline and diesel prices if they boost their financial performance in the coming quarters, Indian oil minister Hardeep Singh Puri said in June. Retail gasoline and diesel prices have been stable since May 2022.
But a reduction in these prices is unlikely and will not significantly affect EV demand even if it comes into force, fellow rating agency Crisil's director Poonam Upadhyay told Argus. "Demand for electric two-wheelers is more driven by total cost of acquisition and affordability and hence will not be significantly depend on the price of fossil fuels," she said.
Industry fears
The Society of Manufacturers of Electric Vehicles (SMEV), an industry body representing EV manufacturers, had written a petition to the National Green Tribunal (NGT) last month seeking a green tax on ICE vehicles.
The government's decision to cut subsidies "defies logic or law", SMEV secretary-general Ajay Sharma said. The industry body had alleged that the government had held up subsidies of around Rs12bn rupees it owed to EV manufacturers and even asked them to pay back subsidies provided in 2019.
The SMEV had raised fears of manufacturers shutting down because of "lack of working capital, loss of investor and bank support, delay in production timelines and a rapidly vanishing distribution network". The industry body had also asked the government for creation of a Rs30bn "rehabilitation fund" to revive and sustain the operations of EV producers.
The SMEV petition to the NGT followed an appeal to the government earlier in June to impose a green tax, although it is unclear whether either the government or the tribunal has responded to these requests. Officials at the Ministry of Heavy Industries have yet to respond to Argus' requests for comment.
The government had told parliament this year that two OEMs had their Fame-2 subsidies suspended because of complaints about violations of the Phased Manufacturing Programme. But it did not name the companies.
A parliamentary panel said in April that the government has achieved only 52pc of its target under the Fame-2 scheme so far. Only around 800,000 EV and hybrid vehicles had been produced under the scheme until 31 December 2022 compared with a target of over 1.56mn.
The sharp fall in two-wheeler EV sales also reduced overall EV registrations in June, which fell by 36pc from May to 101,947 units, Vahan data show. But registrations rose by 35pc from 75,677 units in June 2022.
Two-wheeler EV sales comprised 62pc of total EV registrations in 2022-23 and 57pc in 2021-22. They comprised 67pc of all EV sales in May this year. But the share fell sharply to 45pc in June, with three-wheeler EVs comprising the majority at 47pc or 48,009 units, Vahan data show.
Indian road transport minister Nitin Gadkari in a video interview in June said that people will prefer EVs over their ICE counterparts in the near future but called for further incentives, especially for flex-fuel vehicles. The government plans for EVs to account for 30pc of all auto sales by 2030.
