India’s push for electric vehicles (EVs) was renewed when phase-II of the Faster Adoption and Manufacturing of (Hybrid and) Electric (FAME) Vehicles scheme in India, with an outlay of ₹10,000 crore, was approved in 2019. This was significant since phase-I, launched in 2015, was approved with an outlay of ₹895 crore. India was doubling down on its EV ambitions, focusing on cultivating demand for EVs at home while also developing its own indigenous EV manufacturing industry which could cater to this demand.
Initially envisioned for three years, FAME-II got a two-year extension in June 2021 owing to a number of factors including the pandemic. It aims to support 10 lakh e-two-wheelers, 5 lakh e-three-wheelers, 55,000 e-four-wheeler passenger cars and 7,000 e-buses. Three years into FAME-II, the numbers have been lagging far behind the original three-year target. As a part of FAME-II, the government has made a push for indigenous manufacturing with a number of automakers answering the call. Legacy auto manufacturers such as Tata Motors, Mahindra & Mahindra, Hero Electric, and TVS unveiled their EV offerings. New EV players also emerged on the scene with the likes of Ola and Bounce entering the e-two-wheeler segment. While e-two-wheelers and e-four-wheelers receive significant coverage, a three-wheeled underdog has been quietly dominating the Indian EV space.
The dominance of e-3-wheelers
Three-wheeler EVs like e-autos and e-rickshaws account for close to 65% of all EVs registered in India. In contrast, two-wheeler EVs come at a distant second with over 30% of registrations and passenger four-wheeler EVs at a meagre 2.5%. Under the targets for FAME-II, e-three-wheelers have crossed over 4 lakh vehicles of the 5-lakh target since 2019. The numbers are expected to be higher given the prevalence of unregistered vehicles in India. At the current rate, e-three-wheelers are expected to breach the 5-lakh target by 2023. Given the success of e-three-wheelers, it is worth taking a closer look at their dominant position, how they got here, and what India’s EV policy can do to sustain their success and extend it to the other categories.
The EV registrations data show that Assam, Bihar, Delhi, Uttar Pradesh and West Bengal account for close to 80% of all e-three-wheeler registrations, with U.P. accounting for close to 40% of all registrations. Of these five States, Assam, Delhi, U.P., and West Bengal have formalised EV policies while Bihar has a draft policy with a final policy due to be introduced later in 2022. Incidentally, these five States are characterised by high population density and shortage of affordable public transport. Indigenously designed and produced, e-three-wheelers like e-rickshaws have become a common sight in these States. Costing between ₹1 lakh and ₹1.5 lakh, these vehicles are produced by scores of local workshops and small enterprises and have come to dominate the e-three-wheeler market. With financial assistance from FAME-II, local manufacturers have built a truly Indian EV with its unique design catering to Indian commuter needs. Legacy automakers with their own e-three-wheeler offerings have been struggling to compete with these local producers. The EV policies put in place by these States as part of FAME-II have been instrumental in driving this growth.
The focus of the EV policies of these five States is on accelerating adoption of EVs among consumers and promoting local manufacturing. All five States provide road tax exemption of 100% and on registration fees. Assam, Delhi and West Bengal have linked incentives to the battery size (in kWh) with additional benefits on interest rate on loans and scrappage incentives in some cases. U.P. has gone a different way with its subsidies, offering 100% interest-free loans to State government employees for purchasing EVs in the State and 30% subsidy on the road price of EVs to families with a single girl child. To promote sales of EVs manufactured within the State, U.P. exempts SGST on all such vehicles. It has outlined incentives to promote EV manufacturing in the State. Bihar’s draft EV policy too has been drafted along similar lines: it focuses on adoption and manufacturing. These States have performed exceptionally well in the FAME-II scheme and are on their way to achieve the target of 5 lakh e-three-wheelers.
The success India has experienced in the e-three-wheeler space has come from developing both the demand and supply sides. Subsidies, tax exemptions, and interest-free loans have successfully rallied demand for these vehicles. These vehicles provide for inexpensive means of transport for millions, are easy to maintain, and have relatively low operating costs, making them immensely popular among operators. The indigenous design allows for easy local manufacturing in workshops and small enterprises and makes them relatively easy to charge and maintain compared to their two-wheeler and four-wheeler counterparts. This success in the e-three-wheeler space has been difficult to replicate in the e-two-wheeler and e-four-wheeler space, which have problems both on the demand and supply side. Since two-wheelers and four-wheelers are essentially associated with personal use, consumers are justifiably apprehensive in adopting such vehicles given the host of issues which come with it. The recent incidents of fires in e-scooters have added to the apprehension. Reliable manufacturers with proven track records in the two-wheeler and four-wheeler EV space in India are hard to come by. This further adds to the supply side crunch and there are very few affordable offerings for the consumer.
Issues to be addressed
The current policies in place at the State level, which are focused on accelerating adoption of EVs among consumers, have spurred an e-three-wheeler dominance. However, this has come at some costs. A major one is adequate passenger safety. Subsequent EV policies must therefore pay special attention to this issue. Local manufacturing enterprises often lack the necessary resources or the motivation to invest in design developments focusing on safety. Lack of proper oversight from regulatory bodies over these manufacturers add to the woes. Future policies must therefore incorporate appropriate design and passenger safety standards. While the current State-level policies have been instrumental in increasing local e-three-wheeler manufacturing, they have led to an increasingly fragmented manufacturing industry with non-uniform standards akin to the formative years of motor vehicles in the early 20th century. This fragmentation has led to legacy automakers struggling to compete with the large number of manufacturers in every State. EV policies must address this issue so that legacy automakers are not demotivated from competing in the e-three-wheeler space. Their resources are necessary for designing and manufacturing more advanced and safer e-three-wheelers. Future EV policies must therefore take into account the existing and emerging stakeholders on the demand and supply sides for effective implementation. With the prevailing trajectory of EVs, India must take lessons from its e-three-wheeler success story to sustain its EV ambitions.
Soumyadeep Kundu is a Doctoral student and Soumya Roy is Associate Professor, Quantitative Methods and Operations Management Area, Indian Institute of Management-Kozhikode
