Charging Ahead: India’s EV Revolution and the Road to FAME 3

India has undertaken an ambitious mission to achieve a 30% penetration of electric vehicles (EVs) by the end of this decade. After eight years since the introduction of the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme to promote EV usage, and with only five months remaining until the conclusion of FAME 2 and the expected launch of FAME 3, the government is now refocusing its subsidy initiatives towards the establishment of a robust and widespread charging infrastructure.

After successful implementation and impressive results of previous FAME schemes, the EV industry is hopeful that the FAME 3 scheme will focus on supporting SMEs as well as reduction on import dependence for EV components.

In this article, IBT analyses the progress of past schemes, possible focus areas of FAME 3, and industry expectations regarding the EV ecosystem in India.

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Image Credit: Shutterstock

The Electric Vehicle (EV) sector in India has undergone a remarkable transformation in recent years, positioning itself as one of the most promising and dynamic segments of the country’s automotive industry. As the world grapples with environmental concerns and the need to reduce greenhouse gas emissions, India has been actively pursuing a transition to electric mobility as a sustainable and eco-friendly alternative to traditional internal combustion engine vehicles.

Innovations and advancements in various aspects along with infrastructure development, government policies and increased environmental concerns have boosted the Electric Vehicle landscape in India.

One of the most efficient initiative by the government of India is the FAME, or the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles to ensure a proliferation of electric and hybrid vehicles. The scheme was launched by the Indian government in April 2015 under the National Electric Mobility Mission Plan (NEMMP) to address various issues such as rising fuel prices, air pollution and energy security.

FAME has gone through multiple phases and revisions since its inception, with the latest version being FAME II. It had an allocated budget of Rs 10,000 crores with focus on electrification of public and shared transport and is nearing its deadline of March 31, 2024. A revamped subsidy scheme, namely FAME 3, is speculated to be launched next year, which could possibly include funding for technologies and categories which were not a part of earlier phases.

TPCI organized a webinar that centered on India’s progress in global EV sector and explored the factors affecting India’s transition to electric mobility and challenges faced by the industry. The discussion also focused on industry view of challenges in the sector and expectations from FAME 3.

FAME 2 was implemented for a period of five years commencing from 1st April, 2019 till 31st March 2024 with a total budgetary support of Rs 10,000 crore. The 2nd phase mainly focuses on supporting electrification of public and shared transportation and aims to provide demand incentives for upto 7,090 eBuses, 5 lakh e-3 wheelers, 55,000 e-4 wheeler passenger cars and 10 lakh e-2 wheelers. The scheme also focused on creation of charging infrastructure.

The scheme had set a target to support 15,62,090 vehicles within the timeline of 5 years. Until 2nd August 2023, only 55.88% (8,72,920 vehicles) of the target has been achieved. An additional budget of INR 3500 crores was added in the beginning of FY24 since the outlay for E2Ws under FAME 2 is already exhausted.

FAME 2 achievements_TPCI

 Source: Ministry of Heavy Industries (MHI), figures in number of vehicles*

Emerging players in the electric mobility sector are now pinning their hopes on the government’s Production Linked Incentive (PLI) scheme, which offers approximately US$ 2 billion in subsidy programs, to accelerate the production of electric vehicles and their components. The PLI in Automotive and Auto Components has succeeded in attracting investments totaling ₹ 74,850 crore against the target estimate of investment ₹ 42,500 crore over a period of five years.

It also approved the Production Linked Incentive (PLI) Scheme ‘National Programme on Advanced Chemistry Cell (ACC) Battery Storage’ for achieving manufacturing capacity of Fifty (50) Giga Watt Hour (GWh) of ACC for Enhancing India’s Manufacturing Capabilities with a budgetary outlay of ₹ 18,100 crore. For this, three companies – Reliance New Energy Limited, Ola Electric Mobility Private Limited and Rajesh Exports Limited – signed the programme agreement last year. Under the said initiative the emphasis of the Government is to achieve greater domestic value addition, while at the same time ensure that the levelized cost of battery manufacturing in India is globally competitive. Further, the Ministry of Heavy Industries has proposed a 3,000 crore PLI scheme to develop and make ‘niche batteries’ for electric vehicles.

EV sales current trends

In 2022, a remarkable surge in the adoption of electric vehicles was witnessed in India, Thailand, and Indonesia. According to Global EV Outlook 2023 by IEA, combined sales of electric cars in these nations increased by over threefold compared to 2021, reaching an impressive figure of nearly 80,000 units. These 2022 sales figures were seven times greater than those recorded in 2019, before the onset of the Covid-19 pandemic. In contrast, sales of electric cars in other Emerging Market and Developing Economies (EMDEs) remained comparatively lower.

In India, electric vehicle (BEV) sales nearly reached 50,000 units in 2022, marking a fourfold increase compared to 2021. Concurrently, overall car sales grew by just under 15%. On the other hand, sales of plug-in hybrid electric vehicles (PHEVs) in India remained negligible.

Electric three-wheeler sales, vital for urban mobility in India, reached a staggering 425,000 units in 2022. Market growth has been reasonably consistent in India since 2012, except for 2020 when the pandemic reduced volumes to 30% of the previous year. Over 50% of India’s three-wheeler registrations in 2022 were electric, driven by government incentives, lower lifecycle costs, and rising fuel prices.

According to IEA analysis, electric three-wheelers are already 70% cheaper than their gasoline counterparts over their lifetime.
Policies like FAME II purchase incentives, PLI supply-side incentives, and tax benefits, along with India’s Go Electric campaign, have offset the higher upfront costs. Fifteen Indian states have embraced EV policies to promote further deployment, most of which include additional demand incentives. Bulk procurement schemes, the battery-as-a-service (BaaS) business model, and India’s draft battery swapping policy are also accelerating electric three-wheeler sales.

In China, electric three-wheeler sales were close to 350,000 units in 2022. Combined, China and India accounted for nearly 99% of global electric three-wheeler sales.

However, even after the implementation of FAME schemes, the transition from regular combustion vehicles to electric vehicles has recorded a slow growth. As per recent data for September 2023, overall EV sales have witnessed a marginal increase of approximately 1% from August 2023, reaching 1,27,735 units. On a YoY basis, EV sales in September 2023 increased by 36%.

EV registrations were driven by electric two-wheelers and passenger-type electric three wheelers which together accounted for 90.8% of total registrations.

Source: jmkresearch.com

FAME 3 policy: What to expect?

The Central Government has prepared the first draft of the third phase of FAME with an outlay of approximately INR 40,000-50,000 crore. According to the draft, the centre is working on both demand and supply incentives for supporting EVs along with two to three models to support the EV industry over a period of five years.

FAME 3 is expected to include support for electric trucks, electric cycles and quadracycles in addition to electric cars, electric buses, electric three-wheelers and electric two-wheelers, along with substantial allocation for electric buses. The government is also working on a PLI scheme for components of EV batteries and niche battery technologies along with priority to reuse and recycling of EV batteries.

Although India has displayed a momentous growth in EV adaption after the introduction of FAME 1 and FAME 2 schemes, there are a few drawbacks affecting the shift that could be focused in upcoming FAME 3 scheme, some of these are:

  • Incentives for local vehicle manufacturers: According to FAME 2 policy, only the companies who produce 50% localised vehicles can avail incentives. Due to this very few manufacturers can take advantage of the scheme, as Indian component suppliers are not yet prepared to manufacture components for the current low volume of EVs. FAME 3 policy could review the localisation percentage linked with incentives.
  • Specifications: The previous schemes identified range, speed and price specifications for EVs to avail benefit. To boost the EV penetration, FAME 3 could focus on providing demand incentives regardless of vehicle price or size.
  • Battery Recycling: With a significant progress in EV penetration, the FAME 3 should focus on the need to address the safe disposal/reuse of the EV batteries. The policy can include incentives linked with battery recycling.
  • Charging landscape: As the country prepares for an impressive transition to electric vehicles, the FAME 3 scheme could focus on including benefits for setting up EV charging ecosystem and its maintenance.
  • Interoperability: The industry faces compatibility issues on fixed or swappable batteries with different EV models. The FAME 3 could focus on specifying guiding principles or a broad outline related to battery form and shape.

Addressing industry challenges

A number of interesting ideas came up during the discussion conducted by TPCI. These include:

a) Import substitution: Speaking on government policies and current EV landscape of India, Professor Ashok Jhunjhunwala, IIT Madras states, “Unfortunately, components for electric vehicles are still significantly imported. Sub-standard Chinese imports are being dumped and we need better quality Indian alternatives.”

Further, he feels that small companies are being left out of the PLI policy. This needs to change, as they are needed to ensure necessary change.

Varun Chaturvedi agrees, adding, “I believe that the critical challenge right now is import dependency which is a major problem. We are dependent on the imports, from cell manufacturing to controller, even on the charger side at the component level.” He feels that indigenous production of quality EVs needs to be encouraged

b) The untapped opportunity in e-rickshaws: E-rickshaws have seen extraordinary growth in India over the past few years, backed by a highly viable commuting option (short distance) and a lucrative business opportunity. Sharing his views and suggestions on upcoming FAME 3 scheme, Amitabh Saran, Founder and CEO of Altigreen said – “India has 2 million E-rickshaws, but we’re neglecting them. There’s no buzz about charging, parking, or financing. This ecosystem’s been quietly running for 5-6 years. We should draw inspiration from that, and once India makes top-notch EVs, growth will pick up in every EV segment.

c) Standard policies for battery swapping infrastructure: Speaking on importance of charging infrastructure and the need to include it in upcoming policies, Dr Prabhjot Kaur, Founder of Esmito Solutions states – “Battery swapping is crucial with 85% two/three-wheelers and a booming commercial EV market. About 40% of new LEVs are for commerce, and affordability is key. For affordability, we need both swapping infrastructure policies and charging subsidies.”

d) Greater role of states: According to Chaitanya Kanuri, Associate Director, Electric Mobility, WRI India – “The center emphasizes adoption-side incentives and addresses production challenges through PLIs. States are also stepping up, with around 33 having EV policies. However, more effort is needed at the state and local levels to enhance capacity and understanding for ecosystem promotion.

e) New cars, same buildings? Apart from incentives for public charging, we should also consider incentives for retrofitting buildings to support EV charging. Since 70-80% of our vehicles are personal, addressing residential charging is vital for promoting electric vehicles. It’s a complex challenge, but one we must confront to move forward. For instance, as Kannuri emphasises, we are going to see more and more chargers being required. But who bears that upgradation cost as the connected load increases?

Charging solutions: Even though policies for charging infrastructure are in place and have been well-drafted, industry feels that implementing them at the ground level remains a persistent challenge across India. According to Varun Chaturvedi, Founder and CEO of Volttic EV charging solutions, “The primary concern is the power challenge, impacting residential, public, and commercial charging. Getting adequate power connections, whether 30 or 20 kilowatts, is problematic due to taxes. Incentivizing power distribution companies to enhance infrastructure should be considered as a critical first step, since insufficient load availability remains a recurring problem.”

Expanding the incentive base: Charging incentives are limited to PSUs and oil companies. While vehicle purchases benefit from state policies, charger purchases lack incentives. Currently, only oil companies benefit from the Rs 1,000 crore incentives for public charging infrastructure. Varun advocates clear and fair policies to extend incentives to both private and public contributors in the EV charging infrastructure.

Conclusion

In conclusion, the Electric Vehicle (EV) sector in India has embarked on a transformative journey, driven by innovations, government initiatives, and a growing environmental consciousness. The Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, a cornerstone of this transformation, has seen multiple iterations, with FAME 2 being the latest. Despite facing challenges in reaching its ambitious targets, FAME has paved the way for the electric mobility industry to flourish in India.

The Production Linked Incentive (PLI) scheme, with its substantial investment potential, has added a new dimension to the sector, attracting both domestic and foreign players. The PLI scheme for advanced chemistry cell (ACC) battery storage further signifies India’s commitment to manufacturing excellence.

The surge in electric vehicle adoption in 2022 showcases the growing appetite for cleaner and more sustainable transportation solutions. India’s success in promoting electric three-wheelers is noteworthy, thanks to supportive policies and incentives. As the country gears up for FAME 3, there are great expectations regarding broader inclusion, incentives for local manufacturers, addressing battery recycling, and developing a robust charging infrastructure.

To realize the full potential of electric mobility in India, overcoming import dependency, supporting e-rickshaws, standardizing battery swapping infrastructure, and involving states in the EV ecosystem’s growth are critical steps. Moreover, incentivizing charging solutions and expanding the incentive base to include both public and private stakeholders will be essential for the industry’s continued growth. As India takes these steps, it is poised to become a global leader in electric mobility, contributing significantly to a cleaner and more sustainable future.

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