India’s EV transformation: Policies, funding trends, and the rise of tier-2 adoption

Posted on 01 Jan 2025

Synopsis

The electric vehicle (EV) sector in India is experiencing dynamic growth, fuelled by technological innovation, evolving policies, and changing consumer priorities. Key advancements include longer-range EVs, increased adoption in smaller towns, and emerging battery technologies. However, significant challenges remain, such as limited charging infrastructure, high costs, and competition from hybrid vehicles. Policy shifts and incentives continue to shape market dynamics, while domestic manufacturing and renewable energy integration offer pathways toward sustainability. The sector’s trajectory reflects a blend of opportunity and complexity, emphasizing the need for balanced development to address environmental goals, enhance accessibility, and drive global progress in sustainable mobility.

Image courtesy: AI, IEA

India’s electric vehicle (EV) landscape is witnessing a dynamic transformation, buoyed by technological innovations, evolving consumer preferences, and supportive policy frameworks. However, the journey is not without its share of hype, challenges, and varying perspectives on the practicality and sustainability of this shift.

As the country charts its path toward sustainability, the EV sector stands at a pivotal crossroads, grappling with significant obstacles while embracing remarkable opportunities. This article delves into the current state of India’s EV industry, highlights key developments, and explores the road ahead, incorporating insights from recent analyses and diverse viewpoints.

A snapshot of India's EV market

India’s EV sector has grown significantly over the past decade, establishing itself as a crucial pillar in the country’s sustainable energy transition. According to a report by Business Standard, EV sales in 2024 surged by 24.5% to 1.9 million units, a considerable leap from 1.5 million in 2023.

However, this growth reflects a deceleration compared to the 50% rise seen between 2022 and 2023. The sector’s funding landscape also saw a decline, with investments dropping to $586 million in 2024 from $808 million in 2023.

Despite this slight slowdown, the industry's overall trajectory remains positive. Passenger vehicles, two-wheelers, and commercial EVs have all witnessed increased adoption, driven by affordability and improved battery technology. Yet, challenges such as charging infrastructure limitations, high costs, and competing hybrid technologies persist.

Policy support: A cornerstone of growth

The Indian government has played a central role in fostering EV adoption through robust policy interventions. The Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-II) scheme was instrumental in subsidizing EV purchases and supporting infrastructure development.

As FAME-II phases out, the PM E-Drive Scheme has emerged as its successor, recalibrating subsidies to prioritize battery power in electric two-wheelers. Under this scheme, subsidies offer a fixed rate of ₹5,000 ($58) per kilowatt-hour (kWh), capped at ₹10,000 ($116) per vehicle in its initial phase.

State governments have also contributed significantly, implementing region-specific incentives to boost EV sales. For instance, Uttar Pradesh’s policy to exempt registration taxes on strong hybrids has impacted market dynamics, making hybrid vehicles more attractive.

While such measures are welcomed, they underline the growing tension between pure EVs and hybrid alternatives, a factor influencing consumer choices.

At a broader level, policies introduced in 2024 — such as stricter Corporate Average Fuel Efficiency (CAFE) norms and initiatives encouraging green hydrogen integration — are set to redefine the mobility landscape. These measures aim to not only promote EV adoption but also ensure that India aligns with its global climate commitments.

Technological strides: The rise of longer-range EVs

Indian automakers are making notable advances in EV technology to meet consumer demands for affordability, efficiency, and range. Tata Motors, a market leader in passenger EVs, has been at the forefront of this evolution. The company’s Nexon EV now boasts an impressive range of 489 km per charge, up from its earlier 325 km.

Additionally, the newly launched Curvv model offers over 500 km on a single charge, showcasing significant progress in battery innovation and energy efficiency.

Similarly, legacy motorcycle brands like Royal Enfield are venturing into the EV space. Royal Enfield plans to launch its first electric motorcycle by 2025, signalling a shift in the industry’s approach to mobility. Such entries reflect the growing competitiveness and diversification within the market, catering to a broader range of consumer preferences.

Balancing the hype and reality

India's EV revolution is generating significant enthusiasm, but a balanced perspective is essential to address key challenges. These include:

Infrastructure concerns: The existing charging infrastructure remains inadequate, with rural and semi-urban regions particularly underserved. Rapid infrastructure development must parallel sales growth to avoid a bottleneck.
High upfront costs: The transition to EVs involves significant initial investments, not just for consumers but for manufacturers and ecosystem players. Policymakers must address the cost disparity between EVs and internal combustion engine (ICE) vehicles.
Consumer behaviour: While younger demographics show enthusiasm for EVs, many Indian consumers remain wary of adopting untested technologies. Education and awareness campaigns are critical to dispelling misconceptions.
Environmental trade-offs: Although EVs reduce tailpipe emissions, their production —particularly battery manufacturing — has a significant carbon footprint. A shift toward sustainable practices across the supply chain is imperative.

Rise of tier-2 and smaller cities in EV adoption

Smaller towns and tier-2 cities in India are emerging as unexpected frontrunners in the EV adoption race. A report from the Financial Express highlights how these regions are likely to outpace metropolitan areas in embracing electric mobility. Factors driving this trend include:

Affordability and utility: EVs, particularly two-wheelers and three-wheelers, align with the needs of smaller towns where short commutes and cost-effective solutions are priorities.
Government incentives: States are extending targeted subsidies and benefits to rural and semi-urban areas, making EVs more accessible.
Infrastructure evolution: Although charging infrastructure remains limited, smaller towns are increasingly benefitting from decentralized solutions like community charging hubs.
Behavioral shifts: The rising awareness about sustainable practices and cost savings among residents of tier-2 cities is also playing a role in driving adoption.

Challenges in the fast lane

Despite its strides, the EV industry faces several hurdles that could impede its progress:

Charging infrastructure: One of the most significant barriers to EV adoption is the limited availability of charging stations. India’s current ratio of one charging station for every 135 EVs falls short of global standards. This inadequacy contributes to ‘range anxiety’ among potential buyers, deterring wider adoption.
Cost and affordability: While government subsidies have reduced upfront costs, EVs remain more expensive than traditional ICE vehicles. Affordability challenges are particularly pronounced in the two-wheeler segment, a critical category for middle-income consumers.
Hybrid competition: The growing popularity of hybrid vehicles, supported by favourable policies, poses stiff competition to pure EVs. In 2024, hybrid vehicles accounted for 11% of new car sales, compared to EVs’ 2.5% share. Hybrid models’ extended range and compatibility with existing refuelling infrastructure appeal to consumers seeking convenience.
Funding shortfalls: The decline in EV sector funding, underscores the need for consistent investor confidence. Policy uncertainties, particularly around subsidies, have added to this challenge, emphasizing the importance of clear, long-term strategies.
Battery supply chain: India relies heavily on imports for critical EV components like lithium-ion batteries. Geopolitical tensions and supply chain disruptions have highlighted the need for domestic manufacturing capabilities to ensure long-term sustainability.

A green revolution: India’s EV subsidies and energy goals

India’s ambitious plans to decarbonize its transport sector align with its commitment to achieving net-zero emissions by 2070. To accelerate this transition, subsidies have played a pivotal role in bridging affordability gaps. The PM E-Drive Scheme’s focus on cost-effective battery technologies emphasizes the government’s intent to address both economic and environmental challenges.

Moreover, India’s renewable energy push complements its EV aspirations. By integrating solar, wind, and green hydrogen into its energy grid, the country aims to reduce its dependency on coal and natural gas. This synergy between renewable energy and EV adoption presents a holistic pathway toward a cleaner future.

Industry expectations for 2025 and beyond

As India’s EV market matures, stakeholders anticipate several developments by 2025:

Enhanced infrastructure: Increased investments in public and private charging networks are expected to alleviate range anxiety. Innovative solutions like battery swapping stations are also gaining traction, particularly in the commercial segment.
Local manufacturing: Companies like Reliance Infrastructure are exploring large-scale EV and battery production. Reliance’s plans include a facility capable of manufacturing 250,000 vehicles annually, scaling up to 750,000, alongside a battery plant with an initial capacity of 10 GWh.
Technological innovation: Research into alternative battery chemistries, such as solid-state batteries, promises to enhance performance, reduce costs, and minimize environmental impact.

Global comparisons and lessons for India

India’s EV market can draw valuable lessons from countries like China and the United States, where policy consistency, robust infrastructure, and domestic manufacturing have propelled EV adoption. In China, for example, the extensive network of 5 million public charging stations has addressed range concerns, contributing to a 20% EV penetration rate.

The U.S., on the other hand, has prioritized tax incentives and federal grants to encourage EV purchases. The Inflation Reduction Act (IRA) has earmarked $369 billion for clean energy initiatives, offering a model for India to emulate in scaling its green energy investments.

Consumer perspectives and behavioural shifts

Understanding consumer behaviour is critical to shaping India’s EV narrative. Surveys indicate that range, affordability, and charging convenience remain top priorities for buyers.

Brands addressing these concerns through innovative designs and transparent communication are more likely to succeed.

The younger demographic, increasingly conscious of climate change, is emerging as a key driver of EV demand. Social media campaigns, coupled with experiential marketing strategies, are helping brands connect with this audience, fostering a cultural shift toward sustainable mobility.

Charting the road ahead

India’s electric vehicle journey is a testament to the power of innovation and collective will in driving sustainable change. While challenges persist, the confluence of supportive policies, technological advancements, and consumer awareness provides a strong foundation for the sector’s growth. Addressing infrastructure gaps, fostering domestic manufacturing, and promoting equitable access to EVs will be essential to achieving India’s vision of a green, self-reliant future.

As the nation accelerates toward its energy transition goals, the EV industry stands as a beacon of possibility — a symbol of India’s commitment to balancing economic growth with environmental stewardship. By navigating the complexities of this evolving landscape, India has the opportunity to lead the global shift toward a cleaner, greener tomorrow.

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