In India, with one of the global largest automobile industries, it has already begun to look at alternate fuels as a solution to pollution issues, following twenty years of expansion in its consumer and vehicle bases and addition of local manufacturing facilities. It will be one of those such years for the country, which has become the world's third-largest automotive market after the United States and China, as it needs to balance the quest to make accessible growth capital available for late-stage startups with attempts to lure Tesla and other foreign EV manufacturers to enter its domestic market.

How well EVs did in 2023
The latest data on the government's Vahan portal shows that in 2023, India-the world's largest two-and three-wheeler manufacturer-sold almost 24 million vehicles, including commercial and personal four-, three- and two-wheelers. Among that massive number, more than 1.5 million were electric vehicles, capturing 6.35% of the total base with 813,000 electric two-wheelers. Compared to last year, about 22 million vehicles sold in 2022, overall growth is nearly 10%. Electric vehicle sales, of course, grew by close to 47% from 1.03 million EVs sold.

The total electric vehicle sales in the country is nearly 3.5 million; with a market share of more than 47%, two-wheelers have emerged as the top vehicle category. Four-wheelers took up about 8% of the total sales, while e-rickshaws and three-wheelers comprised the rest.

Sales of EVs were pretty phenomenal in the country for 2023 but not as high as the previous two years respectively, over 209% in 2022 and 166% in 2021. Cut in subsidies to two-wheeler customers under the $1.38 billion incentive scheme called Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles or FAME-II which came into effect in June cut the sales of electric two-wheelers in the country by over 56% that very month itself. The sharp fall in electric two-wheeler sales may have perhaps impacted the overall EV market of the country since India is primarily a two-wheeler market and has few manufacturers in the electric car segment.

Ravneet S. Phokela, chief business officer at electric two-wheeler startup Ather Energy, said in a conversation with TechCrunch that the market did take a hit for about three months after the FAME-II update; however, it has bounced back to pre-subsidy change levels as of October.

From the bounce back, how it happens will be seen, but we expect it to be more gradual than exponential. The 100% quarter-on-quarter growth is something of the past, he said over a call while talking about the change that would help in the medium-term perspective.

"In a way, while the subsidy impacted us in the short term financially, if I just take a macro view, there has actually been a good outcome because now, the market pricing is close to non-subsidy levels, which means the market has gotten used to price levels that we can explore broadly when subsidy goes over," Phokela noted.

It has also led to consolidation and surprised the exit of many small-scale brands selling electric two-wheeler, including rebranded Chinese products. The top four players-Ola, TVS Motor, Ather Energy, and Bajaj-have cornered about 80% of the total electric two-wheeler market currently. About nine months ago, when government updated FAME-II in May, they had a share of about 26% and 27% according to Phokela.

Ather Energy sold an average of about 80,000 to 85,000 units this year and expects a similar sales figure for 2024, said Phokela.
Apart from electric two-wheelers, the FAME-II scheme applies to three- and four-wheeler sales to boost EV consumption in the country.

Data shared by the government in the parliament indicated that new Delhi has provided more than $628 million in subsidies from the sale of 1.15 million vehicles up to date under FAME-II.

EV manufacturers have demanded the government continue offering subsidies so the market can sustain its growth and expand further to meet the country's electrification target to have 30% EV penetration by 2030.

"Given that the costs are still not optimized yet for the supply chain, it is important for the government to continue the subsidy for two to three years and taper it down, said Phokela.

Industry sources have said that market players are demanding predictability in the policy front from the government and thus avoid any sudden shocks such as the case of FAME-II updates, and it will let them make assumptions and base financial and business planning accordingly.

"A lack of predictability is the biggest killer point for the industry," an executive at an electric two-wheeler company said on condition of anonymity. "Even if you're saying six months, please tell us that it will be for six months and then turnaround, but don't say two years and end in one year."

Apart from FAME-II, the Indian government has provided the production-linked incentive scheme worth $3.11 billion, which would attract investments and push domestic manufacturing of automobiles and automobile components in the country. The two largest homegrown car makers of the country, Tata Motors and Mahindra & Mahindra, have emerged as the early beneficiaries of this incentive scheme. The Government reported more than $1.43 billion of investments came until the second quarter of the financial year 2023-24 owing to this scheme.

On the other hand, Tata Motors witnessed a 63% growth in EVs and increased its share of EV penetration in its portfolio to 12% in this calendar year, a company spokesperson noted in a statement to TechCrunch.
Automobile manufacturers, including Ather Energy and Tata Motors, revealed new models of electric vehicles in the country in order to expand their presence and attract new customers.

According to Phokela, "one of the biggest consumer trends this year was premiumization. All four top electric two-wheeler brands have vehicles in the $1,400 to $1,800 price range, and that's something that is likely to continue into 2024.

 The internal combustion engine two-wheelers are commanding an average price of $1,000.

Indeed, in the electric two-wheeler market, sales have been growing not only in tier one cities but even in tier two and tier three towns over the last 12 to 18 months. In Ather Energy, as for now, only 43% of the sales came from tier one cities, while 57% originated from tier two and tier three towns even though its number of distribution there was quite limited. Today, the startup goes on to expand distribution to reach even higher sales.

According to some market observers, electric two-wheeler sales are growing mainly in the developing parts of India because of hefty electricity subsidies. Phokela, however said that if it were the case, there would be a significant increase in the demand for low-end vehicles, not premium models. People in non-metro cities consider EVs as status validation and a way to show off, he said.

Commercial use cases as the primary attraction for investors
Thus far, the top electric two-wheeler manufacturers have been focusing on the personal mobility segment in India. However, investors are confident about commercial use cases.

In the next two to three years, most of the tractions will come in B2B use cases-it could be three-wheeler cargo, three-wheeler passenger, eco-mobility, food delivery, hyperlocal delivery, fast/quick commerce, the use of EVs there is the one that's accelerating much faster, said Kunal Khattar, founder and general partner at Indian VC fund AdvantEdge Founders while speaking with TechCrunch.

He said while the share of commercial vehicles is about 30 million, or 10% of the total number of vehicles on the road in India, they consume almost 70% of the energy of all the vehicles.
"If you are in the business of energy, whether it is battery manufacturing or swapping, energy storage or building charging infrastructure, your entire focus should be on B2B," he noted.

According to Sandiip Bhammer, founder and co-managing partner at New York-based climate tech VC fund Green Frontier Capital, the prospects of faster and more rapid growth in the commercial segment are significantly much higher than the consumer segment.
"The economic viability of two-wheeler and three-wheeler segments on the commercial side is much clearer than on the passenger car segment," he said.

The commercial segment, compared to the consumer segment, is least likely to be impacted by changes in the subsidies, according to investors. Business projects the cost of ownership and not the face value of the vehicle they are procuring.
 According to Khattar, within the next two to three years, the B2B segment will be 100% electric in India, regardless of whether subsidies and other incentives are available.

The country is aiming to provide thousands of battery-operated auto-rickshaws and e-buses across states for electrifying public transport in the next few months. Similarly, it envisions providing local gas stations with EV charging stations.

Capital inflows in the market
According to Tracxn, VC analyst firm, the information shared with TechCrunch earlier this month reports that equity investments in India's electric vehicle (EV) market declined by 52% from $2.1 billion in 2022 to $1 billion in 2023. Even the number of funding rounds declined by 62%, from 135 to 51. Still, EV funding didn't look as woeful as some of the leading sectors, such as tech, SaaS, agritech, or health tech-for example, equity investments declined more than 80%.

Bhammer of Green Frontier Capital said this year's decline in EV funding was basically caused by valuations that were just too high on most of the existing startups.

"If you look at new companies that are raising capital, they are actually raising capital at a much more reasonable valuation than the older companies doing extension rounds," he said.

Investors are positive about the growth of this capital inflow for 2024, but wary of subdued numbers, especially the consumer segment, due to FAME-II changes and lack of clarity on subsidy extension.

"We need the support of the government, in terms of subsidies and taxes and all of that because we are not mainstream yet," said Khattar of AdvantEdge Founders.

One primary reason for hope is India's increasing relevance in the global set-up and being part of the China+1 strategy for most global companies.

"China has now started de-growing. So, India is the beacon of hope in an otherwise pretty dull emerging markets scenario," Bhammer said.

What's coming up next?
Although India remains an infant market for EVs, international EV firms such as Tesla and VinFast are also planning to launch the products in Indian markets by the next few months in order to cash in on the size of the world's most populous country. A fresh EV policy is being prepared by the Indian government to encourage more foreign car manufacturers to venture into the market while promoting domestic players to increase the electric automobile strength in the country. Incumbents such as India's top carmaker Maruti Suzuki are also closely observing the series of moves being taken by international players to look for the right time to enter the market.
Legacy carmakers are not in a hurry. When they come out, they will distribute, and through their distribution, they will be able to start selling numbers as much as, if not more than, existing players, an EV investor told TechCrunch.

Already with cars in the EV marketplace, companies like Tata Motors are working to deal with the current issues of adoption.
"The residual challenge for mass adoption of EVs still is the growth of charging infrastructure. Open collaboration with key charging players for fast charger growth is already begun by Tata Motors to deliver a better experience to the EV buyers," said a Tata Motors spokesperson.

The answer is very simplistic in stating that, as Ravi Pandit says, being the co-founder and group chairman of automobile tech company KPIT Technologies software and hardware have become the heart of a vehicle and will continue growing over time.
"Now, the model is changing where instead of there being a lot of computers in a car, there will be a computer and around which there will be a car. That's a fundamental shift," he said.

Similarly, electric two-wheeler companies and infra providers are collaborating on standards for charging solutions. Ather Energy has already partnered with Hero to provide interoperability on charging.

"We have about 1,400 fast chargers, and Hero Vida has about 500, and we are growing on a monthly basis, said Phokela. "We are in conversations with many other OEMs, and these discussions are at different levels of maturity.".

In addition to that standardization and interoperability on the charging side, it is discovered that some companies are aiming toward alternative ions outside of lithium through sodium-ion-driven technologies, as well as silicon anode.

What is apparent is that one cannot lead a revolution in any industry unless it has access to the raw material powering the industry, said Bhammer. So, if China controls the refining capacity of lithium, how would India drive the EV revolution if it has to keep going to China for its batteries, he said.

In fact, other updates that are going to come to the market in the future include vehicle-to-grid and clip-on devices, which will be a subscription-based model to help convert an existing two-wheeler from non-EV to EV without permanently charging the motor or battery.