Adoption of E2Ws is essential in achieving environmental and energy security goals

With two-wheelers (2Ws) dominating the Indian road transport market and accounting for over 70% of registered vehicles, the segment demands heightened attention in India's ambitious plan to decarbonize the transportation sector. At the same time, with the country moving ahead in its quest for a sustainable and greener future, the adoption of electric 2Ws has become essential to achieving crucial environmental and energy security goals.

The Government of India has launched the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-II) scheme in 2019 with the objective to accelerate the adoption of electric vehicles by providing an upfront incentive for the purchase of electric vehicles. This scheme has a target of supporting 10 lakh E2Ws and allocated Rs 2,000 crore for purchase incentives.

As of July 5, 2023, the Ministry of Heavy Industries’ dashboard indicates the target for electrification of 2Ws has been met up to 70% and the scheme is set to lapse in March 2024. The 2Ws in EVs is ~ 6% in the first 5 months of 2023. However, after the recent cut of the FAME-II subsidy from Rs 15,000 per kWh battery capacity to Rs 10,000 per kWh, the adoption rate has dropped to 3.6% in June 2023 and registrations have dropped substantially from 1,05,371 vehicles in May to 45,829 vehicles in June. This underscores the importance of subsidies in driving E2W adoption in India.

The major barriers to adoption are higher upfront costs, lack of affordable financing options, availability of reliable and affordable public charging infrastructure, regulatory barriers on commercial 2Ws, lack of after sale services and policy uncertainty. NITI Aayog and TIFAC in a report mentioned that India would realise 100% of 2Ws adoption by FY 2026-27 in an optimistic scenario with the combination of technological improvement and incentives. But this looks like an uphill road without addressing the barriers.

Delhi on the other hand is progressing quickly on EV adoption to 25% target by 2024. In May this year, EV adoption reached 14.5%. Support from the government with respect to upfront purchase incentives, focus on public charging infrastructure and a dedicated EV cell on policy implementation is helping the cause. A lot of delivery aggregators are also shifting towards electric vehicles in Delhi.

Widespread adoption of smartphones, rapid urbanisation and flexibility of work is accelerating gig and platform economy jobs in India. A significant number of individuals engaged in gig and platform work use 2Ws as their preferred mode of operation, making the vehicle pivotal to empowering them to find gainful jobs. NITI Aayog in a report estimated that the gig economy will create 2.35 crore livelihood opportunities by  2029-30. There is a huge potential for accelerating the adoption of E2Ws in the commercial segment in the platform economy jobs as there are more savings for gig workers using E2Ws than Internal Combustion Engine (ICE) 2Ws due to the lower cost of operations for EVs. However regulatory barriers with respect to not allowing 2Ws for commercial purposes in certain states are causing hindrance in accelerating the electrification of 2Ws for commercial adoption.

Photo: Reuters

Charging Infrastructure is the backbone of EV adoption. According to the Bureau of Energy Efficiency, the central nodal agency for public charging infrastructure EV yatra portal as of 5 July 2023, there are only 8,378 operational public charging stations for 27 lakh registered electric vehicles. In other words, there are less than 4 public charging stations for every 1,000 electric vehicles.

In many states, the public charging tariff is high and states like Tamil Nadu, and Karnataka are following a two-part tariff where the energy operator is billed a fixed cost regardless of the utilisation of their service. Lack of awareness and guidelines for Residential Welfare Associations (RWAs) on setting up charging infrastructure is adding to the problems.

Certain states are planning to remove the road tax exemption for electric vehicles and there is uncertainty in the extension of FAME subsidies beyond March 2024. Policy continuity is important to instill confidence in the industry.

India should prioritise the following measures to ensure that E2Ws are the preferred choice for all users, private or commercial:

  • Policies should be continued with respect to upfront purchase incentives and indirect tax waivers. Technology innovation around range and power could be linked to incentives. Regulatory barriers around allowing E2Ws for commercial purposes should be removed across all states.
  • Charging infrastructure should be scaled up to ensure reliable, affordable and accessible infrastructure. The uptime of the charging infrastructure should also be prioritised. State Electricity Regulatory Commissions should implement tariffs for the supply of electricity to EV Public charging stations as single-part tariffs as suggested in the guidelines by the Ministry of Power and proper guidelines should be issued to RWAs for setting up of charging infrastructure.
  • Financing models should be made more affordable and be made with long-term 5-year financing options through risk-sharing mechanisms supported by the government.  Each Rs 75m ($1m) of government funding invested in such first-loss facilities would generate between 12,000 and 17,000 additional vehicle sales over the period 2022 and 2030 compared to the baseline (World Bank 2022).
  • The supply chain for electric vehicles should be strengthened by securing battery raw materials by fostering international collaborations like the recent Mineral Security Partnership (MSP) with the US to reduce supply chain shocks for domestic vehicle manufacturing of E2Ws.
  • Last but not the least, after-sale services for E2Ws should be strengthened by upskilling the existing workforce to work on electronics and high-voltage devices.

The electrification of 2Ws in India holds tremendous promise for addressing pressing environmental challenges, enhancing energy security, and realizing ambitious net-zero targets. However, unlocking the full potential of E2Ws requires a dedicated and targeted policy approach.

Pradeep Karuturi is Lead, Centre for Clean Mobility, OMI Foundation