Fuelling Electric Vehicles Growth: Factors that Matter in India’s Electric Vehicles Growth Story

Abstract

The recent impetus to the electric vehicle (EV) policies at the national and sub-national levels with the medium to long-term objective of reducing greenhouse gas emissions from vehicle traffic motivates an assessment of the key drivers of EVs in India. The sale of EVs especially two-wheelers is rising due to the push by government policies, reduction in upfront costs and increased awareness about EVs. However, the sale of electric cars has not picked up significantly and is uneven across states. The study finds a strong correlation between the use of electric cars in states and the availability of public charging stations. The empirical analysis finds that the availability of public charging infrastructure and the price differentials between electric cars and comparable internal combustion engine cars are significantly associated with the demand for cars across states. A focused and liberal policy assumes importance to stimulate the demand for EVs and to harness its manifold environmental and financial gains.

JEL Classifications: Q42, Q48, Q49

Keywords

Automobile electric vehicle internal combustion engine public charging infrastructure drivers electric car electric vehicle policies

Introduction

The automobile sector in India has a significant impact on domestic manufacturing, exports, consumption of intermediate and capital goods, the micro, small, and medium enterprise (MSME) ecosystem, logistics, formal and informal employment generation and consumer choices. It has substantial backward and forward linkages which are vital for economic growth. The sector’s contribution to gross domestic product (GDP)¹ remained in the range of 2.3%–3.1% during the period 2017–2022. Including the turnover from ancillary sales the contribution of the sector goes up to 4.3%–5.4% of GDP during the same period. This industry provides employment to over 3.7 crore people and 15% of the country’s total goods and services tax (GST) collection comes from the automobile industry (SIAM Annual Report 2020–2021).

The automobile industry plays an important role in efficient multi-modal transport infrastructure. The road transportation services² constitute a major part of the economic activity with a share of 3.2% of gross value added (GVA) in 2021–2022. Moreover, road transportation services dominate over other popular means of transportation (railways, waterways and airways), and have contributed nearly 70% of the value added in 2021–2022. Barring a minor dip during the pandemic, the share of road transport services in total transport services has been steadily increasing.

According to the Automotive Mission Plan 2016–2026 (AMP, 2026) a collective vision of the Government of India and the Indian automotive industry, the Indian auto industry aims to be among the global top three for engineering, manufacturing and export of vehicles and auto components; it will encompass safe, efficient and environment-friendly conditions for affordable mobility by 2026.³ India enjoys a strong position in the global heavy vehicles market and is the largest producer of tractors, the second-largest manufacturer of buses, and is the third-largest heavy truck manufacturer in the world.⁴ The sector has benefited from the liberalized policy regime since the 1990s and has received 7% of the total foreign direct investment equity flows into India during 2019–2022.⁵ The sector is now a hotbed of research and innovation in electric vehicles (EVs) and EV-components space, particularly since the central government announced the production-linked incentive (PLI) scheme for the sector in 2021 with a budgetary outlay of ₹25,938 crore.⁶

Over the last few years, the Indian automotive market has undergone a change towards increased usage of plug-in vehicles (PEVs), battery PEVs (BEVs) and plug-in hybrid PEVs (PHEVs). This trend is, to a significant extent, the result of thrust by national-level policies for the development and deployment of EVs, with the aim of reducing greenhouse gas emissions from traffic and reducing crude oil imports. From the end-users’ perspective, EVs have lower operating costs compared to internal combustion engine (ICE) vehicles. Electricity prices are generally lower than fuel prices, resulting in reduced energy cost per kilometre travelled. PEVs have been the primary means for achieving this reduction. NITI Aayog’s estimates suggest that EVs may cut down 37% of carbon emissions with up to 64% of savings in energy costs for road transport (NITI Aayog, 2017). The government intends to have EVs account for 30% of private cars, 70% of commercial vehicles, and 80% of two- and three-wheelers by 2030 (NITI Aayog, 2017, 2019). Around 6.5% of total vehicles sold in 2022–2023 are EVs, the highest number so far.⁷ This motivates to further dwell upon the EV push by the government and to analyze state-wise performance in the adoption of EVs across various categories.

This study’s contribution to the literature is threefold. First, the literature on this topic is scanty along with data limitations since this is an emerging area of research. While the focus of prior research on EV mobility in India enhanced the understanding about the higher cost of EVs over traditional vehicles and policy support from the central government, it typically does not take into account the role of the state governments in increasing the ownership of EVs. Second, this study explores state-wise penetration of EVs across all categories and attempts to answer why EVs have a larger presence in some categories and in some states over others. Despite the data constraints, this study attempts to empirically assess the major factors responsible for sales of electric cars across states in India. Lastly, it seeks to provide valuable insights to policymakers, enabling them to formulate more effective policies for faster adoption of EVs across India.

The rest of the study is organized as follows. Following the introduction, the next section delves into the supply side of the automobile value chain. The following section captures domestic retail demand through analyzing the number of vehicle registrations. The subsequent analyzes the evolving role of EVs in India and the push provided by national and sub-national policies in promoting the demand for EVs. Apart from stylized facts, it is also empirically evaluated by using the cross-section regression model in the second last section. The final section provides the conclusion and the way forward.

Supply Side: Composition and Trends in Production and Sales of Automobiles

The supply side of the automobile value chain is captured by production of vehicles by original equipment manufacturers and their sales to dealers & distributors. The total production of automobiles registered negative growth in 2019–2020 and 2020–2021 and grew by 1.7% in 2021–2022 and 12.6% in 2022–2023 (y-o-y). Over three-fourths of total domestic production is dominated by the two-wheelers segment. This is followed by the passenger vehicles segment (18%), commercial vehicles (4%) and three-wheelers (3%) (Figure 1). Around 82% of the total sales are for domestic consumption (Figure 2).

The share of exports in total sales has increased from 14% in 2017–2018 to 18% in 2022–2023. After seeing a decline over three consecutive years starting from 2019–2020, domestic sales picked up by 20.4% in 2022–2023, although over a low base (Figure 3). However, exports, which rebounded after the pandemic, registered a decline of 15% in 2022–2023, dragged down by negative growth in the commercial vehicles and two- and three-wheeler segments.

It may be noted that over the last 6 years starting from 2017–2018, the composition of domestic sales has shifted in favour of passenger vehicles, which have gained 5 percentage points in share. During the same period, the share of two-wheelers has declined by 6 percentage points. However, exports have increasingly been dominated by two-wheelers. A broad analysis of pre (2018–2019)- and post-COVID-19 (2022–2023) data shows that with respect to commercial and passenger vehicles, domestic sales have recovered and surpassed their pre-COVID-19 levels, the mainstay of the automobile sector, that is, the two-wheeler segment is yet to recover (Figures 4 –6).

The passenger and commercial vehicle segments, which were already seeing a build-up of inventory prior to the pandemic, inter alia, the transition from Bharat Stage (BS)-IV to BS-VI norms, fuel prices and increase in third-party insurance premiums were further dragged down during the lockdown. Their recovery after the pandemic was marred by global supply chain disruptions and increased costs of production (SIAM, 2023).

The domestic two- and three-wheeler segment was negatively impacted by subdued rural and semi-urban demand (mainly on account of increased fuel and vehicle prices) and supply chain disruptions, further compounded the negative impact (Reserve Bank of India, 2023; SIAM, 2023).

Demand Side: Composition and Trends in Vehicle Registrations

The number of vehicle registrations is an indicator of domestic retail demand for automobiles, capturing the demand side of the automobile value chain. Total vehicle registrations grew by 34% in 2022–2023 (y-o-y), over a low base of the preceding 4 years.

Non-transportation vehicles, that is, vehicles utilized for personal purposes such as two-wheelers and light motor cars, comprise a large proportion (over 90%) of the registrations (Figure 7). Transportation vehicles used for the transportation of goods and services, such as buses, trailers, tractors, e-rickshaws and three-wheelers, registered a decline in share from around 8% to 5% during the peak of the first wave of the pandemic; however, they have recovered their share since. Registrations have sharply rebounded during 2022–2023 suggesting robust demand for transportation services domestically, emanating from return to work and cooling of fuel prices.

Vehicle registrations in the non-transportation segment are majorly dominated by two-wheelers followed by four-wheelers/cars (Figure 8). Private two-wheelers and four-wheelers registered a subdued growth in 2021–2022 on top of a very low base, mainly on account of increased delivery timings due to production delays that consequently transmitted to an increase in retail prices. With the ease of inputs availability and recovery in economic growth, the demand for two-wheelers and cars rebounded in 2022–2023 (Figure 9). Notably, what is worth mentioning here is the share of electric and hybrid vehicles in total registrations, which increased from 1.0% in 2019–2020 to 6.5% in 2022–2023. This is further explored in depth in the next section.

EVs Push: Reshaping the Mobility System of India

Stylized Facts

EVs are seen as a sustainable means of road transport in India as they fulfil the twin objectives of cutting down on emissions and lowering fuel imports. The sales of EVs have made remarkable progress in the last 2 years; a y-o-y increase of over 150% in 2022–2023 with its share in total vehicle sales rising to 6.5% from a meagre 1.4% in 2020–2021 (Figure 10). One of the major reasons is the push by the Government of India to promote EV manufacturing through schemes like Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME) (Phase II) and the PLI scheme for the automotive and auto components sector. Following this, state-level policies also provide various forms of incentives to consumers to reduce the upfront cost of EVs.

The number of EVs is rising in the country; however, the adoption across vehicle categories is uneven. EV two-wheelers continue to have a major share in total vehicle sales just like the petrol two-wheelers (Figure 11). The following sections aim to explore the possible reasons for such a phenomenon. Two-wheeler EV sales grew by 188% in 2022–2023 as compared to the previous year, which can be attributed to the shift in customer preference from conventional two-wheelers to electric ones due to competitive prices (owing to government subsidies and technological developments), lower running costs, low maintenance charges and growing sensitivity towards the environment.⁸ The increase in demand is mainly due to the central government’s support through various incentives offered under the FAME-II scheme. Under the FAME-II scheme, the incentives for electric two-wheelers increased from ₹10,000/kWh to ₹15,000/kWh, and the cap on incentives was doubled up from 20% to 40%. In addition to this, many states are offering additional subsidies and other incentives such as exemption from registration fees and road tax for EVs. However, there was some adverse impact on electric two-wheeler sales in the year 2023–2024 and the previous year due to the withholding of subsidies of some EV manufacturing companies under FAME II for not complying with phased manufacturing programme (PMP) guidelines under the scheme.⁹ Violations by some companies and the subsequent rollback of subsidies may have led to an increase in the price of their products which adversely affected sales.

State-wise Position of EVs

Maharashtra accounts for the highest number of two-wheelers followed by Karnataka and Gujarat. Out of all the states, 11 states account for over 80% of all two-wheeler EVs in India (Figure 12a). Three-wheeler EV presence is concentrated in a handful of states; Uttar Pradesh has the highest 40% of all three-wheeler EVs in the country followed by Bihar and Assam (Figure 12b). Likewise, 60% of all-India four-wheeler light motor vehicles (LMVs) are sold in four states, namely Maharashtra, Kerala, Karnataka and Delhi, reflecting comprehensive EV supporting policies by these states, preference for cleaner vehicles and high per capita income (PCI) (Figures 12c and 13). In providing e-public transport in the form of buses, Karnataka tops all India shares followed by Delhi and Uttar Pradesh (Figure 12d).

The rise in the presence of EVs in Delhi reflects the extended EV policy of the Delhi government which addressed some gaps of FAME-II. For instance, purchase incentive support is provided to private vehicle owners; there are public charging stations every 3 km within the city; and vital promotional measures have been provided such as incentives for scrapping, skill development initiatives and battery recycling provisions, which enable the creation of the requisite ecosystem for a larger uptake of electric mobility.¹⁰

A State-wise snapshot of the EV policy of major selling EVs is delineated in Annexure 1.

Key Factors Affecting Adoption of EVs in India—Review of Literature

The literature highlights that key factors affecting EV adoption across the globe including China, Europe and the USA are mainly price, charging infrastructure, government policies, environmental attitudes and technological advancements. A study based on a stated choice experiment involving over 1,000 respondents in different cities of China found that purchase price was the most crucial factor influencing EV adoption, followed by charging infrastructure availability. In relation to government policies, the study found that apart from government subsidy, free licensing policy for EVs remained very attractive for consumers (Qian et al., 2019). The government’s support provided through various policies and incentives has been crucial in promoting EV adoption. A cross-country analysis in Europe showed that a mix of energy prices and financial incentives was most effective in promoting EV adoption (Münzel et al., 2019). State-level incentives in the USA, in addition to federal tax credits, had a significant positive impact on EV adoption rates (Jenn et al., 2020; Zhang et al., 2018).

A comprehensive study across European countries by Rietmann and Lieven (2019) showed that monetary incentives and charging infrastructure positively affect EV market share. Countries with a high purchasing power have a higher EV market share. Advancements in EV technology, particularly in terms of range and performance, have been important factors in EV adoption. Driving range was found a critical factor in EV adoption decisions among US consumers and Germany, respectively (Degirmenci & Breitner, 2017; Rasouli & Timmermans, 2016).

Few studies have reviewed the barriers in EV adoption across emerging economies including India by applying multi-criteria decision-making (MCDM) model, highlighting that the existing infrastructure and technology associated with battery-operated EVs will not support the swift shift towards electric mobility (Ashok et al., 2022). Further, the existing studies have indicated that the high cost of electric cars, lack of enabling infrastructure such as charging points and range anxiety act as impediments in the adoption of EV cars (Bhattacharyya & Thakre, 2021; Khurana et al., 2019). Attitudes and concerns towards the environment also drive demand for EVs (Khurana et al., 2019). A study by Singh et al. (2021) corroborated that the central government could play a significant role in faster EV adoption in India and the government should provide more research funds for escalation of EVs and development of enabling infrastructure. Another study pointed out that along with various incentives provided by the central and state governments of India, the policy and technology availability in the domain of disposal and reprocessing of Li-ion batteries is required for escalating the adoption of EVs (Das & Bhat, 2022).

A recent primary survey-based case study conducted for Bengaluru city by using a snowball sampling method assessed the factors influencing the adoption of EVs. Financial barriers, vehicle performance barriers, lack of charging infrastructure, environmental conservation and societal influence were identified as influencers towards EV adoption in India (Sriram et al., 2022). Another study by Javanmardi et al. (2023) investigated the factors affecting EV adoption considering the effects of the COVID-19 pandemic and sustainable development level. The analysis was based on grey econometric and grey regression methods. The results found that vehicle dimensions, battery warranty conditions, battery life and charging facilities are effective factors in the field of vehicle characteristics that can increase the adoption of EVs. It was revealed that the market share of EVs is higher in countries with a higher sustainable development level because of better economic, social and cultural infrastructure.

The existing literature on the adoption of EVs is scarce in the Indian context and majorly based on semi-structured open-ended interviews with experts including automotive industry experts and consumer-preference-based primary consumer surveys. Taking these research findings and research gaps into account, this study has attempted to assess the major factors responsible for sales of EVs in India.

Availability of Public Charging Infrastructure

EV sales have started to take off only since 2022–2023. They continue to have 30%–40% higher upfront costs in comparison to their conventional counterparts. However, this cost is gradually decreasing as technology advances and economies of scale improve. The widespread adoption of EVs as a viable public and private transport option in the short and medium run is not possible without creating adequate ‘charging infrastructure’. Setting up a robust charging infrastructure network requires significant investment. Under the central government’s FAME-II scheme, only 10% of the total budget (₹10,000 crore) has been allocated for the creation of charging infrastructure. The current availability of charging stations may still be limited in certain areas.

Figure 13 suggests a strong correlation between the presence of EVs in states and the number of charging stations. As of February 2024, India had merely over 12,000 public EV charging stations to cater to a total of over 24 lakh EVs. Delhi, being a smaller state, expanded its charging infrastructure capacity rapidly and ranks second after Maharashtra. Interestingly, Uttar Pradesh stands as an outlier in the trend; with the highest number of EVs (over 500,000) in India with just 582 charging stations. This may be partly attributed to the fact that the state has the largest share in the sale of three-wheelers, particularly e-rickshaws that provide door-to-door connectivity and can be charged at home as well (Figures 12b and 15).

The public charging station is found to be a major driver for the adoption of EVs; however, the degree of its contribution varies amongst two-wheelers, three-wheelers and LMVs (Figures 14 –16). The state-wise data suggest a very high positive correlation between the adoption of electric cars and public charging stations, while it is almost negligible for electric three-wheelers (majorly constitute e-rickshaws) (Figures 15 and 16).

Despite significant growth in the sales of EVs, the number of public charging stations across states has not increased much. India has a long way to go to achieve its goals. The gaps need to be addressed through better regulation, improved monitoring mechanisms and capacity-building across the policy value chain (NITI Aayog, 2019).

Assessing the Cost Component of EVs

On the one hand, the higher upfront cost of EVs continues to be a major bottleneck in its expansion; however, with continued government support through various incentives including subsidies, the cost has declined to some extent but still remains higher than the comparable ICE vehicle (Table 1). On the other hand, the total cost of ownership—which also includes the operational cost of a vehicle is significantly lower for EVs than for petrol/diesel vehicles (Table 2). It may be noted that operational costs of EVs vary from one state to another due to state power tariffs and subsidies. For instance, charging costs at public charging stations in Delhi are around ₹4–4.5 per unit while it is higher in Bangalore and Mumbai—ranging from ₹7.2–8.9 to ₹15 per unit, respectively. So, the cost of charging a car having a usual battery capacity ranging from 20 to 45 kWh is around ₹80–202 in Delhi, ₹144–₹400.5 in Bangalore and ₹300–675 in Mumbai.

Table 1.

Upfront Cost^a Comparison between Internal Combustion Engine (ICE) and Electric Vehicle (EV).

	ICE Vehicle	EV without Subsidy	EV with Subsidy^b
	In thousands of rupees
Three-wheeler autos	302	541	402
Four-wheeler commercial passenger vehicles (diesel)	1,204	2,114	1,575

Source: The information is directly culled out from NITI Aayog and Rocky Mountain Institute (RMI) Report, 2022.

Note: ^aIt is the cost (or road price) paid at the time of buying a vehicle. ^bThe estimation of EV with subsidy is based on Karnataka State.

Table 2.

Total Cost of Ownership^a Comparison between Internal Combustion Engine (ICE) and Electric Vehicle (EV).

	ICE Vehicle	EV without Subsidy	EV with Subsidy^b
	Rupees per km
Three-wheeler autos	6.2	2.4	1.9
Four-wheeler commercial passenger vehicles (diesel)	10.3	8.7	6.1

Source: The information is directly culled out from NITI Aayog and Rocky Mountain Institute (RMI) Report, 2022.

Note: ^aTotal cost of ownership is inclusive of the operational costs of a vehicle. ^bThe estimation of EV with subsidy is based on Karnataka state.

Empirical Analysis

Data and Methodology

The basic statistical analysis in the previous section suggests that enabling infrastructure and lowering of cost of EVs play a key role in promoting EVs in comparison to traditional ICE vehicles. There are many cross-country instances where the government has acted as a catalyst in penetrating the demand for EVs (Mukherjee & Dash, 2023; Münzel et al., 2019; NITI Aayog, 2022a; NITI Aayog, 2022b; Qian et al., 2019). The earlier section has pointed out that there could be different drivers for electric two/three-wheelers and four-wheelers (LMV). With the financial incentives provided by the government, the EV adoption of two/three-wheelers has surged contributing around 93% of total EV sales; however, sales of electric cars languished. Given the thrust by the government to have 30% private electric cars on the road by 2030 along with differential financial incentives offered by sub-national governments, it further becomes pertinent to empirically delve into the key drivers of electric cars in India. Attitudes and concerns towards the environment may also affect demand for EVs, but this variable could not be factored into the model due to a lack of suitable data. Taking the data constraints into account, the analysis is based upon 29 cross-sectional states/union territories (UTs) data for the period 2022–2023. Demand for electric LMV/car is ascertained through the following regression model. The generic form of the model is as follows:

Demand for an electric LMV, Y = f (Price differential between electric car and comparable ICE car,¹¹ P; EV charging infrastructure, CI; current PCI).

This study further analyzes two variants of the principal explanatory variable price differential, P_i, wherein specification 1 (Equation 1) assesses the demand for electric LMV when subsidy/incentives provided by state governments are included, while under specification 2 (Equation 2) state government incentives are excluded, so price differential, or price spread (PSi), between EV and ICE vehicle is higher in this case since the price of EV goes up. Therefore, ‘β₁’ of ‘specification 2’ is expected to be lower than the ‘β₁’ of specification 1.

An alternative configuration with a modified dependent variable, measuring relative demand for electric LMV over ICE LMV, is attempted under specification 3. The principle explanatory variable, price of electric LMV over ICE LMV is taken to measure the relative price of electric LMV. The rest of the variables remain the same as mentioned under Equation 1.

Specification 1 (with subsidy):

Y_{i} = β_{1} P_{i} + β_{2} {CI}_{i} + β_{3} {PCI}_{i} + error

(1)

Specification 2 (without subsidy):

Y_{i} = β_{1} {PS}_{i} + β_{2} {CI}_{i} + β_{3} {PCI}_{i} + error

(2)

Specification 3 (modified dependent variable; with subsidy):

y_{i} = b_{_{1}} p_{i} + b_{2} \ln {CI}_{i} + b_{3} \ln {PCI}_{i} + error

(3)

Specification 4 (modified dependent variable; without subsidy):

y_{i} = b_{1} {ps}_{i} + b_{2} \ln {CI}_{i} + b_{3} \ln {PCI}_{i} + error

(4)

where Y, demand for electric LMV, is estimated by the number of electric cars registered during the year 2022–2023 in each state.¹² As per Equation 3, ‘y’ represents the relative demand for electric LMV during 2022–2023, which is measured as a ratio of electric cars over ICE cars.

Price differential, P, is estimated by on road price of an electric LMV (after subsidy) minus on-road price of a comparable ICE LMV.¹³ Since there is no readily available data to capture state-wise price differential, subsidy/incentives are measured through the waiver of off-road tax or registration fees, or both, provided by state governments to promote the demand for EVs. This component varies from one state to another as their EV policies vary (Annexure 1). Further, in specification 3, this variable is slightly modified wherein the relative price of electric LMV (over ICE LMV) is considered rather than the consideration of absolute price as shown under specifications 1 and 2.

It may be noted that operational costs of running an electric LMV to ascertain the total cost of owning an EV are not considered in this model due to data limitations.¹⁴

EV charging infrastructure, CI, is the number of public charging stations available in each state as per data available on the website of the Ministry of Power, Government of India.¹⁵

Current PCI, is extracted from the Ministry of Statistics and Programme Implementation (MoSPI) website, and the latest available state-wise data are considered.

Considering the presence of heteroscedasticity in the cross-section regression model,¹⁶ log-log regression form is applied in specifications 1 and 2 (in specifications 3 and 4, a semi-log model is applied). All the variables were converted into logarithmic form and ordinary least square (OLS) regression was performed. The functional form regression-through-origin model is applied since there is a very strong a priori expectation that demand for EV four-wheelers would be close to zero if there were no government incentives to bring down the upfront costs of the vehicle, no public charging stations and no income. In this regard, Henri Theil pointed out that if the intercept is in fact absent, the slope coefficient may be estimated with far greater precision than with the intercept term left in, which is also reflected in the empirical results explained in the following section.¹⁷ Therefore, the intercept is assumed to be zero in the model. In this way, the study has attempted to minimize the chances of specification error (Gujarati, 2004; Gujarati & Porter, 2009).

The expected sign of the price differential (relative price of an electric car) coefficient, β₁ (b₁), is negative since the price of electric LMV is greater than ICE LMV across all states and a negative coefficient is expected, signifying that higher the price differential (relative price of an electric car), lower will be the demand for electric car (relative demand for an electric car) across states. β₂, the coefficient of EV charging infrastructure, CI, is expected to be positive as it is a vital factor in buying EVs, especially a four-wheeler, as also explained through Figure 13. Finally, β₃, the coefficient of the last explanatory variable, current PCI, of the model is expected to be positive based on the standard economic theory.

Empirical Results

The empirical results of log-log model of Equations 1 and 2 are summarized in Table 3.

Table 3.

Dependent Variable: ln (Number of Registrations of Electric Light Motor Vehicles (ELMV))

Regressor	Specification 1	Specification 2
	(with Subsidy)	(without Subsidy)
	Model 1	Model 2
ln (price differential)^#	–0.65*(0.06)	–0.87**(0.05)
ln (EV charging infrastructure)^{^}	1.07***(0.00)	1.12***(0.00)
ln (current per capita income)	0.73**(0.05)	0.94**(0.04)
R-squared	0.79	0.80
Adjusted R-squared	0.77	0.78
Durbin–Watson statistics	2.36	2.17
No. of observations	29	29

Note: Figures in parentheses are p values; *** ** and * indicate significance at 1%, 5% and 10%, respectively. ^#It is the on-road price of electric light motor vehicle (LMV) minus the on-road price of a comparable internal combustion engine (ICE) LMV. ^{^}It is the number of public charging stations for electric vehicles (EVs).

Model 1 gives a negative and statistically significant β₁ coefficient at 10% level, suggesting that if the price differential between electric cars and petrol cars goes up by 1% (after taking into account incentives provided by state governments), on average, it is associated with 0.65% lower sales of electric cars. While, if we take specification 2, the same coefficient goes down by 0.87%, which is lower than specification 1. It signifies that government policies are playing a vital role in raising demand for four-wheelers. However, scope for improvement exists across states and they could further strengthen their EV policies and provide demand incentives to enhance the ownership of EVs. The coefficient of another important explanatory variable, EV charging infrastructure, is positive and statistically significant at 1% level, suggesting that if the number of public charging stations increases by 1%, on average, demand for electric four-wheelers could go up by more than 1%—highlighting the requirement of ubiquitous public charging stations. The last explanatory variable, current PCI, has positive income elasticity with respect to demand for electric cars. The results of the regression model along with the intercept are provided in Annexure 3. Considering the diversity of cross-section units, the coefficient of determination, R², is moderately high.

The results of a semi-log model of Equations 3 and 4 are summarized in Table 4. The coefficients of regressors are found as per economic theory and statistically significant. As per Model 1, b₁ coefficient is statistically significant at 1% level, suggesting that if the relative price of an electric car goes up by ₹1 (after taking into account incentives provided by state governments), on average, the relative demand for electric cars could go down by 0.05 unit. The coefficient of another important explanatory variable, EV charging infrastructure, is positive and statistically significant at 1% level. The last explanatory variable, current PCI, is positive and statistically significant at 1% level. It should be noted that regression results of specifications 1 and 2 are not directly comparable with specifications 3 and 4 as the dependent variable is modified.

Table 4.

Dependent Variable: Number of Registrations of Electric Light Motor Vehicles (ELMV) Over Registrations of ICE LMV.

Regressor	Specification 3	Specification 4
	(with Subsidy)	(without Subsidy)
	Model 1	Model 2
Relative price of electric LMV^#	−0.051***	−0.098***
Relative price of electric LMV^#	(0.01)	(0.00)
ln (EV charging infrastructure)^{^}	0.002**	0.002***
ln (EV charging infrastructure)^{^}	(0.03)	(0.00)
ln (current per capita income)	0.005**	0.009***
ln (current per capita income)	(0.02)	(0.00)
R-squared	0.5	0.63
Adjusted R-squared	0.46	0.6
Durbin–Watson statistics	2.27	1.97
No. of observations	29	29

Note: Figures in parentheses are p values; *** and ** indicate significance at 1% and 5% levels, respectively. ^#It is the ratio of the on-road price of an electric light motor vehicle (LMV) to the road price of a comparable internal combustion engine (ICE) LMV. ^{^}It is the number of public charging stations for electric vehicles (EVs).

The empirical results suggest that the higher upfront cost of EVs is associated with lower sales and slows down the transition from traditional to greener alternatives. Bringing down the high cost of EV batteries and cells (40%–50% of the cost of EVs) remains a big challenge. Due to the unavailability of sufficient lithium reserves in India, manufacturers resorted to importing them, which led to an increase in the cost of vital components. It further meant that they were not complying with the Make-in-India initiatives, making it difficult to claim subsidies and other incentives offered by the government, therefore resulting in a high cost of EVs.

The investment in research and development is essential for improving battery performance and reducing production costs. Further, foreign direct investments may act as a catalyst in the EV manufacturing space. The new EV policy announced in March 2024 is expected to increase the foreign investment in electric manufacturing and may bring down the cost of EV manufacturing.¹⁸

Conclusion

In the last 2 years, sales of EVs have picked up, although there are variations across categories of vehicles as well as across states of India, amid the myriad of incentives provided by the central and state governments. The electric two-wheelers have witnessed the largest penetration and growth, followed by three-wheelers and cars. The empirical results also reinforce the importance of subsidy/incentives provided by the government in pushing up demand for EVs, especially for a two-wheeler, by reducing the upfront costs. The model further emphasizes the vital role of public charging stations as they acts as a prerequisite, especially for a four-wheeler EV. However, for faster adoption of EVs in India and to combat the cost of production, the industry requires sustained focused support from the government and increased foreign investment in this segment to obtain scale advantages in production.

The lower operational costs of EVs have an advantage over traditional vehicles. The savings emanating from lower operational costs of EVs can be utilized in other sectors, namely healthcare and education, among others. Moreover, EVs generate positive externalities. As per Delhi EV policy, the 500,000 subsidized EVs can avoid 159 tons of fine particulate matter (PM 2.5) over the lifetime of the vehicles.¹⁹ As per a study by NITI Aayog (2019), the number of EVs eligible under the FAME-II scheme can reduce 7.4 million tonnes of CO₂ and can further result in oil import savings worth ₹17.2 thousand crores cumulatively ($2.3 billion) over their lifetime. India needs to strengthen the manufacturing sector across various segments of EVs to harness these multi-fold environmental and financial gains and provide a competitive option for buyers as well.

Annexure 1.

Snapshot of Electric Vehicle (EV) Policies of Major States.

States/UTs	EV Policy Notified	Demand Incentives				Charging Infrastructure	Other Incentives (Road Tax, Registration Charges and SGST)
		2W	3W	4W	Buses
Andhra Pradesh	YES-2018-23				Target to convert 100% of APSRTC bus fleet of over 11,000 buses into electric buses (battery EVs or fuel cell EVs) by 2029, with the first phase of 100% conversion of the bus fleet in the top 4 cities by 2024	Charging infrastructure will be installed at least every 50 km on highways, other major roads and so on	1. Reimbursement of registration charges and road tax on the sale of EVs until 20242. Reimbursement of the net state goods and services tax (SGST)
Assam	YES-2021	Incentive of ₹10,000/kWh of battery capacity, maximum up to ₹1.5 lakh	Incentive of ₹10,000/kWh of battery capacity, maximum up to ₹5 lakh	Incentive of ₹10,000/kWh of battery capacity, maximum up to ₹15 lakh	1. Convert 100% of the public transport bus fleet into electric buses (battery EVs) by 2030.2. All government vehicles to be converted to EVs by 2030. After 2025, only EV will be allowed to purchase	1. Public charging stations for 2-, 3- and 4-wheelers willbe eligible for 25% capital subsidy on equipment/machinery to a maximum limit of ₹10 lakhs per station for the first 500 commercial public EV charging stations2. The state government exempts 100% electricity duty of EV charging stations during the period of the policy	1. Exemption/reimbursement of registration charges and road tax on 2-, 3- and 4-wheeler for 5 years2. 100% waiver on parking charges for 5 years
Bihar	YES-2023	1. Incentive of ₹5,000/KWH up to a maximum of first 10,000 electric wheelers with an upper limit of ₹10,000/-per vehicle for SC/ST and a maximum of ₹7,500 per vehicle for others during the policy period2. 75% rebate in Motor Vehicle Tax for the first 10,000 vehicles	50% rebate in Motor Vehicle Tax for (passenger vehicles and goods carriage)	1. Incentive of ₹10,000/KWH up to a maximum of the first 1,000 electric four-wheelers with an upper limit of ₹150,000 per vehicle for SC/ST and a maximum of ₹125,000 for others during the policy period2. 75% rebate in Motor Vehicle Tax, for the first 1,000 vehicles		1. 75% on purchase of equipment/machinery for all categories of charging station2. For the first 3 years, a 30% subsidy can be provided on power tariff for public and semi-public charging stations
Chandigarh	YES-2022	1. Incentive on fixed battery—₹5,000/kWh and max ₹30,0002. Swappable battery—₹3,000/kWh and max ₹15,0003. No. of e-vehicles to be incentivized is 10,000	1. Incentive on fixed battery—₹5,000/kWh and max ₹30,0002. Swappable battery—₹3,000/kWh and max ₹15,0003. No. of e-vehicles to be incentivized is 3,000	1. Incentive on fixed battery—₹5,000/kWh and max ₹150,000 (personal). Maximum e-vehicles incentivized 2,0002. Incentive on fixed battery—₹10,000 and max 200,000 (commercial)3. No. of e-vehicles to be incentivized is 1,000		1. Incentive will be provided for setting up the 100 charging stations at least 1 charging station in every parking2. EV charging infrastructure is mandatory for all the petrol pumps (both private and govt. owned)	Waiver of road tax and registration fees
Delhi	YES-2020	1. Purchase incentive of ₹5,000/kWh of battery capacity, maximum up to ₹30,000/vehicle2. Scrapping incentive up to ₹5,000/ICE 2-wheeler	1. Purchase incentive of ₹30,000/e-rickshaw or e-cart/individual.2. Interest subvention of 5% on loans for purchase of e-auto3. Scrapping incentive up to ₹7,500/ICE autorickshaw	Purchase incentive of ₹10,000/kWh (up to ₹150,000) of battery capacity/4-wheeler EV to first 1,000 e-cars	Pure electric buses constitute at least 50% of all new stage-carriage buses (i.e., for all public transport vehicles with 15 seats or more) procured for the city fleet including for last-mile connectivity, starting with the induction of 1,000 pure electric buses by 2020	Public charging stations at every 3 km within the city. Charging and battery swapping stations at bare minimum lease rentals	1. Waiver of road tax and registration fees.2. 100% of the net SGST reimbursement
Haryana	YES-2022		Coupon of ₹25,000 for e-rickshaw/e-carts buyers	1. Coupon of ₹100,000 to e-cars (above ₹10 lakh) buyers2. Coupon of ₹75,000 to e-cars (below ₹10 lakh) buyers		1. 25% capital subsidy for setting up private charging stations and swapping stations/battery banks2. Depots and bus stops will have charging stations3. Public parking and all petrol pumps will be mandated to have charging stations and battery banks4. Charging infrastructure will be installed at least every 50 km on highways, other major roads and so on	1. 100% exemption of road tax2. Exempted from paying state toll tax3. 100% interest-free loans to the state government employees4. EVs will be registered on a priority basis with a minimum token fee of ₹100.5. 30% subsidy on road price of EV in the form of reimbursement directly to the buyer in the state
Himachal Pradesh	YES-2022					1. At least 1 charging station/point within every 1 × 1 km grid in four model cities—Shimla, Mandi, Baddi and Dharamshala2. Highways—At least 1 charging station (on each side) every 25 km on state highways and at least 1 charging point (on each side) every 50 km on busy national highways in the state	100% exempted from road tax, state toll tax and permit fee
Kerala	YES-2019		1. Priority conversion of 3-wheelers and transport buses to electric2. Incentive of ₹30,000 or 25% subsidy for e-3Ws procured from empanelled vendors			1. 25% capital subsidy (maximum ₹10 lakhs) for the first 100 charging stations with DC charger (100 V and above) and ₹30,000 for the first 300 stations with DC charger (below 100 V)2. 25% capital subsidy (maximum ₹10 lakhs) for the first 50 battery swapping stations3. Incentive for setting up charging stations in existing private/malls/commercial 4. Buildings charging stations at every 25 km on highways and roads connecting major cities	Exemption from toll charges and parkingEntire fleet of State Road Transport Corporation to be electric by the year 2025
Ladakh	YES-2022	10% of the ex-showroom price or ₹15,000 (maximum ex-showroom price to avail the discount can be ₹150,000)	E-rickshaw and e-cart—10% of the ex-showroom price or ₹30,000 max-300,000e-3W—10% of the ex-showroom price or 50,000 (maximum ex-showroom price to avail the discount can be ₹500,000)	10% of the ex-showroom price or ₹250,000 (maximum ex-showroom price to avail the discount can be ₹2,500,000)	25% of the ex-showroom price or ₹5,000,000 (maximum ex-showroom price to avail the discount can be ₹20,000,000)	Commercial public EV charging stations for two-wheelers, cars and buses will be eligible for capital subsidy on equipment/machinery (capital subsidy of 25% on the equipment/machinery or ₹500,000 (whichever is less) per station for the first 15 EV charging stations)Public charging facility:1. Domestic/residential facility (individual) with slow AC charging2. Station developed at public or semi-public (government facilities, transport stations, commercial buildings, fuel stations and others) with slow AC/fast DC charging	100% exempted from road tax and permit fee requirement
Madhya Pradesh	YES-2019	1. For the first 15,000 vehicles,1% motor vehicle tax for 5 years2. Vehicle registration fees will be exempted for 22,500 electric two-wheelers or total electric two-wheelers in 5 years, whichever is less (all incentives shall be applicable to power not exceeding 250 W)	1. For the first 2,000 vehicles, 1% motor vehicle tax for 5 years2. Vehicle registration fees will be exempted for 3,000 3W or total electric 3W in 5 years, whichever is less	1. For the first 6,000 vehicles, 1% motor vehicle tax for 5 years2. Vehicle registration fees will be exempted for 9,000 electric cars or total electric cars in 5 years, whichever is less	1. For the first 1,500 vehicles, 1% motor vehicle tax for 5 years2. Vehicle registration fees will be exempted for 2,250 electric buses or total electric buses in 5 years, whichever is less	Capital subsidy of 25% of the value of the charging equipment/machinery for small medium and large charging stationsa) For the first 300 small charging stations up to a maximum subsidy of ₹150,000b) For the first 100 medium stations up to a maximum subsidy of ₹200,000c) For the first 100 large stations up to a maximum subsidy of ₹1,000,000	100% waiver on parking for 5 years
Maharashtra	YES-2021	1. Purchase incentive of ₹5,000/kWh of battery capacity, maximum up to ₹10,000/vehicle. Maximum no. of vehicles incentivized 100,0002. Scrapping incentive up to ₹7,500	1. Purchase incentive of ₹5,000/kWh of battery capacity, maximum up to ₹30,000/vehicle. Maximum no. of vehicles incentivized 15,0002. Scrapping incentive up to ₹15,000	1. Purchase incentive of ₹5,000/kWh of battery capacity, maximum up to ₹150,000/vehicle. Maximum no. of vehicles incentivized 10,0002. Scrapping incentive up to ₹25,000	1. 10% of vehicle ex-factory cost2. Maximum incentive per vehicle is ₹2,000,000	1. Public charging stations at every 25 km on highways2. Public charging stations at every 3 × 3 km grid within the city	100% exempted from road tax
Punjab	YES-2023	The policy aims to increase the share of e-2Ws significantly to reach 25% of new sales over the policy period	In addition to the incentives under FAME phase II scheme, additional purchase incentive will be given. The total incentives sum up to ₹15 crore (approx.)		The policy focuses on progressively replacing 25% of bus fleet operating in Punjab to eliminate old buses in coming years	1. Will provide subsidy of ₹3,000/charging point for first 8,000 level 1 light EV AC charging points and ₹10,000/charging point for first 2,000 DC charging points2. Public charging/battery swapping station will be available within 3 km of travel anywhere in the target cities	Waiver of road tax and registration fees
Rajasthan	YES-2022	Incentive on fixed battery— ₹5,000–10,000 swappable battery–₹2,000–5,000	Incentive on fixed battery—₹10,000–20,000 swappable battery – ₹4,000–10,000	Upfront incentive with maximum ex-showroom price of ₹ 2,000,000 as per battery capacity (from ₹30,000 to ₹50,000)	Upfront incentive as per battery capacity—₹100,000–500,000.	1. Charging points at residences/offices permitted through existing electricity connection2. Capital subsidy equivalent to 20% of investment made in EVSE (EV supply equipment), maximum up to ₹4 lakhs3. Reimbursement cost of upstream infrastructure for first 100 public fast PCS/swapping stations (up to ₹5 lakhs per PCS)	100% of the net SGST reimbursement.
Tamil Nadu	YES-2023 (previous policy in 2019)	1. Incentive of ₹10,000/kWh of battery capacity, maximum up to ₹30,000/vehicle2. No. of e-vehicles to be incentivized is 6,000	1. Incentive of ₹10,000/kWh of battery capacity, maximum up to ₹40,000/vehicle2. No. of e-vehicles to be incentivized is 15,000	1. Incentive of ₹10,000/kWh of battery capacity, maximum up to ₹150,000/vehicle2. No. of e-vehicles to be incentivized is 3,000	1. Incentive of ₹20,000/kWh of battery capacity, maximum up to ₹1,000,000/vehicle2. No. of e-vehicles to be incentivized is 300	1. 200 fast charging station and 500 slow charging station will get up to ₹1,000,000 and up to ₹100,000 incentive, respectively2. The first 200 public battery swapping stations get subsidy of 25% on the cost involved in the purchase of equipment and machinery limited to ₹2 lakh per station3. The first 50 private charging stations get subsidy of 25% on the cost involved in the purchase of equipment and machinery during the policy period	100% road tax exemption and waiver of registration fees will be provided till 31.12.2025 for the following categories of EV battery-operated vehicles, namely two-wheelers, private cars, three-seater auto-rickshaws, transport vehicles (such as taxis and tourist cars), light goods carriers (including three-wheelers) and buses
Telangana	YES-2020-30					1. Charging/swapping station for every 50 km within state boundaries on highway to cities like Bengaluru, Mumbai and Chennai shall be encouraged2. A battery disposal infrastructure model shall be created to facilitate deployment of used EV batteries	100% exemption of road tax and registration fee (20,000 2W, 20,000 3W, 5,000, 4W 500 buses)
Uttar Pradesh	YES-2022	@15% of ex-factory cost up to ₹5,000 per vehicle subject to maximum budget outlay of ₹100 crore to maximum of 2 lakh EVs	@15% of ex-factory cost up to ₹12,000 per vehicle subject to maximum budget outlay of ₹60 crore to maximum of 50,000 EVs	@15% of ex-factory cost up to ₹1 lakh per vehicle subject to maximum budget outlay of ₹250 crore to maximum of 25,000 EVs	E-buses (non-govt, i.e., school buses, ambulances and others): @15% of ex- factory cost up to ₹20 lakh per vehicle subject to maximum budget outlay of ₹80 crore to maximum of 400 e-buses	1. Fast charging/swapping facilities in at residences/offices permitted through existing electricity connection and so on2. Swapping stations shall be provided one-time capital subsidy on eligible fixed capital investment for service providers at the rate of 20% up to max ₹5 lakh per unit to first 1,000 swap stations in the state3. Public charging stations at every 25 km on highways4. Public charging stations at every 3 × 3 km grid within the city	Waiver of road tax and registration fees(i) At the rate of 100% on any EV purchased and registered in UP over a period of 3 years from policy notification(ii) At the rate of 100% on any EV manufactured, purchased and registered in UP in the 4th and 5th year of policy period

Source: Bureau of Energy Efficiency, EVyatra; State-govt. EV policy; Switch Delhi.

Note: AC, alternating current; APSRTC, Andhra Pradesh State Road Transport Corporation; DC, direct current; FAME, Faster Adoption and Manufacturing of Electric and Hybrid Vehicles; PCS, public charging station; SC, scheduled caste, ST, scheduled tribe.

Annexure 2.

Heteroskedasticity Test: Breusch–Pagan–Godfrey.

Null Hypothesis: Homoskedasticity
F-statistic	4.934777	Prob. F(3,25)	0.0079
Obs*R-squared	10.78590	Prob. chi-square(3)	0.0129
Scaled explained SS	16.88998	Prob. chi-square(3)	0.0007

Annexure 3.

Dependent Variable: ln (Number of Registrations of Electric Light Motor Vehicle (ELMV)).

Regressor	Specification 1	Specification 2
	(with Subsidy)	(without Subsidy)
	Model 1	Model 2
ln (price differential)^#	−0.12(0.86)	0.22(0.97)
ln (EV charging infrastructure)^{^}	1.11***(0.00)	1.12***(0.00)
ln (current per capita income)	0.93**(0.05)	0.94**(0.04)
Constant	−9.14(0.42)	−13.5(0.84)
R-squared	0.80	0.80
Adjusted R-squared	0.77	0.77
Durbin–Watson statistics	2.22	2.18
No. of observations	29	29

Note: Figures in parentheses are p values; *** and ** indicate significance at 1% and 5% levels, respectively. ^#It is on road price of electric light motor vehicle (LMV) minus on road price of comparable internal combustion engine (ICE) LMV. ^{^}It is number of public charging stations for electric vehicle (EVs).

Footnotes

Acknowledgement

The authors express their sincere gratitude to Dr Rajiv Kumar, former Vice Chairman, NITI Aayog for his valuable suggestions.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

Notes

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Fuelling Electric Vehicles Growth: Factors that Matter in India’s Electric Vehicles Growth Story

Abstract

Keywords

Introduction

Supply Side: Composition and Trends in Production and Sales of Automobiles

Demand Side: Composition and Trends in Vehicle Registrations

EVs Push: Reshaping the Mobility System of India

Stylized Facts

State-wise Position of EVs

Key Factors Affecting Adoption of EVs in India—Review of Literature

Availability of Public Charging Infrastructure

Assessing the Cost Component of EVs

Upfront Costa Comparison between Internal Combustion Engine (ICE) and Electric Vehicle (EV).

Total Cost of Ownershipa Comparison between Internal Combustion Engine (ICE) and Electric Vehicle (EV).

Empirical Analysis

Data and Methodology

Empirical Results

Dependent Variable: ln (Number of Registrations of Electric Light Motor Vehicles (ELMV))

Dependent Variable: Number of Registrations of Electric Light Motor Vehicles (ELMV) Over Registrations of ICE LMV.

Conclusion

Snapshot of Electric Vehicle (EV) Policies of Major States.

Heteroskedasticity Test: Breusch–Pagan–Godfrey.

Dependent Variable: ln (Number of Registrations of Electric Light Motor Vehicle (ELMV)).

Footnotes

Acknowledgement

Declaration of Conflicting Interests

Funding

Notes

References

Upfront Cost^a Comparison between Internal Combustion Engine (ICE) and Electric Vehicle (EV).

Total Cost of Ownership^a Comparison between Internal Combustion Engine (ICE) and Electric Vehicle (EV).