The Indian government has reduced the subsidy provided under Faster Adoption of Manufacturing of Electric Vehicles in India scheme applicable on electric two-wheelers registered on or after June 1, 2023, which could hurt this country’s demand for electric two-wheelers.  

Demand incentives for electric two-wheelers will be Rs 10,000/kWh ($121/kWh) from June 1, India's Heavy Industries Ministry said on May 21. In 2021, the Heavy Industries Ministry raised the demand incentive from Rs 1,000/kWh to Rs 15,000/kWh. The cap on incentives for electric two-wheelers will be 15% of the ex-factory price of vehicles from 40% at present. In 2021, that cap was raised from 20% to 40%. Only electric two-wheelers priced below Rs 150,000 are eligible for the incentive. The subsidy cut will substantially increase prices for end consumers. 

Sales of electric vehicles have surged in India over the past few years, but electric two-wheelers have dominated the market. Figures on the government's Vahan website show electric two-wheelers accounted for almost 62% of all EV sales in the April 2022-2023 financial year, at 727,176 units, up from 55%, or 252,555 units, in the 2021-2022 financial year. This compares to sales of 401,872 three-wheelers in 2022-2023 fiscal year and 183,449 in 2021-2022 fiscal year, accounting for 34% and 40% of total sales, respectively. Four-wheeler sales accounted for just 4% of total EV sales in 2022-2023 fiscal year and 2021-2022 fiscal year. The subsidy cut is bound to suppress the demand in the Indian electric two-wheeler market. 

How will India's subsidy reduction affect China's electric two-wheeled vehicles and upstream LMO enterprises? 

Previously, sales of lead-acid battery-powered electric bicycles in India were relatively strong, but motorcycles were still the most popular and common means of transportation. Therefore, what India really needs to solve is the need to replace fuel motorcycles with electric two-wheelers. Electric motorcycles use lithium batteries to generate electricity, and the speed can exceed 50km/hour, which is closer to the speed of motorcycles. At the same time, India's automobile industry foundation is quite weak, and Indians' demand for automobiles is not high. It is relatively easy for the Indian government to catch up with the wave of new energy and promote the electrification of motorcycles. With India’s transformation to electrification, major Chinese brands have gradually entered the Indian market, and more and more local Indian players are also setting foot into this business. As India accounts for only a small share of China’s electric two-wheeler exports, the decline in demand for electric two-wheelers in India will have limited impact on Chinese companies. 

In the long run, most Chinese brand companies sell electric motorcycles through OEM in India, with few companies cover the whole production process. Indian electric motorcycle industry is in its early stage of development, and various brands are still in the initial planning and layout stages. In the long run, India will have strong demand for Chinese electric two-wheelers and LMO. 

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