In India, many things are going well in terms of two-wheeler electrification. First, the government raised the FAME-II incentives for electric two-wheelers (E2W) to 215,000 per kWh. Second, a growing number of states, like Gujarat and Maharashtra, have announced electric car incentives as part of their state policies. Third, a slew of new electric two-wheeler models are being introduced by a slew of entrepreneurs. As a consequence, E2W sales in India are expected to more than quadruple in 2021 when compared to 2020. Even if this occurs, electric two-wheelers would account for less than 1% of new two-wheeler sales. This is partly due to the fact that the industry giants (Hero MotoCorp, Honda, TVS, Bajaj, Suzuki, Royal Enfield, and Yamaha), who together account for almost 99 percent of all two-wheeler sales in India, offer just two electric models and only in a few cities.
In two ways, the world’s most active electric car marketplaces have overcome major businesses’ reluctance to manufacture and sell electric vehicles. The first is to create a financing scheme for zero-emission vehicles (ZEVs). This necessitates car makers ensuring that ZEVs account for a specific percentage of their sales or purchasing ZEV credits from manufacturers that have sold more ZEVs than the credit scheme needs. There are many regulatory options available to India for establishing such a scheme. California, as well as many other states in the United States and China, have utilised this strategy to boost the availability of electric car models. The second is to enact a fuel efficiency/CO2 emission requirement that is strict enough that it can only be fulfilled by manufacturing and selling ZEVs. As the European Union’s CO2 regulations for passenger cars demonstrate, if CO2 limits are sufficiently severe, major manufacturers will offer electric vehicles in significant numbers. My colleagues suggested in a recent briefing paper that India might benefit greatly from such an approach. Our research shows that if the 2W CO2 standards for FY2025-26 are set at 25gCO2/km (compared to 38gCO2/km in 2020-21), the cost-effective market share for electric motorcycles and electric scooters could be as high as 19% and 13%, respectively, for a 32 percent electric vehicle share of the total two-wheeler market. Similarly, if the two-wheeler fuel consumption requirement for 2030 is set at or below 20gCO2/km, at least 60% of new two-wheeler sales would likely be electric that year. In contrast, if the 2025-26 requirements are more liberal, such as 30g CO2/km, it will be cheaper to comply with ICE technology, and the standards will provide no market incentive for E2Ws.
In brief, there are two reliable ways to overcome manufacturers’ apprehensions about entering the electric vehicle market wholeheartedly: a mandate requiring them to build and sell electric vehicles, or stringent/ambitious efficiency standards that make building and selling electric vehicles the most profitable option for them. We know that, due to substantial state and national subsidies and fuel prices over 2100/liter, the total cost of ownership of E2W is already comparable with petrol two-wheelers. We also know that an E2W bought today will help to reduce greenhouse gas emissions in the long run. On a total cost of ownership basis, E2W are now cost-effective, and are on track to achieve upfront cost parity later this decade. If tailpipe 032 limits are established at severe levels, E2W will decrease greenhouse gas emissions while also being a cost-effective option for producers. Now is the time for the Bureau of Energy Efficiency and the Ministry of Road Transport and Highways to establish 2W fuel consumption requirements of 25g CO2/km in 2025 and 20g CO2/1u-n in 2030. Not only will this guarantee a 30% E2W share in 2025 and a 60% E2W share in 2030, but it will also pave the road for India to migrate to E2W across all two-wheeler sectors entirely by 2035.