India's move to lower EV subsidies offers a hint of the future

Prasanth Aby Thomas, DIGITIMES, Bangalore 0

Maxson Lewis, founder and MD, Magenta Mobility. Credit: Magenta

In recent years, India's EV growth has been remarkable, with more companies and products entering the market. Reports from major firms like KPMG suggest that this trend is set to continue for at least another decade.

However, some concerns might hinder this growth. One of the factors that has driven India's EV revolution is subsidies. Lately, the government has begun to reduce these. The government's encouragement of EVs and their infrastructure, particularly through the FAME II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) and PLI (Production-Linked Incentive) schemes, has been instrumental in shaping the strategic direction and growth trajectory of the industry.

While subsidies have never been a permanent solution, the market remains unsure about the timing of their reduction – is it too early? In this piece, we delve into the impact of these schemes with an interview from Maxson Lewis, Founder and MD of Magenta Mobility, an EV startup focused on the logistics segment.

The potential impact of halting subsidy schemes

The Indian government's push towards electrification of the transport sector has undoubtedly been a significant growth driver for EV companies. Yet, one might wonder what the impact would be if these supportive schemes were to cease. Maxson shares his insights into this scenario.

"The cessation of these schemes could indeed present a challenging landscape for EV startups," Maxson states. "Not only would it diminish the financial incentives for customers and manufacturers, but it might also slow down the momentum that the EV industry has gained."

He further elaborated that, "the FAME II and PLI schemes have facilitated a sense of security among consumers about the reliability and longevity of EVs. If these schemes were to end abruptly, it could potentially reignite 'range anxiety' and other concerns. Continuity and consistency in policy support are essential to maintain and accelerate the EV adoption curve."

However, Maxson also believes in the resilience of the EV sector and the critical role of innovation in navigating potential challenges. "In the absence of these schemes, the industry's growth might slow down, but it won't come to a standstill. It is essential to continue innovating, developing efficient technologies, and finding new ways to make EVs more accessible and appealing to consumers. That's our commitment at Magenta, irrespective of the external environment," he added.

This underscores the significance of government initiatives in propelling the EV sector and the potential implications of their discontinuation. Yet, it also highlights the tenacity of companies committed to powering through, with or without these schemes

The specific benefit of PLI schemes

The production-linked incentive scheme (PLI) was aimed towards newer technologies. But PLI is based on production volume of a product, not technology development. This risks the same issues China faced with EV subsidies. Maxson pointed out that when subsidies in China were based on production numbers, vehicles were sold but then sales dropped off once subsidies were removed. The subsidies got misused and created imbalances.

"I don't think subsidies should be for production, they should be for R&D," Lewis said. "The same money could be better used to set up institutes and R&D centers where OEMs can develop products. How long will the government keep providing subsidies? If you give it to EVs, then other sectors will ask for subsidies too – for example, hydrogen, telecom etc."

The government needs to think carefully about where subsidies should be directed. Subsidies should shift from end product to technology development.

Magenta's growth

Magenta's growth has been an indicator of India's burgeoning logistics sector. Over recent years, the country has seen a tremendous boost in delivery services.

"Today, we have about 1,220 three-wheeler cargo vehicles, and will soon cross the 1,500 mark," Lewis said. "This essentially means we are onboarding around 10 new vehicles to our fleet daily. We aim to reach a total of 3,000 vehicles by March 2024. These are all in the cargo segment; we are not operating in the passenger segment.

"Additionally, we are building the supporting charging infrastructure to accommodate this growing fleet. Currently, we are adding around 39 depots, almost adding one on a weekly basis to our charging infrastructure. Rather than referring to these as charging depots, we prefer the term 'fleet operations depots.' A typical depot can have about 30 vehicles that can be charged, maintained, and serviced."