Government of India demands E-scooter makers to refund Rs 500 crore aid for using Chinese parts

Indian two-wheeler EV startups, as well as legacy players, had a golden opportunity when the Indian government decided to provide all the impetus that was needed for them to grow and make their products in India. However, today, many of these startups are losing favour due to their reliance on parts sourced from China instead of supporting local, Indian manufacturers. The Indian government has taken a firm stance, demanding that six companies return about Rs 500 crores that they received in subsidies for breaching localisation rules. In the process, it’s withholding subsidies from other startups. The turmoil began when a series of e-scooter fires, including incidents involving Okinawa Autotech International Pvt and Ola Electric Mobility Pvt, prompted the government to investigate whether these companies were abiding by the localization requirements of a subsidy program. It soon found out that some manufacturers were importing ready-made parts, primarily from China, resulting in a lack of control over the quality of their final products and, more worryingly, endangering customer safety. Ola Electric Mobility has managed to emerge relatively unscathed from this investigation and now stands as India’s dominant company in the e-scooter market. They recently revealed plans to further localize their supply chain by establishing an electric battery factory and secured $140 million in funding led by Singapore’s Temasek Holdings Pte in preparation for an initial public offering. In contrast, other players are struggling to stay afloat. Okinawa, Hero, Greaves Electric Mobility Pvt, Revolt Motors, Benling India Energy & Technology Pvt, and Amo Mobility Solutions Pvt are facing challenges in attracting investors while the government withholds subsidies worth over Rs 1000 Crores. According to the Society of Manufacturers of Electric Vehicles, these e-scooter startups have collectively lost a staggering 90 billion rupees without these incentives. Ather Energy is also trying to raise capital from their existing shareholders Hero MotoCorp Ltd. and GIC Pte, while TVS Motor., the second-largest player in the market, is reportedly in talks with Goldman Sachs for additional funds. The transition has proven to be particularly difficult for early entrants like Hero, which began selling e-scooters in 2007. These companies find it challenging to realign their supply chains to meet India’s localization rules, which were only introduced in 2019. In contrast, Ola had the advantage of establishing its supplier base in compliance with the government’s requirements from the beginning, having entered the market in 2021. As the competition for funding intensifies, the stringent localization rules are impeding progress in electrifying two-wheeler transportation in India. This is a significant concern, considering that a thriving e-scooter industry is vital for India to make progress toward its zero-emission goals, especially when it lags behind other nations, and electric cars haven’t gained widespread popularity yet. In India, high upfront costs of electric vehicles, limited choices, and a lack of charging infrastructure have discouraged people from switching from gasoline cars, despite escalating pollution concerns, particularly in New Delhi. Just 1.3 per cent of the 3.8 million passenger vehicles sold in India last year were electric, according to Bloomberg. In some cities in the world-leading electric vehicle market of China, one in three new cars sold are electric. While promoting local supply chains and fostering domestic auto parts industries is a commendable endeavour, the environmental consequences of such an approach in a motorcycle-dominated market like India must be carefully considered.