Indian E-Scooter Makers Facing Government Backlash for Chinese Parts Reliance

The Indian government’s push to promote local electric vehicle (EV) manufacturing has taken a contentious turn as it demands that six prominent two-wheeler EV companies refund approximately Rs 500 crore in subsidies. The move follows revelations that these companies have been relying heavily on Chinese parts, in violation of localisation rules designed to boost India’s EV industry.

Once hailed as the golden opportunity for Indian two-wheeler EV startups and legacy players to flourish, the government’s generous incentives and subsidies are now at risk of being withdrawn. This shift comes as a result of concerns raised after a series of e-scooter fires, including incidents involving Okinawa Autotech International Pvt and Ola Electric Mobility Pvt.

The investigation exposed a pattern of these manufacturers importing ready-made parts, primarily from China, which raised concerns over the quality control of their final products and, more alarmingly, the safety of consumers.

Among the companies under scrutiny, Ola Electric Mobility has managed to maintain a relatively unblemished reputation and now holds a dominant position in India’s e-scooter market. Recently, the company announced plans to further localize its supply chain by establishing an electric battery factory. Ola Electric also secured $140 million in funding, led by Singapore’s Temasek Holdings Pte, in preparation for an initial public offering.

In contrast, other industry players are grappling with challenges in attracting investors while the government withholds subsidies worth over Rs 1000 Crores. Okinawa, Hero, Greaves Electric Mobility Pvt, Revolt Motors, Benling India Energy & Technology Pvt, and Amo Mobility Solutions Pvt are all feeling the financial strain.

According to the Society of Manufacturers of Electric Vehicles, these e-scooter startups collectively lost a staggering 90 billion rupees due to the absence of these incentives.

Ather Energy is currently seeking capital from its existing shareholders Hero MotoCorp Ltd. and GIC Pte, while TVS Motor, the second-largest player in the market, is reportedly in discussions with Goldman Sachs for additional funding.

For early entrants like Hero, who began selling e-scooters in 2007, the transition to align their supply chains with India’s localization rules has proven particularly challenging. These rules were introduced in 2019, which gives newer entrants like Ola an advantage, as they were able to establish their supplier base in compliance with the government’s requirements from the outset, having entered the market in 2021.

As competition for funding intensifies, the stringent localization rules are impeding the progress of electrifying two-wheeler transportation in India. This is a cause for concern, considering that a thriving e-scooter industry is crucial for India to make progress towards its zero-emission goals, especially as electric cars have yet to gain widespread popularity.

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 growing pollution concerns, particularly in New Delhi. Only 1.3 percent of the 3.8 million passenger vehicles sold in India last year were electric, according to Bloomberg. In some Chinese cities, electric cars account for one in three new car sales.

While promoting local supply chains and nurturing domestic auto parts industries is commendable, the environmental ramifications of such an approach in a motorcycle-dominated market like India must be carefully considered.