India’s EV revolution: Green premiums turn to green discounts as market matures

New Delhi: As India‘s electric vehicle (EV) sector accelerates, the once prevalent ‘green premiums’—additional costs linked to eco-friendly alternatives—are morphing into ‘green discounts,’ thanks to a combination of robust government initiatives, burgeoning consumer acceptance and technological upgradation. This shift is not just reshaping the market dynamics but also playing a crucial role in the country’s climate strategy.

In 2023, electric vehicles accounted for about 5% of total vehicle sales in India. However, according to a report by Bain & Company, this number is expected to skyrocket, with EVs potentially constituting over 40% of India’s automotive market by 2030, thereby generating significant revenue and creating millions of jobs.

The pivot from premiums to discounts can largely be attributed to substantial investments in the sector, along with strategic policy support from the Indian government. “This is an ecosystem coming of age,” said an expert with India’s one of the leading consulting firm. He highlights that the concerted push by federal and state governments, including subsidies and tax breaks for EV buyers, has catalyzed this shift.

Initially, when e-bikes were introduced in the Indian market, they were priced significantly higher than conventional bikes due to the added costs of electrical components like batteries and motors. For instance, a standard e-bike could have been priced around ₹100,000, while a conventional bicycle would cost about ₹50,000. This price difference represented the ‘green premium’—additional cost for choosing an eco-friendly alternative.

However, over time, as the EV market matured and technologies improved, the production costs of e-bikes began to decrease. Simultaneously, the Indian government introduced various subsidies and tax incentives aimed at promoting electric vehicles, including e-bikes. These measures helped further reduce the cost burden on consumers.

For example, under the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) India scheme, consumers could avail of subsidies that directly reduced the upfront cost of purchasing an e-bike. If we assume a subsidy of ₹20,000, the effective price of the e-bike could drop from ₹100,000 to ₹80,000. Additionally, increased competition and scaling production further pushed prices down.

Today, with the reduced production costs and continued subsidies, an e-bike that previously cost ₹100,000 might now be available for ₹70,000. Meanwhile, the prices of conventional bikes might have risen slightly due to inflation and other economic factors, say to around ₹62,000.

This pricing evolution reflects the transition from green premiums to green discounts. The gap between the cost of e-bikes and conventional bicycles has significantly narrowed, making e-bikes an economically competitive and attractive option for consumers, not just an environmentally friendly one. The affordability encourages more consumers to consider e-bikes as a viable alternative to both traditional bicycles and petrol-powered scooters or motorcycles, especially for urban commuting. This is a clear indication of how market maturation and supportive government policies can transform green premiums into green discounts, fostering a more sustainable transportation ecosystem.

Moreover, the Indian government’s interim budget for 2024 has further fueled optimism with significant allocations aimed at bolstering the EV infrastructure—emphasizing manufacturing and the expansion of nationwide charging stations. Industry leaders view this as a pivotal moment. “The latest budgetary focus marks a critical inflection point in our journey toward a sustainable automotive future,” he added.

Financial insights reflect the burgeoning attractiveness of the Indian EV market to investors. In 2021 alone, the sector attracted $6 billion in investments, evidencing growing confidence among venture capitalists and private equity investors. This influx is essential for scaling up production and reducing the costs associated with electric vehicles, thereby making them more accessible to the average consumer.

Yet, the road ahead is not devoid of challenges. India currently has just over 10,000 charging stations—a stark contrast to China’s nearly 900,000. This infrastructure gap is a critical hurdle that needs immediate attention if India is to meet its ambitious EV adoption targets.

The Indian government is responsive to these needs. Recently announced initiatives aim to substantially increase the number of charging stations, and innovative solutions like battery swapping policies are being explored to ease the transition.

“There is an inter-generational value migration currently underway across sectors. For example, we have seen 100 per cent value migration from traditional energy and mobility sectors towards climate-friendly energy and mobility solutions. The $6 trillion energy sector globally is now becoming a climate investment sector. Similarly, the $1.5 trillion mobility sector is now becoming a climate investment sector. Unlike the west, in India, electrification of mobility is happening from the bottom up. That means an increasingly large proportion of the two wheelers and three wheelers being sold in India are electric. This is happening because of the emergence of what we describe as the ‘green discount’, where some sectors and geographies now have a negative abatement cost. That means one can cut emissions while saving money,” said Nakul Zaveri, Partner and Co-Head of Climate Investment Strategy, Leapfrog Investments.

“Where the cost of transitioning to sustainable alternatives was previously known as a ‘green premium’, we can now see many examples of the opposite – a ‘green discount’. That means products and services powered by green technology are cheaper and better than those based on the incumbent technology such as the ICE engine. So, for electric two wheelers, while the upfront cost may be high due to battery cost, the total cost of ownership is 30 per cent less than the petrol engines. A solution for the problem of high upfront cost lies in introducing a battery swapping business model. And that model works better in a country like India, because of sheer scale, as compared to other geographies. So, electrification is going to be a fundamental game changer from a climate change mitigation perspective,” he added.

The transformation in the market is also visible in consumer behavior. With the cost of owning EVs increasingly aligning with, and in some cases undercutting, that of internal combustion engines, consumers are beginning to perceive EVs as not only environmentally beneficial but also economically wise choices. This shift is crucial in a country where price sensitivity is a significant factor in automotive purchases.

Looking forward, the transformation from green premiums to green discounts in India’s EV market is a promising sign of sustainable growth. It reflects a broader global shift towards greener technologies, driven by both economic and environmental considerations. As India continues to build on its policy frameworks and infrastructure, the next decade could see a radical transformation in how Indians drive—a shift that could serve as a model for other emerging economies aiming to decarbonize their transport sectors while fostering economic growth.