Council on Energy, Environment and Water Integrated | International | Independent
The PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) Scheme, approved by the Union Cabinet on 11 September 2024, replaces the interim Electric Mobility Promotion Scheme 2024, which expired at the end of July. As successor to the multi-year Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) II scheme that expired in March, PM E-DRIVE represents the next phase in the evolution of India’s national policies geared towards mainstreaming the sustainable mobility transition.
The larger goal for India’s automobile sector is captured in the 2030 vision for electric mobility, as outlined by NITI Aayog in a released in 2019 (“NITI Aayog vision”). It envisions 70 per cent of unit sales – or volumes – of commercial cars, 30 per cent of private cars, 40 per cent of buses, and 80 per cent of two-wheelers (2W) and three-wheelers (3W) to be electric by 2030. Additionally, the PM-eBus Sewa-Payment Security Mechanism (PSM), which was given Cabinet approval concurrently with the PM E-DRIVE scheme, could facilitate greater private-sector participation in the e-bus category and thereby potentially drive their volumes.
In this context, two questions are pertinent:
This blog presents CEEW’s detailed analysis along each of these two axes, ending with a set of recommendations to address their implications.
A previous report by the Centre for Energy Finance at the Council on Energy, Environment and Water (CEEW-CEF) titled Financing India’s Transition to Electric Vehicles determined the financing requirements associated with achieving the NITI Aayog vision. In order to do so, it had derived per year EV volumes that achieve the 2030 penetration rates spelt out in the vision.
In this section, we compare the above-mentioned derived per year EV volumes (“NITI Aayog trajectory”) to (i) actual annual volumes, (ii) implied annual volumes targeted by FAME II1, and (iii) annual volumes targeted by PM E-DRIVE. To further assess the potential impact of PM E-DRIVE, we also calculated a "FAME multiple". This multiple represents the ratio of actual EV volumes seen in the market from FY20 to FY24 to volumes targeted by FAME II over the same period. In other words, this multiple represents the extent to which FAME II catalysed volumes that are multiples of those incentivised by the scheme. This multiple is then applied to volumes incentivised under PM E-DRIVE in FY25 and FY26 to arrive at an estimate of market volumes for these years. While the Cabinet approval comes mid-way through FY25, to facilitate our analysis we have assumed that the PM E-DRIVE scheme is implemented over the entirety of FY25 and FY26.
Our analysis (Figure 1) indicates that since FY21, actual EV volumes have increased by an average of approximately 0.5 million annually. Notably, over the years, actual volumes of electric vehicles have been multiples of the volumes incentivised by FAME II. However, actual volumes remain below the trajectory required to achieve the NITI Aayog vision.
Figure 1 also depicts the FAME multiple, which amounts to 2.1x. The existence of this multiple may be attributed to several factors:
Applying this multiple to the volumes to be incentivised under PM E-DRIVE2, we estimate market volumes of ~2.5 and ~3.38 million units for FY25 and FY26, respectively, as shown in Figure 2. While these fall short of the NITI Aayog trajectory, the overall trend indicates consistent growth.
Furthermore, the future expansion of public charging stations (PCS) is supported by a ~2.2x increase in the budgetary outlay under PM E-DRIVE compared to FAME II. However, as shown in Figure 3, this increase in budgetary outlay will need to support the installation of ~6.7x charging stations compared to FAME II, requiring accelerated deployment at lower per-unit incentives, within a narrower window.
Looking ahead, PM E-DRIVE represents India’s continued commitment to electric mobility. However, if forecasted market volumes follow the trend implied by the FAME multiple, then they would fall short of the trajectory required to achieve NITI Aayog’s vision. So, how can the gap between the trajectory and forecast volumes be bridged? The accelerated deployment of charging stations could translate into a higher multiple for PM E-DRIVE than that for FAME II. State-level policies constitute another lever to bridge the gap. CEEW-CEF analysis finds that states with larger incentives translate into ~5x higher volume growth as compared to states with lower incentives. Therefore, enhancing the level of state incentives could further propel projected volumes and help bridge the gap.
The PM E-DRIVE Scheme and the PM-eBus Sewa-Payment Security Mechanism (PSM) Scheme are part of the same policy continuum that includes the preceding PM-eBus Sewa and FAME II schemes. Together, these schemes are backed by a strong outlay of over INR 7,500 crore to roll out 52,000 electric buses by 2029. PM E-DRIVE, through its target of adding ~14,050 e-buses in the next two years, aims to expand India’s electric bus market, which stands at 9,430 vehicles as of September 2024. If successful, it will push India’s e-bus fleet to the second-largest globally after China’s fleet of over 500,000 e-buses. Relatively speaking, countries in the European Union have deployed fewer than 20,000 e-buses, while the United States has just 6,500.
CEEW analysis estimates that a high public transport and EV scenario3 could cut India’s on-road vehicle numbers by 50 per cent, and lower particulate matter (PM 2.5) emissions by 60 per cent, compared to a high personal (PV) EV-based mobility scenario.4 Hence, the concerted push for public bus electrification is a welcome step offering four key benefits:
Urban and state-run public transport agencies face severe financial stress in India, impacting e-bus adoption. Under the PM E-DRIVE scheme, the budgetary allocations to buses have increased by 1.3x, and the targeted vehicles have increased by 2x (Figure 4). The FAME 2 e-bus procurements nationwide have happened through the ‘Grand Challenge’, where state-run Convergence Energy Service Limited (CESL) aggregated e-bus orders across the country for an ‘opex’ model or gross cost contract-based tenders. Keeping with its past learnings, the offered incentives in the new national schemes are limited to government-operated buses under the gross cost contract mode. However, the average uptake of e-buses for the last four years has been a meagre 4 per cent of total new bus registrations, below the overall EV penetration of ~6.71 per cent, as per the CEEW-CEF Mobility Dashboard. This implies that subsidies to the public transport agencies alone drive e-bus sales.
Over 90 per cent of India’s current bus market comprises privately owned and operated buses. Private operators are critical to stage carriage public transport services, especially in mofussils (not further than 120 km) and inter-city routes, catering to over 80 per cent of demand. Private bus operations remain more bankable than operations by public agencies. Supporting private electric bus operators with access to the public charging infrastructure built under PM E-DRIVE is crucial, according to CEEW analysis. Better uptake of e-buses in private operations paves the way for a secondary market for e-buses as private operators can identify and assign residual values to the used e-buses. This can bring innovation cutting across technological and financial products, such as leasing, revised loan terms, and specifications on vehicle batteries.
EV volumes in India have seen robust growth in recent years, with incentives such as FAME II and state-level policies proving successful in catalysing market volumes that are multiples of those incentivised under these schemes. However, the recently announced PM E-DRIVE scheme will span a narrower window and, despite a comparable outlay, it will result in lower per-unit incentives compared to FAME II due to significantly increased total incentivised volumes. Thus, charging infrastructure will play a critical role in driving future growth. The PM E-DRIVE scheme places special emphasis on this infrastructure, but similar to the category-specific incentives, the per-unit charger incentives are also lower when compared to FAME II.
The Union government's continued commitment to electric mobility through schemes such as PM E-DRIVE is laudable. However, if future market volumes materialise following the FAME multiple trend of 2x growth, they may fall short of the trajectory required to achieve NITI Aayog’s vision.
The question remains: How can market volumes keep pace with the NITI Aayog trajectory, and how can the push on public electric transport be further accelerated?
Notes
1 The implied volumes incentivised by FAME II in each of the respective FYs have been calculated by assuming that annual volumes incentivised are proportional to the annual fund utilisation. The annual fund utilisation has been sourced from Ministry of Heavy Industries’ (MHI) response to the Rajya Sabha (which specifies actual year-wise utilisation as of Jan 2024) and The Journey of E-Mobility FAME II published by MHI (which specifies the total utilisation of funds under FAME II). To arrive at the fund utilisation for FY24, we have assumed the difference between the utilisation reported in the MHI’s response to the Rajya Sabha and that reported in The Journey of E-Mobility FAME II has been met in the last two months of FY24.
2 We have considered the year-wise volume targets specified in the PM E-DRIVE scheme.
3 High PT and EV scenario - Assumes 30 per cent penetration of EV sales by 2030, and a 14 per cent rise in use (modal share) of buses when compared to business as usual.
4 High PV and EV scenario - Assumes 30 per cent penetration of EV sales by 2030, and a cumulative 14 per cent rise in use (modal share) of private modes (taxis, 2Ws and cars) when compared to business as usual.
Gagan Sidhu is Director, Arjun Dutt is Senior Programme Lead, and Riddhi Mukherjee is Research Analyst at the Centre for Energy Finance, Council on Energy, Environment and Water (CEEW). Himani Jain is Senior Programme Lead and Krishna Khanna is Programme Associate at the Sustainable Mobility team at CEEW. Send your comments to [email protected].
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