India's ambitious drive to transition its massive two-wheeler market to electric vehicles spurred a rapid rise in electric scooter startups. However, a significant setback has emerged as several of these startups face criticism for importing parts from China instead of sourcing locally.

The government has demanded that six companies, including the once-prominent Hero Electric Vehicles Pvt, repay 5 billion rupees ($60 million) in subsidies for violating localisation rules. This move has halted unpaid subsidies for other companies, depriving them of vital capital.

The issue began last year when a series of e-scooter fires led the government to investigate whether companies complied with localisation norms. Some manufacturers were found importing pre-made parts from China, compromising the quality of their products and endangering customers.

In contrast, Ola Electric Mobility Pvt has largely escaped scrutiny and now dominates India's e-scooter market. It plans to enhance its supply chain localisation with a new electric battery factory and secured $140 million in funding, gearing up for an initial public offering.

However, other startups like Okinawa, Hero, Greaves Electric Mobility Pvt, Revolt Motors, Benling India Energy & Technology Pvt, and Amo Mobility Solutions Pvt are struggling. The government has withheld 12 billion rupees in subsidies, causing a collective loss of 90 billion rupees for e-scooter start-ups, as reported by the Society of Manufacturers of Electric Vehicles.

Ather Energy, the third-ranked startup, seeks 9 billion rupees from existing shareholders Hero MotoCorp Ltd and GIC Pte TVS Motor Co, the second-largest player, is in talks with Goldman Sachs Group Inc. for additional funds.

This shift has been particularly challenging for early players like Hero, established in 2007, as adjusting their supply chains to meet India's 2019 localisation rules has proven difficult. In contrast, Ola, entering the market in 2021, was able to align its supplier base with government requirements from the start.

The stringent localisation rules are hindering progress in India's transition to electric two-wheelers, crucial for the nation to achieve its zero-emissions goals. India lags behind other countries, with only 1.3% of the 3.8 million passenger vehicles sold last year being electric. This contrasts with some Chinese cities where one in three new cars sold is electric.

While encouraging a local supply chain and domestic auto parts development is commendable, the environmental cost in a market heavily reliant on motorcycles raises concerns. The pivotal question remains: at what environmental expense are these efforts being pursued?

Source: Business Standard