Subsidies can be lowered once EV penetration hits 20%: SIAM's Chandra

The government subsidies for electric vehicle adoption can be lowered once the penetration hits 20%, according to Shailesh Chandra, President, Society of Indian Automobile Manufacturers (SIAM) and MD, Tata Motors Passenger Vehicle and Tata Passenger Electric Mobility Ltd.

"The government subsidy is on the rationale that certain critical mass of customers need to experience the technology so that there can be a spread of positive word of mouth. Therefore, government subsidies stay till a certain level of  penetration of a certain category of vehicle can be attained. It is also anticipated that with growing scale, a certain reductions in the cost structure of those technologies will come down to a level that subsidies can be removed," says Chandra. 

According to Chandra, a reduction of lithium-ion cell prices, localization on the back of PLI (production-linked incentive) scheme and a growing scale of adoption of EVs will play in tandem to bring down the cost structure.  "Once the penetration hits about 20% is the right time to start lowering the subsidies," observes Chandra. The EV penetration currently hovers at around 2.5% of the total automobile sales. 

Meanwhile, Chandra, who has been appointed as SIAM President recently, notes that the passenger vehicle industry is likely to grow 3-5% in FY25 owing to high base effect. 

For the July to September quarter of FY25, the passenger vehicle industry witnessed a degrowth of 19.6% year-on-year to 3,18,805 units as against 3,96,498 units in the same period last year. "While the growth rates are flattish or slight decline, as we saw in the last quarter, but it is holding at a very high level of demand. I think that itself is a big solace for the industry.  Generally, we will see the secular growth of this (passenger vehicle) industry to be around the GDP growth rates. So 6-8% is typically the secular growth trend of PV industry, which we see over a long period of time. That will remain," says Chandra. 

Chandra, however, believes that the high base effect will impact the industry for a while. "On the wholesale numbers, stocks are high. Typically in quarter two, the stocks build up to get released in quarter three, where all the three months are high consumption. But this time, October should be higher in terms of the demand. Unlike last year, where the festivities were spread in both October and November, this time it will be mostly in October. So November might be slightly moderate, but again, December sales might go high. This is a high retail quarter, and that should help in releasing inventory," says Chandra. 

According to Chandra, in the first 10 days of festivities as per Vahan, the PV sales are witnessing a growth of 35%. 

Notably, the two-wheeler industry witnessed a growth of 12.6% YoY to 51,79,349 units in the September quarter, as against 45,98,442 units in the same period last year. Meanwhile, the commercial vehicle segment witnessed a degrowth of -11% in the September quarter of FY25. "Heavy rainfall in key states and almost the entire ‘Shradh’ period falling in the month of September, did impact the sales numbers of some of the segments. With the rains easing and continued infrastructure spending, and the arrival of the festive season boosting consumption, we anticipate healthy demand in the next quarter," says Chandra.