India’s EV Sector Faces Investment Slowdown Amid Policy Changes And Subsidy Cuts

India’s electric vehicle (EV) industry is facing a significant slowdown in investment, with funding dropping sharply from $934 million in 2022 to $586 million in 2024, according to a report by The Economic Times, citing data from Venture Intelligence. This decline comes at a time when the government has made notable policy changes, including reducing subsidies under the PM-E Drive scheme, and investors are becoming more cautious due to slower-than-expected growth in EV sales.

Massive Decline in Funding

Between 2022 and 2024, the number of deals in India’s EV sector remained stable at around 44 annually, but the funding volume saw a steep decline. In 2024, the total funding amounted to $586 million, down from $808 million in 2023. This marks a significant reduction, as investors are now prioritizing profitability and long-term viability before committing their capital.

The reduction in government subsidies is a key factor behind the cautious investor stance. In the past, India’s EV sector benefited from generous subsidies under the FAME-II scheme, which offered up to Rs 15,000 per kilowatt-hour (kWh) for electric vehicles, covering up to 40% of a vehicle’s cost. However, these subsidies have been reduced under the new PM-E Drive scheme. Now, subsidies for electric two-wheelers are capped at Rs 5,000 per kWh for the first year, with a maximum cap of Rs 10,000 per vehicle.

The transition from the FAME-II scheme to PM-E Drive has been a turning point, with subsidies now excluding electric four-wheelers and hybrid vehicles. This shift has affected many original equipment manufacturers (OEMs) in these segments, further contributing to the slowdown in funding and investor interest.

What will be the Impact of Slower EV Growth?

Despite the challenges, EV sales continue to grow, although at a slower pace. Over 1.9 million EVs were sold in 2024, a 24.5% increase from the 1.5 million units sold in 2023. However, this growth is a significant deceleration compared to the 50% surge in EV sales seen between 2022 and 2023, as per data from the government’s Vahan platform.

The electric two-wheeler segment, which includes major players like Ola Electric and Ather Energy, accounted for the majority of this growth. In 2024, the segment saw sales of 1.13 million units, up from 860,000 units in 2023. While this is a positive sign, it also reflects the challenges the sector faces in maintaining rapid growth rates amid the changing policy landscape.

While the overall funding landscape is more cautious, there have been notable investments in the sector. Ather Energy, for example, raised $71 million from the National Investment and Infrastructure Fund (NIIF), propelling the electric scooter manufacturer into unicorn status. This investment is seen as a positive sign for the sector, showing that some companies are still able to attract significant capital despite the broader slowdown. Ather Energy is also preparing for an initial public offering (IPO), which could further fuel investor interest.

However, such large deals are becoming exceptions rather than the norm. Investors are now focusing on unit economics and long-term sustainability, with profitability being a key concern before investing large amounts of capital.

Hope for growth?

Despite the challenges, there is still optimism about the future of India’s EV sector. The government’s ambitious target of achieving 30% EV penetration in new vehicle registrations by 2030 continues to provide a sense of direction for the industry. Stakeholders believe that as the infrastructure around EVs—such as charging stations, battery swapping technology, and component manufacturing—grows, investment in these areas will increase.

Battery swapping, in particular, has seen significant progress. Companies like Battery Smart, which enables quick swaps of EV batteries for two-wheelers, have gained traction, especially in sectors like quick commerce and food delivery. Battery Smart recently surpassed 55 million swaps and is conducting over 100,000 swaps daily, reflecting growing adoption in commercial applications.

The Role of the PM-E Drive Scheme

The PM-E Drive scheme, which was launched in October 2024, is designed to accelerate the adoption of EVs and support the growth of the domestic EV manufacturing ecosystem. The scheme offers demand incentives for electric two-wheelers, three-wheelers, e-buses, and e-ambulances, as well as funds for establishing charging infrastructure.

Under the new scheme, customers can also benefit from an e-voucher system, which will reduce the upfront cost of purchasing an EV. This system, which links an Aadhaar-authenticated voucher to the consumer’s purchase, aims to streamline the subsidy process and make EVs more affordable for consumers.

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