India's electric vehicle (EV) sector has witnessed a sharp decline in funding, dropping from $934 million in 2022 to $586 million in 2024, as detailed by The Economic Times citing Venture Intelligence data. This reduction, amounting to almost 37%, signals significant shifts within the industry, arising from policy changes and slower sales growth, which have driven investors to reevaluate their priorities, focusing on unit economics and profitability before committing capital.
While the number of deals remained steady at 44 in 2024, the overall funding volume showcases a 'cautious investment approach', underscoring a shift away from the once booming investment environment. The introduction of the PM-E Drive Scheme, which started on October 1, 2024, is pivotal to this adjustment and seeks to phase out subsidies gradually from the previous FAME-II program.
Under the new PM-E Drive scheme, incentives for electric two-wheelers are capped at ₹5,000 per kilowatt-hour (kWh) for the first year, with maximum subsidies no higher than ₹10,000 per vehicle. This marks a significant reduction from the FAME-II program, which initially offered up to ₹15,000 per kWh, covering as much as 40% of the vehicle's cost before being scaled back to ₹10,000 per kWh as well.
Compounding the challenges for manufacturers, the PM-E Drive scheme excludes electric four-wheelers and hybrid vehicles from the subsidy structure altogether, limiting support for several major original equipment manufacturers (OEMs). Amol Deorukhakar of Avendus Capital highlights the considerable impact of these policy shifts on OEMs, stating, "The PM-E Drive Scheme has greatly affected original equipment manufacturers (OEMs)." This reflects the collective frustrations stemming from the changing financial support framework.
Despite the overall decline, the EV sector has not halted its momentum. Ather Energy, for example, successfully secured $71 million from the National Investment and Infrastructure Fund (NIIF), achieving unicorn status and paving the way for its upcoming IPO. This single large deal signifies hope amid what is increasingly seen as a cautious funding climate.
The growth rate within the market has slowed significantly as well. Over 1.9 million EVs were sold in 2024, reflecting a 24.5% increase from the previous year, yet this growth is starkly reduced compared to the 50% rise logged between 2022 and 2023. Data from the government's Vahan platform particularly notes the electric two-wheeler category, which includes popular brands such as Ola Electric. This segment saw sales climb to 1.13 million units this past year, up from 860,000 units the previous year.
Notably, the Indian government remains optimistic about achieving 30% EV penetration for new vehicle registrations by 2030, fueling hopes for future growth. Arpit Agarwal from Blume Ventures encapsulates this sentiment, asserting, "Despite challenges, investors and stakeholders remain optimistic about India's EV industry." This optimism appears rooted not just in current outcomes but also upcoming opportunities across various subsegments within the electric vehicle space.
A significant focus is shifting toward subfields like component manufacturing, battery swapping, charging infrastructure, and financing, each now seen as increasingly viable investment opportunities. Battery swapping technology, especially, is witnessing rapid adoption, especially for two-wheelers used in gig work, such as quick commerce and food delivery. Pulkit Khurana, co-founder of Battery Smart, indicated their impressive growth, noting, "We crossed 55 million swaps last month and are doing over 100,000 swaps every day." This momentum highlights the burgeoning potential of battery swapping solutions as the market adapts to infrastructural needs.
Battery Smart recently raised $65 million, achieving a valuation of $340 million, which showcases investor interest and the perceived value of battery swapping technology within the broader EV ecosystem. Meanwhile, Kazam EV Tech has been electrifying over 400 million kilometers this year, managing 19GWh of energy for its clientele, indicating significant infrastructure groundwork is being laid.
Overall, the EV sector is at a crossroads, facing both steep challenges and burgeoning opportunities. The current funding decline serves as both cautionary tale and rallying point for stakeholders as they navigate the shifting dynamics of industry regulations, economic pressures, and consumer trends. The path forward may well hinge on innovation within these new growth segments, marking potential areas where investment can regain its former fervor.
