Not all easy riding on EV subsidies

Nitin Gadkari’s suggestion that subsidies to EV makers are no longer needed has some merit. Production costs have declined as the technology matured, and consumers have overcome anxiety over buying EVs. In India, EVs had a 6.3% market share last year, a 50% jump from the prior year. Globally, the market share of EVs in 2023 was over 15%, with China accounting for 60% of worldwide sales. EV subsidy has three components — to facilitate production, roll out charging facilities, and to alter consumer behaviour — with an interplay among them. Without a drop in production costs, consumers won’t buy. And buying decisions are framed within available charging infra.

Germany and France have stopped production subsidies but continue with purchase credits. Production subsidies were fouling government budgets, and their withdrawal has slowed electric transition for European automakers. European consumers still harbour doubts over their govs’ capacity to subsidise charging infra and have slowed EV purchases. The US has a cheap oil natural advantage in producing fuel-injected cars and Republicans under Donald Trump have denied climate change. Japan remains sceptical about EVs being the most efficient pathway to energy transition. The Japanese auto industry has bet big on hybrids that are gaining as EV subsidies are scaled back.

Underlining these concerns is the EV domination by subsidised Chinese automakers. Markets will resist becoming dumping grounds for cheap Chinese EVs and govs will baulk at the bill China has run up in subsidising infra and buyers. The US, EU and Japan are seeking to protect their car industries during the energy transition, and a race to the bottom with production subsidies may no longer be viable. India is late to the party. Yet, it may need to revisit its EV subsidies to incorporate global factors into play.

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