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Government of India demands E-scooter makers to refund Rs 500 crore aid for using Chinese parts

Indian two-wheeler EV startups, as well as legacy players, had a golden opportunity when the Indian government decided to provide all the impetus that was needed for them to grow and make their products in India.

However, many of these startups are losing favor due to their reliance on parts sourced from China instead of supporting local Indian manufacturers.

The Indian government has taken a firm stance, demanding that six companies return about Rs 500 crores that they received in subsidies for breaching localization rules. In the process, it’s withholding donations from other startups.

The turmoil began when a series of e-scooter fires, including incidents involving Okinawa Autotech International Pvt and Ola Electric Mobility Pvt, prompted the government to investigate whether these companies were abiding by the localization requirements of a subsidy program.

It soon found out that some manufacturers were importing ready-made parts, primarily from China, resulting in a lack of control over the quality of their final products and, more worryingly, endangering customer safety.

Ola Electric Mobility has emerged relatively unscathed from this investigation and is now India’s dominant company in the e-scooter market. They recently revealed plans to further localize their supply chain by establishing an electric battery factory. They secured $140 million in funding led by Singapore’s Temasek Holdings Pte in preparation for an initial public offering.

In contrast, other players are struggling to stay afloat. Okinawa, Hero, Greaves Electric Mobility Pvt, Revolt Motors, Benling India Energy & Technology Pvt, and Amo Mobility Solutions Pvt face challenges in attracting investors. At the same time, the government withholds subsidies worth over Rs 1000 Crores.

According to the Society of Manufacturers of Electric Vehicles, these e-scooter startups have collectively lost 90 billion rupees without these incentives.

Ather Energy is also trying to raise capital from their existing shareholders Hero MotoCorp Ltd. and GIC Pte. At the same time, TVS Motor., the second-largest player in the market, is reportedly in talks with Goldman Sachs for additional funds.

The transition has proven particularly difficult for early entrants like Hero, who began selling e-scooters in 2007. These companies find it challenging to realign their supply chains to meet India’s localization rules, which were only introduced in 2019. In contrast, Ola had the advantage of establishing its supplier base in compliance with the government’s requirements, having entered the market in 2021.

As the competition for funding intensifies, the stringent localization rules impede progress in electrifying two-wheeler transportation in India. This is a significant concern, considering that a thriving e-scooter industry is vital for India to progress toward its zero-emission goals, significantly when it lags behind other nations, and electric cars haven’t gained widespread popularity yet.

In India, high upfront costs of electric vehicles, limited choices, and a lack of charging infrastructure have discouraged people from switching from gasoline cars despite escalating pollution concerns, particularly in New Delhi.

According to Bloomberg, just 1.3 percent of the 3.8 million passenger vehicles sold in India last year were electric. In some cities in China’s world-leading electric vehicle market, one in three new cars is electric.

While promoting local supply chains and fostering domestic auto parts industries is commendable, the environmental consequences of such an approach in a motorcycle-dominated market like India must be carefully considered.

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