The EV Revolution: India vs China

Gold Medals, Offline Expansion, India PE, Reddit, and China.

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Peeyush Jain & Mohit Garg
September 11, 2024

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The Quote󠀢 💭

“Gold medals aren’t really made of gold. They’re made of sweat, determination, and a hard-to-find alloy called guts.”

― Dan Gable

The Tweet 🐦

In India, online brands wanting to expand offline have received a rush of funding in the last few months. While expanding offline is necessary for growth, doing it too fast or incorrectly could lead to a lot of unnecessary cash burn. Here are some variables to consider when online brands want to expand offline.

The Infographic 💹

India's PE ratio soars to 21x, outpacing emerging markets at 10x and global markets at 14.5x.

Make Investing Normal

Subscribe for daily updates on how I'm building an investment portfolio from $0 to $100,000 so you can do it too!

The Short Read 📝

The online ad business is built on taking an effectively infinite supply of content, eyeballs, and advertisers, and matching all three of them up in the best way possible. An older approach, necessary in the print and linear TV era but less common today, is to target broad demographics based on interests, but this is something Reddit is pitching to advertisers as its main advantage. Read more…

The same person can be a lawncare fanatic, a collector of vinyl LPs, and steeling themselves for a root canal, and targeted ads will pick up on all of this. But contextual ads will pick up on which of those traits applies to them right now, and since Reddit also gets a fair amount of traffic from search, it often doesn't know who is looking at the site, just precisely what they're interested in.

The Long Read 📜

The World in not Willing to Absorb the Overproduction Coming Out of China - by Michael Pettis

Michael Pettis is a Beijing based economist and is intimately familiar with China’s economy and financial system. He is currently a professor of finance theory at the renowned Guanghua School of Management at Peking University. The Third Plenum of the Central Committee of the Communist Party that concluded in mid-July left everyone disappointed - contrary to expectations, there were no major announcements of reforms or major stimulus programs.

Michael believes that to get our of the current slump, there are only two routes: increased investment or growth in consumption. Till date, most initiatives from the Chinese government have been focused on boosting investment. There are three avenues to boost investment: property, infrastructure and manufacturing. With the Chinese property market going through a prolonged slump and infra investments leading to a lot of bad debt at local/regional levels, the only avenue left is manufacturing. But even that is struggling due to geopolitical tensions. Historically, trade wars have impacted countries running a trade surplus the most. This leaves China in a pickle - since the only way to boost growth now is driving consumption. Read the full interview for a primer on the China’s current growth challenges.

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Publisher’s Parmesan 🧀

The EV Revolution: India vs China

In the rapidly evolving world of electric vehicles (EVs), China stands as the undisputed leader, a crownless king whose dominance in the sector is so entrenched that it almost seems redundant to mention. Yet, a recent claim by Bhavish Agarwal, CEO of Ola Electric, sparked widespread debate. Agarwal boldly declared that Ola Electric is the world's largest electric two-wheeler manufacturer and the fourth-largest EV company globally. However, this audacious claim came with a critical asterisk: "excluding China."

This qualifier left many industry watchers bewildered. It’s like Mukesh Ambani proclaiming himself the richest man in the world—so long as you don’t count billionaires outside Asia. Or as another analogy goes, it’s akin to DuckDuckGo asserting its dominance in the search engine market, provided Google and Bing are left out of the equation. The absurdity of the statement was not lost on the public, and the meme brigade of the internet quickly pounced on Ola Electric and Agarwal.

But is there any substance to Agarwal’s claim? And more importantly, where does India truly stand in the global EV landscape, especially when compared to the behemoth that is China? To get a clearer picture, we need to delve deeper into the development trajectories of the EV markets in both countries.

China’s Unstoppable EV Juggernaut

China’s position in the global EV market is virtually unassailable. Whether we’re talking about two-wheelers or four-wheelers, Chinese companies dominate the industry. In fact, the world’s top five electric two-wheeler manufacturers are all Chinese. When it comes to four-wheelers, China is equally formidable, with more than half of all vehicles sold domestically being electric.

This level of dominance did not materialize overnight. China’s EV industry is the result of over a decade of deliberate strategy, heavy government intervention, and a flood of subsidies. The Chinese government’s all-out push for EV adoption is a masterclass in how state policy can shape and propel an entire industry.

Beginning around 2009, the Chinese government rolled out substantial subsidies aimed at both consumers and manufacturers within the EV sector. These subsidies were not just generous—they were transformative. For instance, consumers could receive up to 12,000 RMB (approximately $1,800) off the purchase price of an EV, significantly lowering the barrier to entry. Additionally, the government offered tax breaks, free license plates, and other incentives to further sweeten the deal.

On the manufacturing side, the government’s support led to a proliferation of EV companies—over 160 at one point—though intense competition eventually culled the herd. Today, companies like BYD, NIO, and Xiaomi have emerged as global leaders, thanks in large part to this state-backed surge.

However, as with any industry that experiences rapid growth, challenges have arisen. In 2022, the Chinese government began scaling back subsidies, confident that the industry had matured enough to sustain itself. This shift led to a slowdown in the growth rate of EV sales, though the absolute number of EVs sold continues to increase. While analysts were quick to raise concerns, it’s important to note that China’s EV market remains robust—just not at the same breakneck pace.

India’s EV Journey: A Work in Progress

India’s EV market, by comparison, is still in its formative stages. While there have been notable successes, particularly in the three-wheeler segment, the country is far from matching China’s market penetration or technological advancements.

India’s EV adoption has largely been driven by the government’s FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme, which has gone through two iterations since its launch in 2015. The scheme is designed to subsidize both the purchase and manufacturing of EVs, mirroring China’s approach. However, the scale of India’s subsidies is a mere fraction of what China has provided.

To illustrate the disparity, China has invested an estimated $231 billion in its EV sector over the past 15 years. In contrast, India’s FAME scheme has allocated around 11,000 crore rupees (roughly $1.5 billion) across two phases. The difference in funding is stark, and it shows in the respective outcomes of the two markets.

For instance, EV penetration in India remains low, especially in the two-wheeler and four-wheeler segments. While three-wheelers have seen impressive success, with 54% of the market now electric, two-wheelers lag behind with only 8-9% penetration. Ola Electric, despite being the leader in this segment, has witnessed its market share decline from 49% to 33% over the past two years. In the four-wheeler segment, EVs constitute just 3-4% of total vehicle sales, with Tata Motors holding a dominant 60-65% market share. Other major players, like Maruti Suzuki, are still focused on hybrid vehicles and have been slow to introduce fully electric models.

Policy Challenges and Execution Hurdles

One of the most significant differences between China and India’s EV journeys lies in the execution of government policies. While China’s government has managed to implement its EV strategy with relatively few complications, India’s approach has been more complex and less effective.

For starters, the process of obtaining subsidies in India is cumbersome. While consumers benefit from upfront discounts on EV purchases, manufacturers must navigate a labyrinthine bureaucratic process to get reimbursed. This delay in payments can disrupt the supply chains of smaller companies, hindering their operations and growth.

Moreover, controversies have arisen around the misuse of subsidies. Some Indian companies have been caught violating localization norms, which require a certain percentage of the EV supply chain to be based in India to qualify for subsidies. Others, like Ola Electric and Ather, have been accused of inflating costs by selling chargers separately, further complicating the subsidy landscape.

Looking Ahead: Can India Catch Up?

Given these challenges, where does India stand in the global EV race? While the country has made progress, particularly in the three-wheeler segment, it’s clear that India still has a long way to go to catch up with China. The gap between the two nations is vast, both in terms of market size and technological development.

However, all is not lost. India’s EV market is still evolving, and there are opportunities to learn from China’s experience. For example, instead of viewing China’s dominance as a threat, India could benefit from knowledge-sharing and strategic partnerships with Chinese companies. A recent joint venture between the Jindal Group and China’s SAIC Motor Company is a promising sign, indicating that collaboration, rather than competition, could be key to accelerating India’s EV journey.

In conclusion, while Bhavesh Agarwal’s claim about Ola Electric may have been overly ambitious, it does reflect the growing ambition within India’s EV sector. Yet, for India to truly emerge as a global leader in this space, it will need to significantly increase its investments, streamline its policies, and, perhaps most importantly, embrace the lessons learned from China’s remarkable EV success story. The road ahead is long, but with the right approach, India could carve out its own place in the global EV market.

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