As India embarked on its ambitious journey to transition the world’s largest two-wheeler market towards greener alternatives, a wave of electric scooter startups emerged. However, a recent shift in focus has seen many of these startups falling out of favor due to their reliance on Chinese parts instead of local suppliers.

The Indian government has taken a firm stance, demanding that six companies, including Hero Electric Vehicles Pvt—formerly India’s top e-scooter manufacturer—return subsidies totaling Rs 500 crore ($60 million) for breaching localization regulations. For other companies, unpaid subsidies have been withheld, depriving them of crucial capital.

The turning point in this saga can be traced back to a series of e-scooter fires that occurred last year, involving companies like Okinawa Autotech International Pvt and Ola Electric Mobility Pvt. These incidents prompted the government to scrutinize whether these firms were complying with the localization norms of the subsidy program.

It was revealed that certain manufacturers were importing fully-assembled parts, predominantly from China, which compromised the quality and safety of their end products. This situation left customers vulnerable to life-threatening incidents.

While Ola Electric Mobility emerged relatively unscathed and now dominates India’s e-scooter market, other startups are grappling with significant challenges. Companies such as Okinawa, Hero, Greaves Electric Mobility Pvt, Revolt Motors, Benling India Energy & Technology Pvt, and Amo Mobility Solutions Pvt are facing financial difficulties and are struggling to attract investors as the government withholds subsidies worth 12 billion rupees. According to the Society of Manufacturers of Electric Vehicles, e-scooter startups have collectively incurred losses of 90 billion rupees without the incentives.

Ather Energy Pvt, ranked third in the e-scooter startup landscape, is currently seeking to raise 9 billion rupees from existing shareholders Hero MotoCorp Ltd. and GIC Pte. TVS Motor Co., the second-largest player, is reportedly in discussions with Goldman Sachs Group Inc. to secure additional funding.

The localization rules, introduced in 2019, have proven particularly challenging for early entrants like Hero, which commenced e-scooter sales in 2007. These companies have found it arduous to reconfigure their supply chains to align with the new regulations. In contrast, Ola was well-positioned to meet the government’s demands when it entered the market in 2021, as it had the advantage of building a supplier base that complied from the outset.

However, the stringent localization rules are creating hurdles in India’s progress towards electrifying two-wheeler transportation, which is essential for the nation to move closer to achieving its zero-emissions goals. Currently, India lags behind other countries in the adoption of battery-powered cars, with only 1.3% of the 3.8 million passenger vehicles sold in India last year being electric. In contrast, in some cities in China, one in three new cars sold are electric.

While the pursuit of building a local supply chain and nurturing domestic auto parts firms is commendable, the environmental impact of such a transition in a motorcycle-dominated market like India must be considered. The high initial cost of electric vehicles, limited options, and a shortage of charging infrastructure are some of the challenges that hinder the shift away from gasoline-powered vehicles, despite the worsening pollution, particularly in cities like New Delhi.

In conclusion, the battle for localization and sustainability in India’s electric scooter industry remains complex, requiring a delicate balance between economic growth, environmental consciousness, and the welfare of emerging startups.