India’s electric vehicle sales are growing rapidly but vary considerably across the country’s 36 states and union territories. While wealthier, populous and more developed tier 1 cities are the current hubs of India’s EV demand, adoption in tier 2 cities is growing, a new report by BloombergNEF finds.
A potentially large auto market and the expansion strategies of EV makers could make these tier 2 cities the next big demand center for EVs. In smaller cities with limited awareness and disposable income, policy support will be crucial in amplifying EV sales.
Studying historical and current EV adoption trends at the regional level can help identify which states and cities could potentially drive growth in the future. To do this, BNEF analyzed the electric two-wheeler and car sales data of 207 cities across 10 Indian states – Delhi, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu and Uttar Pradesh.
Bengaluru leads the adoption of EVs among tier 1 cities: Karnataka’s state capital is ahead of other tier 1 cities in EV adoption, both in the passenger vehicle and two-wheeler segments. EV growth in wealthier cities is driven by several factors, such as a young demographic with regular disposable income, the expanding presence of pure-play EV cab operators and an increasing availability of EV models to choose from.
Within tier 2 cities, state capitals generally lead the growth of electric car sales. In 2023, Rajasthan’s capital Jaipur accounted for more than 79% of all electric cars sold in the state’s five tier 2 cities that were analysed.
Consumers in Jaipur bought more than 2,400 electric cars in 2023, more than doubling from the less than 1,000 vehicles sold a year earlier. Lucknow, the capital of Uttar Pradesh, led the state’s stellar sales growth in 2023, with demand reaching 1,120 units. Kerala’s capital Thiruvananthapuram was at the forefront of volumes in the state with 840 electric cars sold. In Gurugram, a fast-growing city that shares a border with the national capital Delhi, nearly 1,570 electric cars were sold in 2023.
Most of India’s tier 2 cities do not have a robust EV ride-hailing market yet – which is a key pillar of rising EV sales in tier 1 cities. This means EV sales in smaller cities are entirely driven by private uptake
Customers are less reliant on subsidies: Most private electric cars purchased in 2023 were not supported by upfront price subsidies. Just two out of the top 10 states for annual electric car sales had active subsidies as of the end of 2023. Even after several states exhausted their subsidy limit by the middle of the year, sales continued to hold steady.
Electric two-wheeler sales in some tier 2 markets have surpassed metropolitans: The annual growth rates of high-speed electric two-wheeler sales in tier 2 and tier 3 cities across the 10 states analyzed in this report surpassed those in tier 1 cities. In 2023, the annual rate of increase of total EVs sold in 70 tier 2 cities and 131 tier 3 cities was 51% and 30%, respectively. Electric two-wheeler markets in several tier 2 cities are far ahead of those in tier 1 cities.
In 2023, electric two-wheelers sold in Surat (20,150 vehicles) and Jaipur (18,600) exceeded those in Ahmedabad (17,300), Mumbai (13,800) and Chennai (13,710). Sales in Nagpur (13,730) were close to those in the state capital, Mumbai. Kolhapur and Indore are also quickly catching up, with sales reaching 9,320 and 9,200 vehicles, respectively, in 2023.
Tier 2 cities could be the next growth drivers for electric two-wheelers, but financial support is crucial in tier 3 cities: In 2023, the growth rate of the two-wheeler market in tier 2 cities was similar to that in tier 1. Automakers are rapidly expanding their sales and dealership networks in smaller cities, which will help improve consumer awareness and access to these vehicles. As the focus shifts to boosting demand from less affluent tier 3 cities, demand-side policy support, especially financial subsidies, will be needed unless prices fall fast enough for EVs to achieve upfront cost parity with gasoline vehicles.