Govt set to exhaust ₹857-crore subsidy for bigger electric 3-wheelers three months early
In a letter to the Society of Indian Automobile Manufacturers dated 23 December, the government said it would halt incentives on reaching the scheme's target of 288,809 electric three-wheelers in the L5 category, or on 26 December, whichever came earlier.
The heavy industries ministry is likely to exhaust its ₹857-crore subsidy fund for electric three-wheelers in the L5 category under the ₹10,900-crore PM E-Drive scheme three months ahead of schedule, according to the government’s letter to manufacturers. The funds were originally expected to last until March 2026, but the high adoption of electric three-wheelers means they have been disbursed faster than anticipated.
In a publicly available letter to the Society of Indian Automobile Manufacturers (Siam) dated 23 December, the ministry said it would stop granting incentives on reaching the scheme's target of 288,809 L5 three-wheelers, or on 26 December, whichever came earlier.
“Para 46 of the scheme notification clearly stipulates that the PM E-Drive Scheme is fund-limited, and once the allocated funds for the scheme or any of its sub-components is exhausted, no further claims will be entertained," the letter read.
Two kinds of electric three-wheelers can receive subsidies under the PM E-Drive scheme – L3 category e-rickshaws with small batteries, commonly used for last-mile connectivity in cities such as Delhi and Kolkata; and larger, L5 category three-wheelers that are used to ferry both passengers and cargo. L3 vehicles usually have a battery capacity of 2 to 7 kilowatt-hours (kWh), while L5 vehicles are powered by 7 to 12 kWh batteries.
L5 allocation increased
The government had originally allocated ₹192 crore for L3 vehicles and ₹715 crore for L5 vehicles, but a low offtake in e-rickshaws led it to increase the L5 allocation to ₹857 crore.
A total of 750,000 e-three wheelers (from both categories) were sold in India in 2025, up from 700,000 the year before. To date, 286,000 of these vehicles have benefited from lower upfront costs under the two-year PM E-Drive scheme, which began in FY25.
Indian consumers have taken to electric three-wheelers with gusto. More than 687,000 or about 60% of three-wheelers sold in 2025 were electric, even as adoption in other vehicle segments lagged. About 167,000 or 4.8% of cars and about 1.2 million or 6.2% of two-wheelers sold in 2025 were electric.
The wide gap is due to the fact that three-wheelers are, for a variety of reasons, far more amenable to the switch from gasoline than two- and four-wheelers. Huge investments in electric three-wheelers have also led to near price parity with their fossil-fuel cousins, especially when factoring in their lower operating and maintenance costs, Mint reported on 25 November.
Most smaller e-rickshaws fail to quality
E-rickshaws in the L3 category have mostly lacked access to government subsidies as they have failed to meet the scheme’s localisation (domestic value addition) requirements. Since its launch in FY25, only about 4,600 L3 e-rickshaws have been subsidised under the scheme, according to the official dashboard – a mere 0.55% of the 830,000 such e-rickshaws sold over this period, according to Vahan.
The scheme mandates that 100% of specific key components of electric three-wheelers must be manufactured or assembled domestically to qualify for the subsidy. Manufacturers must also provide a certificate from a testing agency proving that at least 50% of the vehicle's total value was created in India.
Manufacturers have faced localisation challenges with three components of transmission systems – gearboxes, traction motors, and motor controllers – said Pawan Kakkar, managing director of YC Electric Vehicles, which has sold about 35,000 e-rickshaws so far in 2025.
“E-rickshaws are affordable vehicles, and sourcing all their spare parts locally increases costs by about ₹10,000 per vehicle," he added.
Under the PM E-Drive scheme, components such as body panels, lights, vehicle control units, and wheel rims with hub motors had an import cutoff date of October 2019. Other parts such as traction motors could be imported until April 2021 under the scheme’s localisation rules, also known as the phased manufacturing programme.
Miles to go
Amit Bhatt, India managing director of the think tank International Council on Clean Transportation, said the early exhaustion of funds indicated that India’s electric three-wheeler market was now running on autopilot, with government subsidies accelerating demand instead of simply initiating it.
Despite these giant strides, there's plenty left to do, he said, as deep penetration of zero-emission, battery-operated vehicles remains limited to three-wheelers. Scaling EV adoption beyond early-mover segments remains the central challenge, Bhatt added. “To sustain momentum, India must bring down upfront vehicle costs, particularly in the two-wheeler and passenger vehicle segments," he said.
topics
