Ather Energy, a Bangalore- based manufacturer of smart electric scooters told CNBC-TV18 that it is looking to start localising the production of the electric motor which powers their scooters, achieving a 75-77 percent localised product by the first half of next year.

Currently, Ather scooters are over 50 percent localised, according to Tarun Mehta, co-founder of Ather Energy. At present, manufacturers of electric vehicles import li-ion cells which power their batteries, predominantly from China, including Ather.

The company also imports the electric motor, while the battery pack and the battery management and monitoring system (BMS) is manufactured domestically.

With that, Mehta said in an interview to CNBC-TV18 that batteries Ather uses now cost them close to $150 kWh, while for most manufacturers the cost of the battery is now below $200kWh. Six years ago, when Ather’s journey began, they were priced between $400-$500 kWh, Mehta said.

While globally battery prices have dropped substantially, they are now stabilising at the 7-8 percent level. The fact that the Indian market still purchases batteries in lower volumes, economies of scale don’t help the ecosystem either.

While Ather’s in-plant capacity will reach 25,000 units by 2020, Mehta said the company is looking at a capacity expansion of over ten times the current levels in the future. Ather does not disclose absolute sales numbers.

The six-year-old start-up, Mehta admits, isn’t profitable at either the unit or business level, and it will be another 12-18 months when the company has crossed the 50,000 units sales mark that they hope to turn profitable at the cost-margin level.

In the next two-three years, Mehta says, the cost of batteries could be brought down to $100 kwH. High dependence on imports and low volumes have kept the pressure up on electric vehicle pricing.

The FAME-II compliant Ather 450, for example, is priced at Rs 1.22 lakh and can be bought for Rs 1.11 lakh after one avail of the Rs 10,000 subsidy the government offers under the scheme. The price of an average conventional two-wheeler in the country, on the other hand, ranges from Rs 70-Rs 80,000.

While analysts believe that a higher level of subsidy to close some of the gaps between the cost of a petrol-powered two-wheeler and an electric two-wheeler could go a long way, Mehta feels the government’s subsidies towards electric vehicle adoption are at a “healthy level” before they begin to be tapered down.

Mehta adds that the running-cost advantage that an electric two-wheeler offers more than offsets the upfront difference in prices. A bigger impetus on product financing, Mehta said, could also address that problem, as customer interest in the space is on the rise.

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Must Shift Focus to Supply Side'

To incentivise established two-wheeler original equipment manufacturers (OEMs) to take the electric vehicle leap and substantively add to capacity, Ather feels the infrastructure and policy push for the electric vehicle industry must now be focused on the supply side to aid localisation.

Demand-based incentives and subsidies currently amount to direct monetary subsidy in the range of Rs 15,000-Rs 30,000, while the reduced GST rate and the recent tax benefit announced on interest paid on loans taken to finance electric vehicles takes off another Rs 5,000-8,000 from the cost of the vehicle.

Analysts believe that the current level of subsidies provided to the electric vehicle buyer, however, is currently not enough, in contrast to countries like China which have millions of electric two-wheelers on the road and have successfully led the transition to electrification in mobility.

Experts have called India’s push towards full electric vehicle adoption as soon as the next 4-6 years premature. Ather agrees that currently there isn’t enough installed capacity in the country to cater to a demand of over 20 million vehicles annually, but that government’s policy push towards electrification can only be a step in the right direction. The challenge will be making major OEMs sign up for it.

That will be possible if demand-side incentives, like tax exemptions on equipment into setting up electric vehicle supply chains, are implemented.

Analysts CNBC-TV18 spoke to pointed out that in crowded metro cities where parking spaces for two-wheelers don’t form part of a user’s dwelling and most users park on the road/footpath, the lack of charging infrastructure is a challenge.

Ather dismisses concerns that the lack of public charging infrastructure is a concern. Mehta says for two-wheelers, most users plug in their vehicles at home, and the key challenge is accessing. Policy changes which mandate charging points in parking complexes of apartments, for example, could substantially aid access.