Delhi's newly notified Electric Vehicle (EV) Policy 2026, effective July 1, 2026, could accelerate the transition to cleaner mobility but poses a significant risk for automobile manufacturers if similar policies are adopted by other states, according to a Morgan Stanley report.
Policy Timelines and Incentives
The Delhi EV Policy 2026 lays out clear timelines to phase out new registrations of internal combustion engine (ICE) vehicles in select segments, with substantial incentives to encourage electric mobility. According to the Morgan Stanley report, "In a first, policy proposes timelines to ban new ICE 2W, 3W, and sub-3.5-tonne vehicles over time."
Key deadlines include:
- From January 1, 2027: Only electric three-wheelers and sub-3.5-tonne commercial vehicles will be eligible for fresh registration.
- From April 1, 2028: Registration of new petrol and CNG two-wheelers will end; only electric two-wheelers will be registered.
- March 2030: 30% of school bus fleets must be electric.
The policy is backed by Rs 70 billion in direct incentives and Rs 80 billion in indirect incentives and infrastructure investments, including plans to install around 32,000 EV charging points across Delhi. Additionally, the Delhi government plans to invest around Rs 15,000 crore over the next four years to promote electric mobility and install more than 30,000 charging points.
| Incentive Type | Details |
|---|---|
| Road tax & registration fee exemption | Full exemption for electric cars priced up to Rs 30 lakh |
| E-2W buyer subsidy | Rs 30,000 (Year 1), Rs 20,000 (Year 2), Rs 10,000 (Year 3) |
| E-3W buyer incentive | Up to Rs 50,000 in Year 1 |
| Scrapping incentive | Rs 1 lakh for replacing Delhi-registered BS-IV or older cars with eligible EVs |
| Charging infrastructure | ~32,000 charging points planned |
Industry Impact and Risks
The Morgan Stanley report noted that the immediate financial impact on automakers is likely to be modest because Delhi accounts for only a small portion of their domestic vehicle sales. "Delhi as a percentage of sales is small, and consumers can go to neighbouring states to buy vehicles, so the net adverse impact on OEMs will be modest," the report stated.
However, the report warned that the policy could become a template for other states, potentially creating a much larger industry-wide impact. "The risk is that this policy is followed by other states," it added. Morgan Stanley expects resistance from vehicle manufacturers and dealers, particularly in the motorcycle segment where electric alternatives remain limited. The report cited Chandigarh as an example, where the Union Territory had earlier proposed banning new ICE two-wheelers but later postponed implementation until 2027 following industry concerns.
Automaker Preparedness and Strategies
According to the Morgan Stanley report, companies with established EV portfolios are better placed to offset any impact through their electric offerings. These include Hero MotoCorp, Bajaj Auto, and TVS Motor. For Eicher Motors, the report said the success of its newly launched electric motorcycle has become increasingly important under the evolving regulatory environment.
Morgan Stanley also argued that while reducing air pollution remains a legitimate policy objective, faster scrappage of ageing vehicles across all segments would be a more effective way to curb transport-related emissions. The report further stressed the need to localise battery cell manufacturing to strengthen India's energy security as EV adoption gathers pace.
For manufacturing executives and OEM sourcing teams, the Delhi EV Policy 2026 represents a potential inflection point. While the immediate impact on production volumes is limited due to Delhi's small market share, the risk of policy replication across states could force automakers to accelerate EV transitions, invest in new supply chains, and reassess ICE production capacity timelines. The report's emphasis on localised battery manufacturing also highlights the growing importance of domestic cell production for energy security and cost competitiveness.
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