As the global automotive industry pivots toward a more sustainable future, electric vehicles (EVs) are gaining traction in both major metropolitan areas and emerging markets. While Tier 1 cities like, Bengaluru, Chennai, Delhi, and Mumbai have long been at the forefront of EV adoption, a new trend is emerging: Tier 2 and Tier 3 cities are rapidly becoming key players in the electric mobility landscape. In these smaller, less-densely populated urban areas, several factors are aligning to drive the demand for electric vehicles. This shift could have a profound impact on the future of the automotive sector, with smaller cities leading the way in the transition to cleaner, more sustainable transportation.
The Rise of Tier 2 and Tier 3 Cities
In urban planning, cities are often categorized by size and economic significance. Tier 1 cities are the largest and most economically developed urban centers, while Tier 2 and Tier 3 cities are smaller but still important urban areas, often with emerging economies and rapidly developing infrastructures. In countries like India, Tier 2 cities include cities like Pune, Jaipur, and Lucknow, while Tier 3 cities encompass towns like Surat, Udaipur, and Amritsar.
What was once seen as a challenge for EV adoption, namely the lack of infrastructure and consumer awareness in these smaller cities, is now emerging as a strategic opportunity. In fact, Tier 2 and Tier 3 cities are increasingly being recognized as critical to the future growth of electric vehicles.
Key Drivers of EV Adoption in Smaller Cities
1. Government Incentives and Support
Governments across the globe are actively promoting the transition to electric vehicles. In India, for example, the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme offers subsidies and incentives for both manufacturers and consumers. The Indian government has set an ambitious target of achieving 30% EV penetration by 2030, with a strong focus on incentivizing EV adoption in smaller cities.
In fiscal year 2023 alone, India’s FAME-II scheme allocated ₹10,000 crore (approximately $1.2 billion) to encourage EV adoption, with a significant portion of this funding being directed toward Tier 2 and Tier 3 cities. As a result, the EV market in India saw a 168% increase in sales in 2023, with nearly 40% of EV sales coming from smaller cities. This rapid growth signifies the increasing importance of Tier 2 and Tier 3 cities in shaping the future of electric mobility.
2. Affordability and Price Sensitivity
One of the primary barriers to EV adoption has traditionally been the higher upfront cost compared to conventional vehicles. However, automakers are now targeting smaller cities with affordable EV models. For instance, the Tata Nexon EV, priced between ₹14-16 lakh ($17,000 – $19,000), offers a compact, cost-effective solution for price-sensitive consumers.
In addition to lower vehicle prices, government incentives, such as tax rebates and subsidies, are making EVs more accessible to middle-class consumers in Tier 2 and Tier 3 cities. As a result, smaller cities like Pune have seen 35% growth in EV adoption between 2022 and 2023.
3. Improved Air Quality and Environmental Concerns
Smaller cities are increasingly grappling with pollution, which can have long-term effects on public health and quality of life. Cities like Jaipur and Lucknow have faced significant air quality issues, with levels of PM2.5 often exceeding safe thresholds. With growing awareness of the environmental benefits of electric vehicles, the shift toward cleaner, greener mobility has become a priority.
Switching to EVs could significantly reduce air pollution. According to a study by the International Council on Clean Transportation (ICCT), switching to electric vehicles could reduce CO2 emissions by 14-15% annually in urban areas. In Lucknow, for example, air quality improved by 25% in the first year after the introduction of EVs, underscoring the environmental benefits for smaller cities.
4. Expanding Charging Infrastructure
One of the initial concerns for EV adoption in Tier 2 and Tier 3 cities was the lack of adequate charging infrastructure. However, there has been a marked increase in the number of charging stations across smaller cities. According to India’s Ministry of Heavy Industries, the number of EV charging stations in India grew by 77% in 2023, with 40% of these installations located in Tier 2 and Tier 3 cities.
Governments, private companies, and even local communities are stations were installed in 2023 alone, making it easier for consumers to adopt EVs and increasingly investing in building EV charging infrastructure. In Surat, for example, over 100 charging ensuring that the infrastructure keeps pace with demand.
5. Middle-Class Growth and Increasing Mobility
The middle class in Tier 2 and Tier 3 cities is rapidly expanding. According to the India Brand Equity Foundation (IBEF), India’s middle class is expected to grow from 300 million in 2020 to 550 million by 2030, with much of this growth occurring in smaller cities. As disposable incomes rise, there is an increasing demand for personal vehicles, and electric cars are becoming an attractive option due to their lower operating costs and environmental benefits.
Cities like Nagpur have already seen a 60% increase in EV sales in the past year, as consumers look for cost-effective and sustainable mobility solutions.
6. Wider Availability of EV Models
Automakers are keenly aware of the growing demand for electric vehicles in smaller cities and are responding with a wide range of models tailored to the needs of consumers in these regions. For example, Tata Motors, Mahindra, and MG Motors have introduced several affordable EV models that cater specifically to the preferences of consumers in Tier 2 and Tier 3 cities. The Tata Tigor EV, priced at ₹12 lakh ($14,500), offers a practical, budget-friendly option for families in smaller cities.
As more affordable and practical models become available, EV adoption is expected to continue accelerating in these regions.
Challenges to Address
Despite the encouraging growth in EV adoption in smaller cities, several challenges remain:
· Range Anxiety: Although battery technology is improving, concerns about the limited range of electric vehicles could still deter some consumers, particularly in cities where long-distance travel is common.
· Consumer Awareness: There is a need for greater education and awareness regarding the benefits of electric vehicles. Many consumers in Tier 2 and Tier 3 cities are still unfamiliar with EVs and may need more information to make the transition.
· Infrastructure Gaps: While the charging infrastructure is expanding, there is still a need for further investment, particularly in more remote areas, to ensure widespread access to EV charging stations.
Conclusion
Tier 2 and Tier 3 cities are quickly emerging as the new hotspots for electric vehicles. Supported by government incentives, increasing awareness of environmental issues, expanding infrastructure, and a growing middle class, these cities are poised to become central to the future of electric mobility. As automakers continue to launch more affordable and practical EV models, and as governments ramp up investments in charging infrastructure, Tier 2 and Tier 3 cities will play an increasingly important role in the global transition to cleaner, more sustainable transportation.
