Co-author: T Stanzin
 
The automobile industry is at the center of the global climate transition. With road transport accounting for roughly one-fifth of worldwide CO2 emissions, stringent emission standards in major markets like Europe and the US are pushing manufacturers to rethink vehicle technologies. Electric mobility, alternative fuels, and stricter efficiency norms have become core industrial strategy. With that, worldwide sales of electric vehicles surpassed 17 million units in 2024, an increase of 25% over the previous year.

India is positioning itself seriously within the shift toward cleaner mobility. At policy level, emission standards have been progressively tightened and industrial policies such as the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme and the Production-Linked Incentive (PLI) programme have aligned climate objectives with industrial development goals.

To understand how Indian firms are responding to the green transition in their innovation choices and, in particular, whether clean technology innovation is replacing or merely supplementing existing trajectories in innovation, our recent study examines automobile-related patent applications. Unlike output or sales figures, patent data reflect where firms expect future competitiveness to lie. Our study sheds light on whether a transition is underway toward fundamentally cleaner technologies and who is driving the direction of any such transition.

 Figure 1. Auto patents by technology type

Data source: PatSeer database.

What do patent data reveal about innovation priorities? In automobile patenting, a distinction can be made between clean technologies, involving electric vehicles, hybrids, and fuel cells, and the dirty technology of the internal combustion engine where combustion engine patents include innovations to reduce environmental harm through fuel efficiency improvement and emission reduction. The evidence in Figure 1 points to a clear rise in clean automobile innovation in India, particularly since the mid-2000s. The increase in electric vehicle–related patenting reflects both  increased policy support and growing market interest. At the same time, patents related to internal combustion engines have continued to dominate in absolute terms. The coexistence of innovation in clean and dirty technologies suggests that India’s green transition is additive rather than substitutive where clean technologies are being integrated into an established technological base rather than replacing it entirely.

What explains the current innovation landscape? An explanation for the continued prominence of combustion-engine innovation lies in the nature of environmental regulation. Emission standards such as India's Bharat Stage norms, similar in spirit to the emission standards used in Europe, are designed to improve environmental performance, but they do not mandate specific technological pathways. Firms are therefore incentivized to comply in cost-effective ways, often by refining existing technologies rather than switching to radically new ones.

For incumbent manufacturers with large investments in legacy platforms, incremental innovation represents a rational response to the regulatory environment. Improvements in fuel injection, engine management, and exhaust treatment allow firms to meet requirements while continuing to exploit existing capabilities and supply chains. As a result, regulation has succeeded in pushing cleaner outcomes, but it has also reinforced established technological trajectories. This highlights an important distinction: transition in outcomes does not automatically imply transformation in innovation paths.

Figure 2. Clean and dirty auto patents by firm vintage

Data source: PatSeer database.

Who is driving the cleaner end of the transition? Firms do not respond uniformly to directed technological change such as the green transition. Our study reveals a divergence between incumbents and new entrants, as shown in Figure 2. Established automobile manufacturers tend to pursue diversified innovation strategies. While their engagement with clean technologies has increased, they continue to devote substantial effort to improving combustion-engine systems. This balanced approach allows them to hedge against uncertainty while managing legacy investments.

New entrants, by contrast, show greater specialization in clean technologies. Their patent portfolios are more concentrated in electric propulsion and related systems, suggesting a stronger commitment to emerging technological pathways. Without sunk investments in older technologies, these firms face fewer constraints in shifting direction. However, the scale of startup innovation remains limited relative to incumbents. Without access to patient capital, long-term finance, and shared innovation infrastructure, their ability to reshape sector-wide innovation trajectories remains constrained

Transition without transformation? Taken together, these patterns suggest that India’s automobile sector is undergoing a significant yet uneven green transition. Clean technologies are gaining ground, domestic innovation activity is rising, and startups are experimenting at the technological frontier. At the same time, the dominant innovation trajectory remains anchored to combustion-engine technologies and incremental change. This has important implications for long-term competitiveness. Leadership in green industries depends not only on adoption and scale, but also on the direction of innovation. Countries that shape future technologies control standards, components, and knowledge networks. Those that do not risk remaining dependent, even as markets expand.

What would a more transformative approach look like? Major technological transitions have rarely unfolded as abrupt replacements. The steam engine did not immediately displace waterpower; in turn, electricity initially coexisted with steam-driven factories before eventually driving reorganization of industrial production. New technologies typically enter by serving niches that incumbents overlook, improve gradually, and only later become competitive enough to displace dominant systems. Commensurately, established firms tend to excel at sustaining innovations, pursuing incremental improvements that enhance existing technologies along dimensions valued by current customers while at the same time struggling to commit early to disruptive technologies that initially underperform but improve over time. In the automobile sector, improvements in internal combustion engines and emission-control technologies function as sustaining innovations, allowing incumbents to comply with environmental regulation without abandoning established technological trajectories. Electric vehicles, by contrast, represent disruptive technologies: they initially underperform on cost, infrastructure readiness, and range, but improve steadily as complementary systems develop.

From this perspective, the coexistence of cleaner technologies with continued investment in combustion-engine innovation is not a failure of transition, but its early-stage characteristic. The challenge for policymakers is therefore not to force immediate substitution, but to accelerate the point at which disruptive technologies become competitive enough to dominate. History suggests that complete takeover occurs not through sudden mandates, but when performance trajectories intersect such that new technologies become appealing for mainstream users.

Accelerating the transformation requires going beyond emission reduction and demand incentive policies. Stronger support for early-stage clean technologies, improved access to long-term finance, and greater investment in shared testing and research infrastructure can help reduce the risks associated with experimentation.

Equally important is recognizing that different firms play different roles in the innovation ecosystem. Encouraging specialization among startups, while nudging incumbents beyond incrementalism, may be necessary to alter the pace and depth of technological change. Complementary policies, such as rationalizing carbon and fuel taxes, reducing uncertainty around future standards, and strengthening domestic clean-technology supply chains, can further reinforce these shifts.

India’s automobile industry stands at an inflection point. The green transition is real, but its long-term impact will depend on whether innovation pathways evolve as decisively as policy ambitions. Without such alignment, the transition may remain cleaner, but not fundamentally different.

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Co-author T Stanzin is a research scholar at the School of Humanities and Social Sciences, Indian Institute of Technology Indore.