26 Oct 2017 20:41 IST

Global, Indian auto-makers are preparing for EVolution

Huge infrastructure changes, slew of incentives needed if India is to move largely to EVs by 2030

Minister for Road Transport & Highways Nitin Gadkari’s powerful statement that India will move completely towards electric vehicles (EVs) by 2030 came as a surprise to many auto-makers and industry bodies across the country.

The idea is logical and justifiable. India is over-dependent on crude oil imports, which racks up a foreign currency bill of $60-80 billion a year; a large part of the imports are used by the auto industry. Further, as part of the 2015 Paris Agreement, India committed to reducing its carbon emission intensity — emission per unit of GDP — by around 35 per cent from 2005 levels over the next 15 years. No doubt, both of these will require a move towards EVs, in some form or the other, in phases, over the coming years.

Understanding the current situation with respect to EVs in India is interesting. The total number of passenger vehicles, including cars and utility vehicles, sold in the country in 2016-17 is around 32 lakhs. Of these, EVs sold less than 5,000 units. So, how can India achieve the goal? Is the promise realistic? What needs to be done for this to happen?

How are leading nations looking at EV?

Brazil, for example, is working to power around 2.5 per cent of its light vehicles by electricity within a decade, according to its federal energy planning agency. The number of light vehicles with electric or hybrid engines is set to rise to about 1,00,000 in 2026.

China’s passenger EV sales may be large in volume when compared to India, but in proportion to its internal combustion (IC) vehicles, the numbers are quite small. Of around two-and-a-half crore passenger vehicles sold annually, not more than five lakh vehicles are EVs; translating to around 2 per cent.

China wants new energy vehicles — EVs and hybrid vehicles — to be at least one-fifth of the total passenger vehicles sold by the year 2025. In spite of the fact that China’s EV infrastructure and supply chain are much better when compared to even the US, the proportion of EVs to total vehicles is not very good. The US, for example, is targeting to convert 70 per cent of its vehicles to EVs and hybrids by 2050.

Given this, India’s target is surely on the aggressive side.

Auto-makers’ outlook

Tesla is considered to be best positioned in the EV space. However, its total sales at this point in time is less than one lakh cars a year. Chinese EV manufacturer BYD Auto is selling more than a lakh units annually and is growing fast. Nissan Leaf is selling more than 1,20,000 cars a year. Other manufacturers are starting to experiment in the area.

Maruti Suzuki, the largest passenger car maker in India, with a 50 per cent market share, believes as push comes to shove, its alliance with Toyota could provide it the necessary access to EV technology. Ford has come together with Mahindra to strengthen its EV capability and enter international markets. Mahindra acquired Reva, the electric car maker, a few years ago and has been experimenting since.

Achieving the 2030 target

Why is the EV market miniscule in India? Primarily, there is no willingness to pay; EVs are priced high, largely driven by battery costs, and customers do not want to pay when IC cars are available at much lower prices. There is neither a regulatory compulsion to purchase an EV nor are customers concerned about global warming to make an incremental investment in EVs.

The government has launched the National Electric Mobility Mission Plan, 2013 (NEMMP) and Faster Adoption and Manufacturing of Hybrid & Electric Vehicles, 2015 (FAME). These, again, have extremely ambitious targets. However, a number of regulations on ground need to be strengthened, which will hopefully move the country towards the required level of preparedness. Policies that discourage older, traditional IC cars and incentivise EVs need to be put in place.

Incentives need to be provided for consumers interested in purchasing EVs, for battery manufacturers, as well as for import of crucial commodities and components required for the batteries. Incentives must also be offered in taxes and in the form of soft loans for customers.

The US, for example, is providing a subsidy of around 18 per cent on the total EV value. China gives a rate of 23 per cent while countries such as Norway and Denmark are subsidising at rates as high as 45 per cent of the vehicle cost. India needs to make budgetary provisions to subsidise at such levels as to make the EV proposition attractive to customers and the industry.

Other requirements

The cost of batteries globally is dropping. From around $150 per kwh, the price is expected to fall to around $100 per kwh in the next eight to 10 years. Once this happens, the market share of EVs could sharply increase from the current 1 per cent to around 10 per cent. In spite of a steady drop in battery costs over the last few years, they are still expensive; they account for around 35-50 per cent of the total vehicle cost. The government plans to set up a lithium-ion battery-making facility under Bharat Heavy Electricals.

Infrastructure facilities for charging the electric vehicles are sparse; less than 300 community charging stations are currently in operation. In India, passenger car EVs today can travel a maximum of around 100 km; this can significantly increase the ‘range anxiety’ of Indian drivers, which can be a major bottleneck in purchasing an EV.

The country needs to move towards building standardised and exchangeable batteries to bring down the costs. Building battery-charging infrastructure is critical. Regulations and guidance for more favourable power tariff structures is also crucial. Large-scale battery manufacturing plants need to be commissioned. Increasing the subsidies on EV batteries to lower vehicle costs, in the short run, is very important.