5000 years back when humankind invented the single most revolutionising device, wheels, no one anticipated its catalysing effect on the society towards modern civilisation. Today as we stand in the 21st Century, there is a dire need to rethink mobility and the ancillary services required to bring the most environmentally sustainable solutions on the roads, especially in India.
India recently held the worst pollution record, with 21 out of the 301 most polluted cities in the world while average air pollution levels in Indian cities were 8-11 times the level permitted by WHO. Moreover, India registers over 2 million pollution-linked deaths annually, the most in the world. Economically also, air pollution is an immense drain on resources, costing India the equivalent of 5.4 percent of gross domestic product (GDP) every year. In addition, India’s crude oil import bill, which in FY20 stood at a massive USD 102 bn. So it will be an understatement that India, along with the World, is at an inflection point where one road will enable our future generations to inherit a greener planet and the other may lead humankind into a dark future filled with gloomy smog.
While the covid-19 pandemic had a complete setback on the entire automobile sector, with annual sales falling 13% and retreating by six years, the pandemic gave a digital boost to the segment with a special focus on electric innovations. In fact, PEs and VCs pumped in around $672 million between 2019 and 2021 in the EV sector, compared with just $200 million in the preceding three years, according to EY consultancy.
An electric vehicle requires a completely new supply chain as software and electronics play a significant role in the vehicle’s operation. This facet is new to the existing automakers. A successful EV transition will inevitably require a re-imagination of the entire pipeline—from product development to distribution. Over the last 2 years, as the government strengthened its focus of building a self-reliant or Atmanirbhar Bharat, localising supply chains and developing domestic capabilities across the entire EV value chain, from manufacturing to recycling, has become a key priority.
With the FAME II policy, India laid out its ambitious aim to become the electric vehicle hub of the world, by the year 2030. Thus far, the policy has worked as a phenomenal catalyst when it comes to inviting young players with the entrepreneurial spirit to build cleaner and sustainable mobility solutions towards a better tomorrow. Under the act, the Indian government recently announced a 50% increase in incentives for electric two-wheelers buyers which will directly reduce the direct ownership cost by 10-12%. The Union ministry of heavy industries has also mandated the Energy Efficiency Services Ltd (EESL) to procure 300,000 electric three-wheelers for use by different authorities, giving a demand push to the nascent industry. This has attracted homegrown start-ups like Ola Electric and Ather Energy betting big on the industry potential. The Bhavish Aggarwal-led start-up has already showcased their in-house electric scooters and clocked 100000 pre-booking on day one of opening. Ather Energy has already launched its scooters—Ather 450 and 450X—in most leading cities and the company is in the process of expanding its showrooms.
Being in the early adoption stage, the Indian electric vehicle market is governed by two-wheeled vehicles, which account for over 75% of the total number of vehicles sold in the country. Hence, light electric mobility is likely to lead the EV growth story in India, with 2Ws and 3Ws expected to capture 10% and 30% of the automobile market share by 2025. However, according to a report by KPMG, 4W passenger vehicle (PV) electrification is expected to lag, with 10 to 15 percent penetration in the personal segment and 20 to 30 percent in the commercial one by 2030 because of their current economic non-viability, both in terms of price and fuel economy.
A serious impediment to mass B2C 4Ws electric vehicle adoption is the current infant stage of EV infrastructure development. India requires 400000 plus charging stations for 2mn EVs by 2026 while currently there are only 1800 across the country.
The B2B segment is, therefore, likely to lead EV growth over the next few years, on account of established use cases, fixed/pre-defined routes and cost savings due to higher utilisation. EVs have the potential to emerge as vital options for last-mile delivery of lightweight goods and last-mile transportation of passengers for shorter distances. For instance, spurred on by the ongoing pandemic, a lot of people have shifted to shopping online for most commodities, including essentials. This has led to a boom in the doorstep delivery of goods and services. Hence, e-commerce giants like Amazon, Flipkart, and food delivery apps like Zomato have announced their EV fleet targets earlier this year.
Constituting 45-50% of the overall EV costs, high battery prices directly impact manufacturing and sales. Although between 2011-20, global battery pack prices dropped sharply from approximately USD 800 per kWh to USD 150 per kWh, the Li-ion battery manufacturing industry in India is at a nascent stage at present, with 48% of the batteries imported from China in 2020. Although key Indian players like Amara Raja Batteries, Exide Industries, and Tata Group are now accelerating plans to produce Li-ion cells, the current scope of manufacturing is limited by the scarcity of crucial raw materials, Lithium and Cobalt. Instead of competing with China, which has invested massively in material sourcing from Latin counties and large-scale manufacturing units, India needs to focus on new-age batteries like Zinc-ion batteries. The abundant zinc resources in India can fulfill future requirements and bring down the battery costs to global levels.
Despite the big investments and grand announcements, however, the current sales of electric vehicles are not particularly encouraging. EV sales in the domestic market decreased by 19.9% to 236,802 units in FY20-21. The current demand is so economically impracticable, that India’s leading car manufacturer, Maruti Suzuki has denied entering the EV space until the company sees viable traction in demands. This points towards the adoption of ingenious and expansionary policies and practices at the earliest.
The current FAME Act is time-bound and are offered only in Smart Cities, State Capitals, and the North Eastern States. This needs to be extended slowly to the Tier 2 and 3 cities where 2W and 3w EVs can be penetrated at an exponential rate. The current billing of the charging at homes is based on the costly home-metering system. This requires a separate billing system at low commercial rates at home. As a result, the requirements of electric stations will reduce and will also make 4W EVs viable in cities. The other thing to keep in mind is the additional load on the power grid and DISCOMS which will come through the charging stations once electric vehicles become more accessible economically. There will be ~8–10% additional power demand on the grid even with 80% electric vehicle penetration in 2030.
Emulating Nordic companies and China, where 45-75% of the cars sold are EVs now, India needs to pace up on the research and early adoption of new technologies. This can be possible through the entry of and collaborations with international EV leaders and innovators. For instance, recently, French automobile giant Renault has laid down plans to start an EV manufacturing plant. Canadian company, MakerMax has announced its entry in India by offering skill development in terms of electric vehicles to ensure a healthy turnout of technical staff.
The early adoption of EVs will also race India ahead of its targets set under the Paris Agreement, cutting greenhouse emissions by 35% before 2030. The planned visit by the Prime Minister, Shri Narendra Modi to the US in September’21 can also lay a foundation towards a stronger front on Climate Change just before the UN Climate Change Conference, scheduled in November’21.
Hence the EV market in India is at the vanguard of all the major developments, from political to environmental. Now the key to success is the pace of adoption.