Evolution of EV Ecosystem in India

It is a transformative time for EV ecosystem in India – the world’s fourth largest automobile market. The current slump in automobile sales, upcoming BS-VI emissions norms in 2020, an influx of dozens of new 2W and 3W EV manufacturers and industry laying the groundwork for EV adoption enablers – these factors are shaping up a categorical shift in the private and commercial automobile space.

Early Adopters in India

EV adoption in India has followed a different trend than other more evolved EV markets of Europe and the US where EV adoption is mainly driven by private cars. In China, penetration of EVs encompasses cars, 2 wheelers, and buses. In India, the unorganised 3 wheeler market for e-rickshaws used for economical last-mile travel has spearheaded the shift and also seen thousands of manual rickshaw pullers moving to e-rickshaws to earn their livelihood. EV penetration in this informal sector was initially powered by multiple independent assemblers manufacturing lead-acid battery powered e-rickshaws. The sector is going through a phase of upgradation with more organised players entering the market with Lithium-ion battery 3 wheelers (e-rickshaws and electric autos) and regulatory environment tightening in. According to a PwC report, of all EVs sold in India in 2018-19 (7.6 lakh) – 83% were 3W and 16.4% were 2W. India wants all its 3 wheelers to go electric by the year 2023.

Other than 3 wheelers, a huge opportunity in clean travel lies in India’s massive 2W market. According to a Niti Aayog (a policy thinktank of Indian government) report, while the 3 Wheelers make approximately 4% of all vehicles on Indian roads, the share of 2 wheelers stands at 79%. India has over 170 million two-wheelers and making a shift to zero-emission 2 W presents a significant opportunity for a country that has 14 of the world’s most polluted 20 cities (WHO report).

As EV ecosystem demands a set of capabilities distinct from conventional vehicles, there is a new wave of Indian 2W startups making inroads into the automobile space that has historically had large barriers to entry. These companies (many with strategic investments from traditional players) are not only manufacturing the next generation of 2 wheelers but also pushing the envelope when it comes to influencing buyers’ behaviour. e.g. Revolt offering RV300 and RV400 models on an ownership-subscription plan, eWe mobility offering e-bike rentals on a daily basis, and rise of multiple micro-mobility platforms.

Niti Aayog wants to set a deadline for 2025 for 100% electrification of India’s 2Ws (under 150-cc) and multiple factors indicate that although challenging, adoption of EVs would be less difficult for 2W market as compared to 4W. 2Ws are automatically exempt from some of the roadblocks 4W face, given former’s ease of charging and comparable total cost of ownership owing to smaller batteries and low running expense. 2Ws mostly serve local intra-city travel needs and electric 2Ws are already offering a driving range from 60-120 km on a full charge. Lower running expenses for electric 2Ws make them even favourable for commercial use by delivery services, that involves approximately 2 million 2Ws on a daily basis as per an EY report. For some pointers on what to look for while buying an electric two-wheeler, read Specs to Consider While Buying an Electric Two-Wheeler.

4W Market

Penetration of EVs into Private car ownership seems distant as of now, given higher acquisition cost in the price-sensitive Indian market e.g. Mahindra e-Verito costs Rs. 10.5 lakh upwards while the base price of Mahindra Verito starts at Rs. 7.5 lakh. However, as BS-VI emission norms are brought into effect by April 2020, the prices of ICE vehicles and BS-VI compliant fuel are set to rise. While the increase in vehicle prices is likely to be between 8-15%, the increase in diesel/petrol prices could be anything from a few paise to Rs 2 per litre.

Fleet operators are expected to show the inclination to switch to EVs as high utilization rate of commercial vehicles makes operational costs a prominent concern for their business. We have the examples of commercial EV fleets in ‘Lithium Urban Mobility’ that operates a fully electric fleet for corporate offices in Delhi NCR and app-based taxi platform ‘Blu Smart’ that offers individual rides on its fully EV fleet.

So far, Tata Motors, Mahindra & Mahindra, and Hyundai have taken lead in launching electric cars in India while MG Motors and Audi are planning to introduce electric SUVs this year. Other than passenger cars, Intra-city buses are expected to follow the electric route with government support and ease of charging while being parked at bus depots. Tata Motors and Ashok Leyland have already launched electric buses in India.

Government Role and Direction

Indian Government has good reasons to encourage EV adoption in the country. Principal motivations behind Government’s impassioned push towards EVs are connected to India’s future energy security as it imports oil to fulfil 80% of its need of transport fuel, a figure that is set to rise with greater mobility needs of the future and its commitment to cut greenhouse gas emissions intensity by 33% below 2005 levels by 2030.

The government has been actively promoting EVs to that end and had launched FAME 1 scheme in 2015 with an overlay of Rs 895 crore. The scheme ended in Mar 2019 and incentivised the purchase of 2.78 lakh electric and hybrid vehicles. In Apr 2019, FAME II was set in motion for the next three years with an overlay of Rs 10,000 crore and focus on technology development, demand creation, pilot projects and charging infrastructure. FAME II aims to aggressively push growth in public transport services like e-rickshaws and buses, that is evident from the fact that 35% of overall incentives have been provided towards electric buses. The government also wants to promote better batteries and excluded lead-acid battery EVs from the incentives, leaving out a large number of 2Ws and 3Ws from the scheme.

Alongside, the GST Council cut tax on EV’s from 12% to 5% with effect from Aug 01, 2019 to lower the acquisition cost for buyers. The tax rate on chargers and EV charging stations has been reduced from 18% to 5% in an attempt to promote the infrastructure building.

Challenges and Road Ahead

Even with all the initiatives in place, there exists a big gap between the government’s ambitious EV targets and ground reality of a supportive ecosystem. Two major parts of the EV ecosystem are charging infrastructure and availability of cheaper batteries and drivetrain components.

a. Charging Infrastructure – Globally, 33 per cent of all EV sales take place in 14 cities with conveniently accessible charging infrastructure. In the US and Europe, EV owners regularly charge their cars at home and workplaces. This makes the presence of an adequate charging infrastructure even crucial in India where reliable power availability is often an issue and most of the car owners do not have designated parking spots where they could set up charging.

According to an EY report, as of May 2018, there were only 222 charging stations with 353 charging points in the country. The infrastructure is gradually coming up with organisations like EESL, NTPC, BSES and many other players setting up charging stations across the country with the help of charging solution providers like TATA power, Exicom, Fortum etc. [Full list of Charging Solution providers here]. Under FAME II, Rs 1,000 crore has been marked for incentivising setting up of 2,700 charging stations as the government aims to establish one charging station every 3 km in cities and every 25 km on both sides of highways. Niti Aayog also recognizes that battery swapping (selling e-buses and 3W without batteries and providing charged batteries on lease at charging stations) can be used to enable continuous operations for public EVs. Ministry of Power is working to establish uniform charging norms and protocols across the country to ensure all public charging stations can serve EVs by different automakers.

For information on Battery Swapping Solutions in India, click here.

b. EV Components – An EV is comparatively simpler to build with less moving parts – 20 against ~2,000 for an ICE vehicle. However, it needs a different set of components such as electric motors, DC-DC converters, charging equipment and microcontrollers and hence necessitates a transition from the conventional equipment supply chain. A major chunk of EV components is currently being imported from China.

The government aims to reduce the production costs of EVs by boosting local manufacturing of EV parts and curbing imports. The automakers are being prodded to go local by linking subsidies with localisation under FAME II, a step that has been criticised by the industry bodies like SMEV and EV manufacturers. As localisation is a multi-step process, the industry feels it might take up to a couple of years to develop and supply the components on scale.

The most expensive component of an EV is the Li-ion battery pack that makes up around 40% of its cost. Currently, Li-ion cells are imported from China and assembled into batteries in India. According to the government’s estimates, India will need a minimum of 10 GWh of Li-ion cells by 2022, and about 50 GWh by 2025. BHEL is expected to set up India’s first Li-ion Gigafactory in a joint venture with Libcoin, with plans to scale up the capacity to 30 GWh in due course. ISRO is in the process of transferring its low-cost Li-ion cell technology to multiple companies. These are promising moves that we can hope will result in a reduction of battery price for the EV makers, leading to lower EV costs overtime.

Final Word

At present, India generates around 90% of its electricity from conventional sources and 10% from renewable sources. As this ratio tweaks in favour of renewable sources in future, EVs will become even cleaner. ICE vehicles and EVs are going to co-exist in foreseeable future with EVs gaining share overtime. With accelerated adoption, India stands a great chance at becoming the world leader in the electrification of small and public vehicle segments that provide mobility to its masses.

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