Electric Cars And Vehicles: Future Of India
On Friday, September 29, 2017, the Government of India floated a tender to purchase 10,000 e-cars, which was won by Tata Motors Ltd. The government also wants to float a fresh tender for 20,000 cars by early 2018. It is part of the government’s strategy to replace all its 5.5 lakh vehicles with electric vehicles (e-vehicles) within next three to four years. The government also wants the country to be free of fossil fuel based vehicles. To boost the demand for e-vehicles the government is providing the subsidy of ₹ 29,000 for bikes and ₹ 1.38 lakhs for cars. It is a big question why the cash crunch government, with the persistent fiscal deficit, wants to phase out all its cars and other vehicles by 2020 and make the country free of conventional fossil fuel based cars by 2030.
Need for E-cars in India
High level of pollution in India: In many parts of the country, the air quality index is above 300, the level above which air quality is considered to be hazardous. High air pollution is a cause of smog experienced in winters in Delhi and in many other parts of the country; it causes many diseases, ranging from heart stroke to lung cancer to respiratory disease including asthma.
India reported 1.2 million deaths, highest in the world, due to air pollution in 2015, claims Greenpeace report. The report also claims that 3 per cent of the GDP is lost due to air pollution. It points out fossil fuel as one of the main culprits for deteriorating air quality across the country. Given that most of the cities in India do not meet the air quality standards set by the WHO in terms of PM2.5 (particles with the diameter of less than or equal to 2.5 micrometers) and PM 10 (particles with the diameter of 10 micrometers or less), there is urgent need to address the air pollution levels in the country. One way the government wants to address the problem is through phasing out fossil fuel based vehicles, which are important contributors to poor air quality in the country. Estimates by Colorado based Rocky Mountain Institute indicate that by adopting e-vehicles India will be able to cut down carbon emission by 1 gigatonne by 2030.
Paris Agreement and India’s Emission Commitments: Accounting for 4.1 per cent of total global emissions, India is the world’s largest carbon emitter. India is a party to the 21st session of the Conference of the Parties to the United Nations Convention (COP21), which is also known as the Paris Agreement on Climate Change. The Paris agreement makes every country to share the responsibility of controlling the pollution level by laying out emission targets and achieving those in a time-bound manner, with an overall objective of holding the increase in global average temperature to well below 20C above the pre-industrial levels. Under this agreement, India has a self-imposed commitment of reducing its greenhouse gas emissions by 33-35 per cent by 2030 in comparison to 2005 levels. Replacement of conventional cars by e-cars, which have zero emission levels, will help the country in partly meeting its emission targets.
High Oil Import Bill and Persistent Trade Deficit: Crude oil requirement in the country is persistently on rise. As local production largely falls short of the requirement, India imports more than 80 per cent of its crude oil requirement. With the substantial increase in international oil prices, India’s crude oil bill is expected to rise to $88 billion this year from 70 billion in 2016-17. High oil bill is a major contributor to a large persistent trade deficit of the country, which is a big drain on the country’s precious but limited foreign exchange reserves. The report of Rocky Mountain Institute also suggests that by replacing fossil fuel based vehicles by e-vehicles India will be able to save $60 billion in diesel and petrol by 2030.
Pros and Cons of E-cars and Other Vehicles
Conventional cars have combustion engines whereas fully e-cars are operated through electric motor fitted with an electric battery. Combustion engines are ignited by combustion of fossil fuels, such as petrol and diesel. But in the process of combustion, they emit air pollutants such as carbon dioxide, carbon monoxide, nitrogen oxides and particulate matter. With the growth of fossil vehicles in the country, the air pollution is also on the rise. E-cars run on the energy stored in the batteries; they do not emit any harmful gases and, thus, they are environment-friendly.
E-cars have a much lesser number of moving parts than the conventional cars. Combustion engines have more than 100 moving parts whereas electric motors have just three moving parts. Given the lesser number of moving parts, e-cars have lesser mechanical complexity and lesser maintenance cost. Lower maintenance cost also makes them more reliable. E-cars are also more fuel efficient. As per one estimate, e-cars, on an average, travel 69.2 km for $1, which is more than twice the distance that can be travelled in the same amount by a conventional car.
However, e-cars are very expensive. E-cars are available in India at a starting price of ₹ 7.57 lakh, which is on the higher side for highly budget conscious Indians. The main component of cost of e-cars is the electric battery. Though the cost of electric battery packs has declined by 80 percent in six years, from $1000/kWh in 2010 to $227/kWh in 2016, they still account for more than 1/3rd of the total manufacturing cost. Not only expensive, electric batteries have limited range and limited life. Most electric batteries have a range of 160 km to 240 km per single charge. Limited battery life necessitates frequent periodic replacement. The country, as of now, lacks sufficient widespread battery recharging infrastructure. The volatile and unpredictable power supply also constrain the charging efficacy. Besides, as e-cars have around 70 per cent of components different from that of conventional cars, the existing servicing personnel cannot repair them. E-cars require trained skilled technicians to repair and maintain them.
Low mileage per single charge, high cost of e-cars, insufficient recharging infrastructure, and lack of maintenance and servicing facilities limit the demand for e-cars from the budget and mileage conscious Indians.
What Lies Ahead?
At present Mahindra and Mahindra (M&M) is the only manufacturer of fully e-cars in the country. It has two makes of e-cars, viz., e2o Plus and eVerito. Tata motors is also in the process of launching e-cars in the country; it has already proposed the concept of Tiago EV and electric Nano. Even Hyundai Motor, which has e-car technology at its headquarters in Seoul, South Korea, is considering assembling of e-vehicles in India by 2019. It is in the process of identifying a suitable vehicle for Indian conditions.
Though in the e-car segment M&M is the only manufacturer, in the commercial vehicle space there are many companies present. Tata Motors has on offer e-Starbus, whereas Ashok Leyland has circuit series of electric buses.
The success of e-cars depends on the cost and efficiency of electric batteries. To gain competitive advantage, some manufacturers are also investing in the development of batteries. Japan’s Suzuki Motors has announced its intention to invest ₹ 1151 crore ($180 mn) in lithium-ion batteries through its joint venture with Toshiba and Denso. Hyundai has also expressed its intension to explore localization strategy for battery and other components in the tie-up with LG or Samsung or develop the same in-house. Apart from the e-car manufacturers, battery suppliers such as Exide industries, Amaron batteries, and Microtek have also shown interest in swapping drained up batteries with charged ones.
The large-scale investment in electric batteries is expected to reduce their cost further in the period ahead. At the same time, there are attempts to build batteries form alternative materials, such as aluminum. India does not have sufficient reserves of lithium and, hence, is largely dependent on imported batteries. Success in improving the batteries from aluminum, will reduce India’s dependence on imported batteries as India has sufficient reserves of bauxite, which is an aluminum ore. The Mckinsey and Company report projects that the cost of electric battery packs will decline to below $190/kWh by 2020 and to below $100/kWh by 2030.
The success of e-vehicles is also dependent on the availability of fast charging infrastructure. At present there are around 300-400 charging points across the country, most of them are located in Bengaluru, Delhi, and Mumbai. M&M has also set up super-fast charging stations in Nagpur apart from Bengaluru. In order to develop such infrastructure, the government is seeking bids for 1000 charging points in Delhi.
Downside Risk
Many foreign car manufacturers, such as Tesla, are eyeing potentially huge Indian market for their e-car models. Some of them have shown interest in investing in India. But, not much has materialized so far. Some of them want the government to reduce the duty on cars imported from abroad and relax the local sourcing requirement for e-cars manufactured in India. Some car manufacturers, domestic as well as foreign, are apprehensive of continuity of consumer subsidy in the light of persistent fiscal deficit. Given the pressures from oil refineries and other groups, there are also fears that the government may not meet the deadline it has set to achieve the target of 100 per cent e-vehicles by 2030. There is also a downside risk that the huge investment that is taking place in the development of electric batteries and cars may not yield the reduction in the cost to the level that makes e-cars comparable with the conventional cars. Besides, if oil-producing countries increase the supply of oil and reduce the prices drastically to counteract their declining geopolitical power, the running cost of the conventional cars may decline sharply, making the e-cars uncompetitive.
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