EV Decade Is Here, Is India Ready?
The century-old automobile industry is at the cusp of being disrupted by the Electric, Digital & Autonomous (EDA) revolution. The disruptive decade of 202x which started with the COVID-19 pandemic is significantly shifting preferences towards personal mobility. In this decade of change, we will see tectonic shifts in the way companies manufacture, sell, and consumers buy and drive their vehicles. At the forefront of the EDA, revolution is Electric vehicles. Electric vehicles have already started gaining popularity in countries such as China. In 2020, a total of 1.3 million electric vehicles were sold in China which is 41 per cent of the total global sales of 3.1 million units.
This global electric vehicle disruption is not going to leave India untouched. The initial constraints around battery charging and the range of electric vehicles make density an important adoption enabler for electric vehicles. India is a densely populated nation with 382 people per square kilometre while most of the large countries have densities below 150 people per square kilometre. Population densities in our metros are significantly higher with Mumbai and Delhi featuring in the world’s top 50 densely populated cities. High population densities and the sheer size of our metros, means that our intra-city travel distances are small making India a fertile group for EV adoption. As the 4th largest automobile producer in the world and the 5th largest automobile market in the world, we will see a dramatic shift towards EV’s in both production and consumption. In addition to conventional automobile players such as Maruti, Hero, Tata, there are a bunch of start-ups like Ola Electric, Ather energy, Okinawa entering this market to offer a compact and affordable range to users and spread EV mobility.
Long term view: Indian EV market size is estimated at $206 billion by the year 2030. To reach a $200 billion+ size, this industry will require sizable investments to the tune of $180 billion. These investments will need to be parked by both public and private sectors in the areas of manufacturing vehicles and developing infrastructure for charging them creating an end-to-end EV ecosystem. This is the only way that we will be able to support the projected number of 100 million vehicles on the road by 2030.
Apart from the industry point of view, making India ready for EV is crucial for the environment as well as reducing greenhouse impact and opt for clean energy to abide by the Paris Agreement. India has the goal to reduce emission by 33 to 35 per cent by 2030 from the level of 2005. This shift will also have a reducing impact on our crude import bill. A study indicates that a 30% shift towards EVs can reduce our crude import bill by $14.1Bn per year (Approx. 10-15% of the overall Indian crude bill).
Product-Market fit is critical for large scale adoption: India has proven a challenging market for any new technology or product for large scale adoption. Most of these comparisons are against China. The big difference between India and China is the GDP per capita. China GDP per capita is at $10,261 while India GDP per capita is at $2099.99 (2019). This size differentiation makes the average ticket size of products in China higher. E.g. Average price of a new car in China is USD 23,000 against the Average price of a new car in India is USD 10,000. An economic mass-selling car in India would cost around 5-6 lakh while an EV would cost on an average 9-13 lakh. Even talking about two-wheelers, a petrol-fueled two-wheeler costs around INR 50,000 to 70,000, while an electric one costs around INR 60,000 to 1.5 lakh. The latest modification in FAME 2 guidelines has made the price of EVs more palatable, but there is still a long way to go to create a mass disruption in the mobility space. This is a product-market fit hurdle, which needs to be urgently solved by the vehicle manufacturers. The industry is still searching for the right answers here. As per Maruti Suzuki India’s Senior Executive Director (Engineering) CV Raman, “Under the current circumstances, a mass segment of EVs is still likely to cost two-and-half times more than the same vehicle type powered by a conventional petrol/diesel-run engine.” He added that until the cost reduces substantially, it would be challenging to have a good proposition value for EVs.
A simple answer to this problem is to ask the government to reduce taxes and subsidize. The Government of India under phase 2 of FAME (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India has declared a budget of ₹ 10,000 Cr. to promote the mobility of 15.62 lakh EVs. While these measures are in progress, I believe that in 3-5 years the EV industry will have to look beyond the subsidies and tax rebates. The EV industry will have to build an economically compelling proposition around itself for the government & the vehicle buyer.
The battery is the heart of an EV: The EVs cost because batteries cost. Batteries cost as much as 40 to 50 per cent of EVs’cost. This is a research and scale problem or a chicken and an egg problem. The battery technology is less evolved and prices are high because not enough research has happened in this area and we are still not manufacturing batteries at scale. In addition, this is a global supply chain problem with China having a significant share of global Lithium capacity of 316 gigawatt-hours (GWh) which is 73 per cent of the global supply. Indian policy framework encourages long term investments in the EV space but creates a short-term problem for the companies manufacturing EVs in India. The FAME Policy phase II says that at least 50 per cent of the vehicle components have to be sourced from India to be eligible for subsidies. The lack of availability of indigenous raw material and vehicle parts makes it a challenging task to produce half the EV in the country & make it a mass selling product.
NITI Aayog has noted that to make India EV ready, by 2025, this industry has to invest in manufacturing 50-60 GWh batteries, but issues around raw material availability make this a challenging task. NITI Aayog has also focused on trying new combinations for batteries like using lithium, nickel, manganese, graphite, and cobalt to see what works. These raw materials can be obtained through mining as well as from recycling used batteries for which the term “urban mining” is used. This would help India become ready for the EV revolution.
Globally there is a lot of effort going into making batteries cost-efficient. The battery prices have seen a sharp decline in the past decade. From $1100/kWh in 2010, the battery prices have come down to $137/kWh in 2020. I do expect that we will continue to see a further reduction in battery prices. The projections for the year 2023 are at $101/kWh.
Ramp up of Charging stations is critical: We have been born and brought up in the age of fossil fuel vehicles. As consumers, our focus is on the vehicle we own and drive, but we do not realize the importance of the ecosystem that supports these vehicles. For example, there is a fueling infrastructure of 60,000 fuel stations in India which is increasing at a fast pace reaching remote areas.
One of the major challenges for India is to have enough EV charging stations. Though last year Mr Nitin Gadkari stated that there would be one EV charging kiosk at all the 69,000 petrol pumps in India, the slower development of chagrin stations remains a concern. More availability and easier access to charging stations mean faster adoption of EVs. It is important to note that compared to China’s 456k charging points across nations, India only had 650 in 2018. In 2020, in the cities of Delhi, Bengaluru, Mumbai and Kolkata, the combined EV charging stations number was just 993. A report in 2018 estimated that India will need 5 million (~ 7 times the number of fuel stations) by 2030 across the country and this would entail ~USD 6Bn of investments.
We are a country driven by our entrepreneurial energy and do not wait for the government to solve all the problems. Sensing an opportunity, young entrepreneurs and start-ups have already started getting into action. One such start-up is Charzer established in 2020 by Bangalore based entrepreneurs. Their goal is that even a Kirana shop or small shop can install the charging points and EV users can find and access them via a mobile app. It works well for shop owners, too as it can be an additional source of income for them.
To conclude: India has an ambitious plan for the electrification of its automobile sector. The government is keen and is playing an active role. As per the Union Minister for Road, Transport, and Highways Nitin Gadkari, "The Centre intends to have an electric vehicle sales penetration of 30 per cent for private cars, 70 per cent for commercial cars, 40 per cent for buses, and 80 per cent for two and three-wheelers by 2030 by providing various incentives, which are likely to drive the growth of EV market in India.
These are ambitious goals and can only be achieved with significant investments, public-private partnerships & channelization of entrepreneurial energy in the country towards building an end to end ecosystem.
