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Auto: So Near, Yet So Far
The policy thrust in favour of electric vehicles may have rattled the ICE automakers to some extent, but a major disruption in the industry and the mainstreaming of EVs are nowhere on the horizon yet
Photo Credit : Himanshu Kumar
Building a gasoline-powered car, a complicated affair at best, has always been the prerogative of big brands with deep pockets which have been adept in assembly line operations. But all that is set to change as a young breed of emerging players and startups are coming up with zero-emission vehicles and governments are going head over heels to woo them with of sops and subsidies. The key distinction between conventional fossil fuel guzzling vehicles and new-age electric vehicles (EV) is that an internal combustion engine (ICE) car has around 10,000 moving parts whereas an average EV has around 20. This means that the intricacy of technology and engineering required in making a car has fallen by 5,000 per cent. This simple fact alone will be responsible for the tidal wave of transformative change that is about to hit the global automobile industry including India’s.
As the various stakeholders formulate their responses to the imminent change, a debate has already ensued as to the modalities of this transformation. Saurabh Kumar, MD, Energy Efficiency Services (EESL) believes that India should leapfrog directly from ICE vehicles to battery electric vehicles (BEV) just as we switched over to LED lights for energy conservation. He also makes a case for discarding intermediate technology like hybrid vehicles in the same manner that CFL was given the nudge in the lighting space. To kickstart the whole process, EESL has completed procurement of 10,000 e-cars under the National e-Mobility Programme and the same is at various stages of deployment. It is also planning to set up around 1,000 public charging stations in the current financial year, across the country.
“The ownership of cars per households in India is about 7-8 per cent which will rise significantly in the next few decades. This is an opportunity to nudge consumers towards EVs which are cleaner and much more affordable operationally as compared to hybrids or ICE cars. India is at the opportune time where it can leapfrog technologies and directly adopt what the world is moving towards. With electric vehicles, India aims to have a zero- emission mode of transport, something that a hybrid is not. With conducive policy environment and enhanced capability of technology and manufacturing industry we can move directly towards e-mobility,” Kumar told BW Businessworld.
According to business intelligence and consulting firm P&S Intelligence, the Indian EV market size was valued at $71.1 million in 2017 and is projected to reach $707.4 million by 2025, witnessing a CAGR of 34.5 per cent during the forecast period. The report cites government schemes and subsidies as playing a major role in the growth of the market. In addition, the growing environmental concerns owing to high pollution levels in major cities of the country are also positively affecting the market growth. However, the numbers are minuscule compared to China, which is set to grow at a CAGR of over 28 per cent from $74 billion in 2018 to $330 billion by 2024 (as per TechSci Research report).
Unlike other countries, the Indian electric car market is highly consolidated and is dominated by Mahindra Electric Mobility, which is the only BEV manufacturer in the country. Another homegrown carmaker Tata Motors is also making rapid strides by launching a handful of made-in-India e-cars like the e-version of the Tigor.
“The time is right to shift to electric vehicles in India,” said Anand Mahindra, Chairman, Mahindra & Mahindra (M&M), in his address to shareholders at M&M’s 73rd annual general meeting. He also noted that there is a tectonic shift in the auto industry. Adding that the government is putting all its weight behind electric vehicles, Mahindra said the question isn’t whether or not the country will transition to EVs but how. “I see a one-time opportunity for the government and industry to work together to invest in manufacturing, R&D and the supply chain and make India the undisputed global hub of the EV world,” he said.
EV specialists making merry
While the traditional players in the ICE space are grappling with the existential dilemma, there are pockets within the industry that are feeling optimistic as the reduction of GST on zero-emission vehicles from 12 per cent to 5 per cent, exemption of customs duty on EV parts coupled with the additional income tax reduction of Rs 1.5 lakh on the interest paid on the loan to purchase these vehicles are considered a big push to make EVs affordable for the consumers.
Furthermore, the government’s approval of Rs 10,000 crore for the FAME II scheme in April this year is in sync with its long-term vision to make India the manufacturing hub for EVs and will be a great booster for the industry. Many stakeholders feel that the government’s cherished EV project will also have a major ‘Make in India’ boost with the levy of customs duty on import of auto components and the relaxation of customs duty on lithium-ion battery, which would help local manufacturers to supply affordable batteries and components to the OEMs.
Hero Electric, one of the largest electric scooter manufacturers in India by sales, plans to ramp up its capacity fivefold to 500,000 units as it foresees unprecedented demand for electric two-wheelers in the coming years. The homegrown e-vehicle maker will also invest in localisation of components and establish an ecosystem for manufacturing e-scooters. The company plans to invest Rs 40-60 crore every year over the next few years for capacity expansion and research and development of products. It is also in the process of increasing the number of dealerships and sub-dealerships from 600 at present to 1,000 by next year.
“As the largest EV manufacturer in the country, we realise what is at stake and are aware of the potential of electric-powered mobility. We need to see more for the industry and the buyers to jump on the EV bandwagon. We want more because we need more,” said Naveen Munjal, Managing Director, Hero Electric.Uber, the world’s largest personal mobility company, just announced a partnership with SUN Mobility, a leading energy infrastructure and services provider, to deploy E-autos on its platform so it can offer riders affordable, clean and convenient daily commuting options. As part of the alliance, SUN Mobility will offer its unique energy infrastructure platform, which includes swappable ‘smart batteries’ and ‘quick interchange stations’, to select original equipment manufacturers (OEMs) for building E-autos.
“The change to EVs is inevitable. This GST cut on electric vehicles will help in reducing the cost difference between ICE and EVs especially in three-wheeler segment where the differential will now be 23 per cent (28 per cent minus 5 per cent),“ says Chetan Maini, Co-founder and Vice-Chairman, SUN Mobility.
“As an EV energy infrastructure provider, we welcome the move (to reduce GST). However, it would be more beneficial for the end-user if the government also focuses on reducing GST on charging / battery swapping services from 18 per cent to 5 per cent (same as that for public transport services).”
Ather Energy, a six-year-old EV startup founded by Tarun Mehta and Swapnil Jain, is drawing up plans to set up a new manufacturing unit in South India at an outlay of $50-100 million in the next few years. The proposed expansion has been necessitated in view of growing volumes for its electric scooters and strengthening of an ecosystem with the government support for electric vehicles.
Furthermore, Bangalore-based Ather, in which Hero MotoCorp holds a stake, has chalked out an ambitious plan to sell one million units by 2023. Apart from manufacturing a couple of electric scooter models i.e. the 340 and 450, the company has also established an electric vehicle charging infrastructure, AtherGrid. With a current capacty of 25,000-30,000 units per annum, Ather is all set to ramp up its output to 50,000-100,000 units in the next few years.Tarun Mehta, CEO & Founder, Ather Energy says, “It now becomes imperative that OEMs chalk out plans to allow the industry to scale up and meet the demand for compelling products. These reforms (by the government) will definitely boost the adoption of EVs as now the price gap between an EV and an ICE vehicle has narrowed down a lot more. We believe India has the potential to develop an indigenous EV ecosystem.”
He adds: “As the EV industry scales up, our supplier ecosystem will build up. As more indigenous players enter the market, we will witness greater diversity and healthy competition in the industry which will eventually reduce our dependence on other countries for imports.”
The future of ICE vehicles
Will the massive thrust from the government revolutionise the EV industry in India anytime soon given the persistent slowdown in the conventional auto sector? Besides, how will this big shift to electric and modular design vehicles disrupt the entire automotive value chain? A report by Bloomberg New Energy Finance (NEF) expects EV penetration in passenger cars to touch only 6 per cent by 2030 but grow rapidly thereafter to touch 28 per cent by 2040, making India the fourth-largest passenger EV market in the world.
Vinnie Mehta, Director General, Automotive Component Manufacturers Association of India (ACMA) states, “It is essential to seed the market of future. They should have also brought down GST on the input components which are still at 18-28 per cent, without which it will lead to overflow of input credit and is therefore not conducive for manufacturing.” Mehta reminds that 50 per cent of the auto component industry is engine components and powertrain for ICE vehicles. The automotive industry has invested around Rs 80,000 crore in upgrading to BSVI.”
Neeraj Kumar Singal, Director, Semco Group pretty much echoes the same sentiment. “The emphasis on local sourcing of Li-ion cells and support for domestic manufacturing is much needed and will help Indian automakers build vehicles locally,” he says
“Charging and swapping infrastructure is critical for accelerating the adoption of EVs. The GST related to such services needs to be also reduced to 5 per cent in line with EVs as well as other transportation services. The user who may be an autorickshaw driver, taxi driver or delivering goods using EVs will still continue to pay 18 per cent on charging or swapping which needs to be corrected,” says Sun Mobility’s Maini.
Likewise, Ashok Shah, NA Shah Associates maintained, “Considering the current range of cost of two-, three-, four-wheel electric vehicles manufactured in India, it would have been more appropriate to include the principal instalments also instead of restricting the deduction to interest component only. The focus of the 89th Union Budget has mostly been on connectivity and infrastructure emphasising.”
From the look of it all, it appears that the exercise so far has been nothing more than baby steps. The government needs to announce some drastic reforms vis-a-vis electric vehicles if it indeed intends to see the kind of revolution that the lighting sector witnessed with LED lights.