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BW Businessworld

Back To The Future

First the scare, and then the relief. The auto industry is now back to building machines that run on alternative fuel technology

Photo Credit : Himanshu Kumar

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On 19 February, nearly 17 years after Chetan Maini commercially launched Reva into the market, Bescom, one of Karnataka’s leading power distributors, inaugurated the State’s first ever electric vehicle (EV) charging station at its head office on Krishna Rajendra Circle in Bengaluru. Even as similar plans for the EV ecosystem and manufacturing of EVs and hybrids were being chalked out, the government dropped a shocker on the industry when Road Transport Minister Nitin Gadkari announced in September 2017 the government’s ambitious plan to shift (passenger vehicles) to EVs by 2030. However, much to the relief of auto industry, the government did a U-turn, when Gadkari announced on 15 February that “there is no need for any policy now”.

The future of mobility in India seems hopeful. Even though the larger target of shifting to cars running on alternative fuel remains, the U-turn allows for players to experiment and innovate with hybrids and other variants. Further, multi-billion dollar investments lined up by automotive and its allied industries, which were on indefinite hold due to policy flip flops, will continue as planned. What does this mean for the auto industry?  Well, more clarity on EV policy will lead to ideas translating into business, individual auto companies get a chance to explore the technology they want to work with, also giving scope to innovation and of course, opportunity for healthy competition. It looks like despite all the hiccups, the growing electric vehicle market and an  environment-conscious India is setting the stage to achieve its carbon footprint promises, after all.

Back On Track
“Investments to the tune of multi-billion dollars earmarked by various OEMs were on hold for their foray/expansion in India. While existing players kept their future product plans on hold because of lack of clarity on ICE powertrains (petrol and diesel), new entrants such as Daihatsu had dropped their plans to enter India,” says Puneet Gupta, associate director, IHS Markit. And yes, the more the merrier seems to apply to the mushrooming EV industry. Experts believe there will be multiple rollouts in the next 4-5 years. Moreover, Chinese automakers are also rethinking to explore the Indian market. To facilitate the market and the growing number of e-mobility players, India needs an electric policy framework urgently. “We feel many models post 2020 may go under hold if urgency of this policy is not understood,” says Gupta.


Clearly there are several dynamic forces at work within the e-mobility industry. The industry unanimously understands the need to give choice of technology to the customers, notwithstanding the CO2 emissions-related environmental norms. “The government should also be firmly encouraging development of infrastructure and bring in place enablers to various technology play, like amendments to electricity supply act to facilitate charging stations, green energy (more non-fuel energy generation),” says Sridhar Venkatachari, Partner, Grant Thornton India.

Even as the industry is lauding the undoing of the rigid policy, there are some who point out that this is work-in-progress. “I don’t think it is a U-turn by the government (on formulating an EV policy)” says R.C. Bhargava, Chairman, Maruti Suzuki. “The target for EVs remains unchanged. It is just that the government has concluded it does not need any policy at this stage. Going forward, we need to have both electric cars and hybrids to realise the objective of minimising fuel consumption and reducing emissions,” says the auto industry veteran.

Bhargava has a point. The draft policy still mandates that EV segment will grow in fleet, public transport and in government departments. Furthermore, the recently announced draft National Auto policy has come out with a broad framework and parameters which will help determine the taxation (GST) of  those vehicles, harmonise standards to global benchmarks, impart training and skill sets, protection of IP, funding of research, tax exemption for R&D, moving towards green mobility 100 per cent by 2030 in the limited sphere of public transportation and all vehicles procured by the State, infrastructure to support green mobility, fiscal incentives to achieve green mobility.


Hybridisation And The Japanese Touch
Hybrid vehicles, as the name suggests, are considered a bridge between conventional fossil fuel-based engine vehicles and fully battery-operated electric ones. Like EVs, hybrids too could receive sops from the government in the future. The industry is also hopeful that the current cess surcharge of 15 per cent on hybrid vehicles could be done away with. However, GST of 28 per cent may not come down soon and no benefits will be extended to mild hybrid vehicles.

While Japan, a country known to have a futuristic vision and also a pioneer in EV manufacturing, nurtures plug-in hybrid vehicles, European countries promote hydrogen or fuel cell-run vehicles in addition to BEVs (battery electric vehicle). “China, on the other hand, rules the roost in terms of battery-run EVs. A lot of Japanese automakers, through a series of hectic parleys, have urged the Indian government to provide an equitable thrust on hybrid EVs till the point when the infrastructure (charging stations) for BEVs are built on a massive scale,” says Avik Chattopadhyay, an auto industry veteran and co-creator of brand and business transformation consultancy Expereal.

It seems, since the majority of the Japanese car-making giants are known for their expertise in hybrid vehicles than pure EVs, “the government has relented on its earlier stand on going for 100 per cent e-mobility”. In the first phase, the 15 per cent cess on HEVs could be done away with. In the next phase, GST rates (at 28 per cent) may be further pruned depending on the market scenario. “These plans are at a nascent stage and no firm decision has been taken so far,” explains Chattopadhyay.


Customer Focus
Sales of EVs stood at 25,000 units in 2016-17, according to Society of Manufacturers of Electric Vehicles (SMEV). Only 2,000 of these were, however, cars and other four-wheelers. And with the increasing boost to the market, the EV ecosystem is only expected to grow. Bescom’s move of opening an electric vehicle charging station at its headquarters is only the beginning. For instance, the power distributor has identified 70 other charging stations in the city. Still, there are miles to go before the Indian customer can confidently opt for an EV in the overall Indian auto industry market, which accounts for 7.1 per cent of India’s GDP. Sample this: according to SIAM nearly 31 lakh passenger vehicles were sold in India in 2016-17. “EV sales are less than 1 per cent of the total vehicle sales,” says a note on the SMEV website. “It, however, has a potential to grow to more than 5 per cent in few years.

“The focus of the government should be on lowering emissions and energy use and let the customer finally decide which technology is most suitable to him,” says N. Raja, Deputy MD, Sales & Service, Toyota Kirloskar Motor. “India needs to promote both hybrid and electric, because one will lead to better utilisation of the other. The more hybrids you sell, the greater are the chances of EVs succeeding and vice-versa. Because when the battery costs drop, vehicle costs will also drop. The big difference between hybrid and electric cars is that electric vehicle needs charging infrastructure,” explains Raja. Strong hybrids are, in fact, EVs fitted with an internal combustion engine. With the current air pollution levels, hybrid seems to answer several questions when it comes to fuel-efficiency and emissions. “India, where 73 per cent of electricity is produced by burning coal, we need to be conscious of well-to-wheel emissions. In such a scenario hybrids stand much better than EVs,” he adds.

Jnaneswar Sen, SVP, Sales and Marketing, Honda Cars India, too, supports hybrids and makes a case for it. “For electric vehicles to flourish, charging stations need to be built and be omnipresent. In the interim, we can have hybrids, whether they are conventional HEVs or plug-ins, as an intermediate step towards achieving an all-electric goal by a specific timeline. If the government grants subsidies or lowers the taxes on such products, we would not mind bringing some of our globally acclaimed models, etc.,” says Sen.


‘Alternative’ Is The Key Word
Zero-emission vehicles are the need of the hour and forms an integral part of reducing air pollution even as they support the government’s stand of reducing its contribution of carbon footprints. The auto industry company heads, too, agree and view that zero-emission vehicles are the future and India should follow suit. As per a Niti Aayog report, India could save 64 per cent of energy demand for road transport and 37 per cent of carbon emissions by 2030 by pursuing a shared, electric and connected mobility future.

Pioneer of EVs in India, Maini, now the vice-chairman and founder of Sun Mobility, says that the country has a big opportunity to gain energy security independence. “We are importing worth $80 billion in crude oil. This by 2030 would become $160 billion-200 billion. If you have 300 GW of renewable energy by 2030, you will power all surface transport by that energy. With pricing of renewable energy going down every day, we have a long-term sustainable opportunity for electric transportation solutions that power renewable energy,” says Maini.

Mahindra & Mahindra, which forayed into electric vehicles through the inorganic route many years ago, and already has three zero-emission products in the EV portfolio, is looking to invest Rs 600 crore-700 crore on capacity enhancement, new product launches and R&D.  The Mumbai-based automaker, which is currently running a capacity of 200 units per month of EVs, is looking to ramp it up to 600-700 units per month in the next quarter and then 1,000 units per month by 2018-end.  It will also be inking a JV for motors, power electronics, and a 100 per cent owned company for batteries in the next two years. “Even though the initial purchase costs of the EV is very high, the overall running costs when used for five years, is very low. For e-taxis, we are working on service providers. We have done a project with Ola in Nagpur. We are right now working with Uber to work on the same concept in two other cities,” says Pawan Goenka, MD, Mahindra & Mahindra.

At the press meet on 15 February, Gadkari announced the rollback of the EV-specific policy, along with Amitabh Kant, chief executive of Niti Aayog, who said, “What we need is just action plans. Every day, new technology is coming into the market. Technology is always ahead of rules and regulations. And in India, it becomes very tough to change rules and regulations, so let there be just actions.”

 
All Charged Up
Frost & Sullivan estimates sales of approximately 2 million-2.5 million EVs (including HEVs) in India by 2030, accounting for about 30-35 per cent of the new vehicles market. However, like Kaushik Madhavan, Director, Automotive & Transportation, Frost & Sullivan, says, it is good to have a goal of 100 per cent e-mobility but in order to achieve that “you need to have a comprehensive roadmap”. Charging infrastructure, battery swapping facility, battery manufacturing facility, clean energy are some of the immediate requirements of the EV ecosystem. “As things stand now, we expect about 30-35 per cent electrification of vehicles by 2030. We are looking at 2.5 million to 3 million units by that time as the overall size of the market will be 7 million-7.5 million units per annum,” says Madhavan.

Some like Santosh Kamath, Partner and Lead for Renewable Energy, KPMG believe that liberalising private investment in charging infrastructure is key for EVs to take off in a big way. “The government should spend some time and effort in marketing the EV concept just like the way they did with LEDs.” As Chattopadhyay from Expereal explains, “Just like the US had complete control over fossil fuels for 100 years, the world should not allow a similar monopolistic situation with China. I do see a comeback by gasoline and definitely fuel-cells as viable, environmentally responsible and energy efficient alternatives to battery-based electrics in a country like India.”


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