With this piece, we’ll look at the emerging Electric Vehicle Industry in India. We’ll start by taking a look at the history, that is, the very first Electric vehicle, then head on to take a look at the industry overview, growth drivers, challenges faced by the industry, and finally, the conclusion.
Let’s jump right in the piece!
An undeniable Reality
I was a very curious and wide-eyed kid, growing up. To me, the workings of the whole world seemed like a miracle. And as is the case with many kids growing up, I loved cars. I was in awe of the almost-perfect synchronization with which they moved, in thousands of numbers, despite weighing at least a thousand kilos each. I had every spec of every single model of each manufacturer’s cars at the tip of my tongue. Despite my young age, I understood where the Hondas and the Hyundais of the world were coming from, and what they had to offer. But there was one car that I never quite understood – The Reva.
It was a curious-looking car, pretty expensive, and not the most spacious. While it was no mystery that it did not sell a lot, what was interesting was that people were excited about it, including my dad who was very confident that Electric Vehicles (EVs) were the future of mobility. This was back in the late 2000s. Fast forward to two decades, the transition from the Internal Combustion Engine (ICE) cars to EVs seems inevitable. It is now a question of when, and not of “If”.
The Electric Vehicle industry in India is finally starting to emerge from the shadows of the ICE juggernaut in the automobile industry globally. The industry has progressed rapidly and addressed its two biggest shortcomings – poor unit economics, and the lack of a viable solution to store large amounts of energy in a small battery economically. We are now at a juncture where the product’s proof of concept finally seems viable (EVs debuted before ICEs, more than a hundred years ago), and consequently, a variety of use cases have emerged, which can only help improve user adoption.
Let’s take a look at the Industry.
The Indian automobile industry overall is the 4th largest in the world. Its young demographics mean that it is the 2nd biggest market in the world for two-wheelers. Currently, only 1% of the automobile sales across the country are of EVs. This percentage is expected to grow in the coming years, with at least 3 mn+ sales by FY25.
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So, what is the reason behind this optimistic sales outlook by FY25? Let’s take a look at the Growth Drivers of Electric Vehicle Industry in India
- Improvements in battery’s unit economics: The past decade has seen immense progress in the storage and extraction capabilities of batteries, along with an 85%+ decrease in cost, which is further expected to become more and more favourable with time. This has resulted in the total cost of ownership being lower for an EV vs an ICE for the majority of the use cases, over the vehicle’s lifetime.
- Threefold push from the policymakers: The government is pushing for reforms at both macro-economic and industry level, with policies such as capital assistance, tax exemption, and protection for domestic OEMs to improve EV traction across the country. There are three major reasons for the same:
- Climate change is real, and the policymakers are coming to terms with that. (14 Indian cities featured on the list of the top 20 most polluted cities in the world). Steps are being taken to control pollution and harness clean forms of energy. EV is very well placed to benefit from these reforms.
- The Indian automobile industry is held in high regard over the world, and a smooth transition to EVs can further consolidate India’s position in the global arena.
- Mitigating the high dependence on oil imports (India’s oil bill was $112 Bn in FY19) by indigenizing energy production and becoming self-dependent.
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- Development of charging infrastructure: A major bottleneck for EV adoption previously was its slow recharging, which too could be done only at specific points with no public infrastructure available due to a lack of scale. This space too has recently seen major developments as a number of OEMs and energy companies (mostly traditional oil players) are piloting charging grids or battery swapping stations. Going forward, there is a need for some sort of uniformity in the charging mechanisms of various vehicles so that scale can be leveraged across different models of OEMs to lower costs.
Challenges of the Industry
While the multiple growth levers paint a rosy picture of the benefits of the EV opportunity, the transition to EVs is not bereft of challenges either.
- Public policy has been criticized of lagging behind the times a little, and faces a challenge to simultaneously drive EV adoption along with improving charging infrastructure, in order to avoid a penguin problem.
- Availability of high-quality batteries is also a major obstacle due to India having low reserves of raw materials like Lithium & Cobalt, as well as lack of manufacturing scale currently.
- India’s low dependence on renewables is also a hurdle, given that the true essence of EVs resulting in lower pollution is when they are serviced by grids powered by renewables, instead of fossils.
Trends in the EV space
That being said, the EV space is observing increased OEM (Original equipment manufacturer) interest, more so, in 2 Wheeler category with over 15 players operating in the country currently. The product specifications in the 2W segment vary from 50 to 150+ KMs of range, 25 to 80 KMPH of speed, and could be priced anywhere between INR 35k to 150k. This segment is being led by the likes of Hero Electric (50k sales in FY20), Okinawa, Ampere, etc.
The 3 Wheeler e-rick segment, however, has not seen as much participation from traditional OEMs but still observed 0.7 Mn sales in FY20. Key players include Mahindra, Kinetic, Piaggio, etc. The 4 Wheeler (4W) segment has been more of a laggard in the EV space given the considerable cost differences between an EV & ICE. The likes of Hyundai (Kona), MG (ZS) & Tata (Nexon) have only recently entered this space, with Mahindra the oldest player thanks to its Reva affiliations. There is also a nascent segment of Buses in the EV space, the demand for which is mostly driven by the government with Olectra having made the most headway in this segment.
In essence, while the opportunity is huge and the transition from ICEs to EVs seemingly inevitable, there is a need for a lot of stakeholders – governments, OEMs, battery manufacturers, customers, etc. – to align their efforts coherently over the next few years to mitigate the risks that could derail this transition.
The kindling of activity among the OEMs over the past few years suggests that they are making a push from their end, and now it is up to the policymakers to expedite the creation of suitable policy and infrastructure, just as was done in the solar industry a few years ago. EVs are very well placed to be the next big disruption in both the clean energy as well as the shared mobility and transportation space, and could well be the new way of life going forward.
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