India needs a long-term strategy for Electric Vehicles' take-off

Posted on 27 Sep 2020

Electric vehicles have gained some traction over the past few years as an alternative to fuel-powered vehicles. With oil prices, as well as air pollution, increasing to record levels, electric vehicles are seen as suitable replacements for fuel-powered vehicles.

Despite many positive factors electric vehicles perhaps haven’t penetrated the imagination of the masses the way it should have. A mismatch in intent and action has resulted in limited on-ground adoption of electric vehicles points Purva Jain in her article ‘Post-Covid-19 Green Mobility: Time for a Long-Term Vision for Electric Vehicles in India’, published by Observer Research Foundation recently.

The outbreak of coronavirus has led to seismic changes in the lifestyle of mankind in India. For example, there has been a large-scale migration of migrant labourers from cities to villages leading them to take up jobs in the rural sector backed by the incentives given by various state governments. This has led to an increase in demand for vehicles, especially tractors, and apart from this many who are shunning public vehicles are looking keenly to buy two-wheelers.

Leading two-wheeler manufacturers have reported good sales in the unlock phase and people, in general, are now more concerned about environmental safety and health. They are now more aware of the harmful effects of vehicular emissions and looking for alternatives and this creates scope for the electric vehicle industry to penetrate the market substantially.

Leadership is expected to play a significant role in pushing sales among customers and it becomes essential for stakeholders to do investments when the time and situation demands. Electric vehicle industry needs to take advantage of the numerous stimulus-based incentives provided by the government to override the negative effects of the pandemic.

Electric vehicle sector growth was looking promising before the onset of the pandemic despite the economic slowdown and an ailing auto sector. What has been lacking is strong policy support for electric vehicles for it to realize its full potential. Therefore, the sale of electric vehicles as compared to internal combustion engine (ICE) vehicles has remained in the negative territory.

An Economic Times article reported that only 1,309 electric cars were sold in India in the April - November 2019 and only three fully electric models, i.e. Tata Tigor EV, Hyundai Kona EV, and Mahindra e-Verito had recorded some sales. Electric vehicles constituted less than 1% of the total passenger vehicle sales in the country. Even the global average of electric vehicle sales (2.7%) in the total passenger vehicle sales in the world is abysmally low.

A BloombergNEF analysis identifies technology, policy, lithium-ion battery prices among others as factors driving electric vehicle sales growth. The research also reveals that in FY20 in India about 0.15 million vehicles (including two-wheelers) were sold as against the annual sale of 2.1 million in the world in 2019. Covid-19 outbreak has forced the government to overhaul policies in various sectors and it must rework its policy approach in the electric vehicle sector as well.

Electric vehicle sales will have immense benefits for India in terms of lowering air pollution, enhancing energy security, improving the balance of trade levels, and meeting global commitments. In this light, one of its major development goals is to reduce carbon emissions to meet its climate obligations.

The use of electric vehicles could reduce carbon dioxide emissions by 37% as per a report published by Innovation Norway. It will also reduce India’s dependency on costly oil imports which was worth around $100 billion in FY20.

World Health Organisation has revealed that more than 4 million premature deaths happen every year due to air pollution. The switch to electric vehicles which are considerably lower in the pollution factor as against ICE vehicles will be an enabler in bringing down this death figure. However, for electric vehicles to gain immense popularity and adoption, a clear policy directive becomes very essential.

In recent years the country has come up with some good policies such as the National Electric Mobility Mission Plan (NEMPP) 2020 which has laid down a roadmap for faster manufacture and adoption of electric vehicles in the country. The government also notified the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) Scheme in April 2015 to promote the manufacture of electric and hybrid vehicle technology.

Later on, in April 2019, Phase 2 of the FAME Scheme was rolled out to be implemented for a period of three years until March 31, 2022. Interestingly, FAME 2 received a good outlay of ₹100 billion as against the scarce funding given in FAME 1, of which only 60% was utilized. There is a substantial increase in budget and it is clear that the government wants to increase the adoption of electric vehicles in the country. This should be a motivation for companies, researchers as well as customers.

Industry analysts, however, differ in their views, they point out that the incentives are applicable for vehicles fitted with advanced chemistry battery and for those used as commercial vehicles for public transportation. There’s also the maximum price and minimum top speed requirements along with various other conditions that need to be met to avail incentives. They say that the conditions spelled out in Fame 2 are highly stringent to an extent that almost 90% of electric two-wheelers will lose subsidies.

Electric two-wheelers with advanced lithium-ion batteries are double in price as against those with a more popular lead-acid battery, which is excluded in Fame 2. This will also impact the sales of electric vehicles adversely.

It is important to bear in mind that electric vehicle sales in India will continue to be driven by two-wheeler and three-wheeler segments. Since the incentives are limited when it comes to personal mobility, the long-term adaptability of electric vehicles in India comes under a cloud and Fame 2 fails in addressing this concern.

Experts opine that such stringent conditions even if it were necessary should have been implemented in a calibrated way. This would have benefited manufacturers, investors as well as consumers. Indian electric vehicle industry is still at a nascent stage and it needs a consistent policy approach to spiral growth besides creating an ecosystem for sales.

Government support is coming in the form of demand incentives with less thrust on improving the infrastructure whether in R&D and innovations, manufacturing, storage, building up charging infrastructure and disincentivising conventional fuel vehicles. The government in post-Covid scenario should take stock of the situation and move as per the buying sentiments of the public and this will propel the growth of the electric vehicle sector holistically.

Electric vehicles will gain popularity once the battery costs come down drastically, charging infrastructure is built, and manufacturing increases. The government needs to provide adequate support for innovation in manufacturing through fiscal as well as non-fiscal incentives and reduce dependence on imports for batteries.

The pandemic has created uncertainty and fear among the masses and a large majority wants to avoid public transport, everyone cannot afford to buy a car, and the sizeable majority will buy two-wheelers. The think-tanks need to align their strategies to serve customers in this segment to make a beginning.

(The author is a Delhi-based journalist. He can be reached at prasad.n@indoen.com)