Navigating in times of market volatility, automakers should learn to diversify

Posted on 24 Aug 2019

With Government of India’s electric vehicle policy getting complicated and making the markets volatile, the onus is on automobile industry to find ways on navigating the right path.

Electric Vehicles (EVs) have been seen as a suitable replacement to diesel and petrol vehicles for some time now. However, it has only been in the recent past that EVs have drawn significant interest of policymakers. The steep upswing in carbon footprint and connected environmental concerns have pushed policymakers to move towards EVs in various countries particularly in Europe where the Paris Accord was signed.

The Government of India’s efforts in popularizing EVs among business conglomerates and the masses haven’t yet set the ball rolling. Everyone seems to be confused with the affirming and contradictory statements from the government.

India’s automobile industry which is facing a downturn currently is up in arms against the government’s EV policy which it considers as confusing. Recently at the twelfth annual general meeting of Bajaj Auto, the company’s chairman Rahul Bajaj and his son Rajiv Bajaj, the managing director of the company came down heavily on the government for painting a rosy picture while on-ground situation reveals otherwise. The automobile sector is dazed and staring at job losses with a large number of the workers, vendors and entire supply chain likely to be affected adversely.

“There is no demand and no private investment, so where will the growth come from? It doesn’t fall from heavens. The auto industry is going through a very difficult period. Cars, commercial vehicles and two-wheelers are going through a rough patch,” Rahul Bajaj was quoted in the media. Echoing Bajaj’s statements, R.K. Malhotra, Director General, Federation of Indian Petroleum Industry told Hindu Businessline, “Many factors will come to play when we are looking at a scenario of 100 per cent EV mobility in the future...while petroleum sector contributes significantly towards the central and state exchequers, alternative fuels and EVs need incentives.”

What is more confusing is that while the government strives for an increased oil and gas production, it is simultaneously fixing deadlines for EVs. In perhaps two decades India’s energy demand is expected to shoot up by more than double and this has to be met from various sources with EVs also being in the mix albeit not immediately.

Industry sources opine that the switch to EVs can’t happen overnight as the government thinks so. Citing the examples of ongoing metro rail projects, industry insiders say that the government should follow a similar pattern in popularizing this concept among the masses at large and it should tread cautiously.

India is a very price sensitive market, it is the upper middle class and lower middle class that are the likely car buyers and this consumer segment is either salaried or self-employed with many financial commitments towards their families. Price comes first to the mind of these buyers when they see a product in a showroom or in an exhibition.

Electric cars are still considered expensive by the middle class segment and it will become popular only if the prices reduce significantly. Although the recent budget promises to uplift India’s EV segment through the various incentives that it has announced, a lot more needs to be done.

Electric cars are almost double the price of conventional oil vehicles which makes them unpopular for the short and medium term. One grey area is the cost of batteries used for charging EVs and the other is the lack of infrastructure in terms of number of charging stations throughout the country. With lithium-ion battery technology upgradation still being researched in labs, many are in the wait and watch mode. Currently charging of battery is time consuming, the lifespan of the batteries, i.e., the distance it can run on a single charge is yet another concern. All these and much more are still being critically examined and we are still navigating in early days.

Industry analysts however believe that more than private car owners it is the public transport sector which may adopt EVs in a big way. Delhi government for example earlier this year approved a proposal to add one thousand low floor AC electric buses to Delhi Transport Corporation (DTC) fleet. Ola, one of India’s popular transport aggregators got a funding of $250 million from SoftBank Group for its Ola Electric project. EV sector is finding good prospects in the business with over 10,000 e-rickshaws being sold in India every month and sales expected to increase around 10% within the next two years. So they see the onset of EVs as business opportunities and feel that industries should rather diversify into segments which are providing avenues.

Although the government has been making flip-flops with its policies and statements, automobile industry shouldn’t get confused. It must rather delve deep inside and critically examine the positive areas where it could develop new business and re-emerge themselves as strong contenders that can thrive in any conditions with their adaptability. As infrastructure improves, battery costs reduce, time taken for charging a battery becomes as easy as refueling petrol, and long distance travel at single charge becomes a reality, EVs will gain popularity among masses and would perhaps provide bigger returns for the automobile sector than it gets currently with its diesel and petrol variants of vehicles. The daily bread and butter is still there but coming in another form holds the key and it will be raining profits.

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