Why the electric vehicle surge in India is getting delayed

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India is being looked at as a bright spot in the global economic landscape. The country has stayed resilient to the global headwinds – economic slowdowns, war and the after-effects of the pandemic. A key aspect of this has been the promise of sustainability that it holds in the future.

As one of the signatories of the Paris Agreement, India is expected to undertake comprehensive measures that demonstrate its commitment to the safeguarding of the environment. Among other measures, India has set a goal of around 500 GW of power from non-fuel sources by 2030 and has decided to substantially expand the footprint of electric vehicles (EVs) by around the same time. According to some estimates, the Indian government plans to have an EV sales penetration of over 40% for buses, 30% for private cars, 70% for commercial vehicles and 80% for two- and three-wheelers by 2030.  

With India now occupying the G-20 presidency and various global investor summits happening across the country, bigger things are expected and the adoption of EVs is one of them. As this ensues, India can become a leader in ushering in a sustainability revolution and chart the path for nations around to follow.

Worldwide, countries are stepping up their efforts to make the planet greener through new initiatives focused on cutting down carbon emissions and introducing more sustainable elements. As seen in its push for EVs, the Government of India is also in the race.

Advent of EVs in India

The country, one of the world's largest auto markets, is also trying to make its presence felt innovatively in the EV space. Electric rickshaws or ‘e-rikshaws’, as they are popularly called, are an example. Electric Vehicles, as such, have been a late entrant in the Indian automobile landscape and represent only a fraction of the percentage of vehicles on the roads as of now.

However, the adoption of this mode is gathering momentum. The sale of EVs in the last fiscal year was undoubtedly encouraging. As per data by the Society of Manufacturers of Electric Vehicles (SMEV), 727,370 electric two-wheelers were sold in 2022-23 as against 252,550 in 2021-22. The sale of electric three-wheelers has also been encouraging with 401,882 units being sold in 2022-23 against 172,543 in 2021-22.

In the four-wheeler segment, 48,105 units were sold in 2022-23 against 19,782 in 2021-22 while 1,917 electric buses were sold in 2022-23 against 1,611 in 2021-22. There has been an overall growth in every segment which is encouraging the confidence of any investor.

This is in addition to numbers in the low-speed segment which currently constitutes over 30% of the total EV market share in the country. The sector is estimated to show a combined annual growth rate of 90% while investment in the sector at $30 billion marked close to a 225% increase since 2010. While Maharashtra and Tamil Nadu attracted a major part of the investments – each obtaining a 15% share –Karnataka, Gujarat, Telangana and Uttar Pradesh took subsequent positions, respectively.  

Some of the available global data could make the picture clearer. The EV market reached 11 million units last year with a penetration rate of 14% - BYD, Tesla and SAIC-GM playing a leading role. In China, these EV majors held close to 55% market share and sold seven million units with a market penetration of 31%.

Industry experts believe that in India the demand for high-speed electric two-wheelers and three-wheelers, especially for last-mile deliveries and e-commerce, has been the reason for this among several other encouraging factors that enabled this surge in numbers.

Sector awaiting a giant leap

Although the Indian picture may look rosy, reports suggest the emergence of EVs in the Indian market was way below the level of expectations but for certain local exceptions. A study by S&P Global Rating notes that the penetration rate of EVs in India was only 1.1% as compared to the Asian average of 17.3%.

India’s national capital city, Delhi, where non-polluting vehicles are more needed than anywhere else thanks to its ever-increasing air pollution levels, witnessed the state EV policy so far becoming a big success with 86% of the desired objectives and targets met, according to the state’s transport department.

Delhi’s Electric Vehicle policy completes three years in August 2023 and the state is in the process of revising it as ‘Delhi EV policy 2.0.’ The new policy will aim to ensure that 25% of all newly registered vehicles in the city by 2024 are electric. The policy will also focus on expanding charging infrastructure and providing more subsidies. Coincidently, a combined study of the Council on Energy, Environment and Water (CEEW) and the Centre for Energy Finance (CEF) shows that states that gave consumer incentives saw a two-fold market growth as compared to other states.

The CEO of Delhi EV Cell, N. Mohan, was quoted by a Press Trust of India (PTI) report as stating that the city currently had more than 4,300 charging points and 256 battery swapping stations across 2,500+ locations. The EV sales in the city had been 10% of the total number of vehicle sales in the city for the last financial year.

Given the prevailing global situation, Asia is expected to remain the world’s largest producer and consumer of EVs besides being the market for batteries and battery components in the foreseeable future. India, for its part, is supposed to take a leading role in this game plan. However, the country has a lot of ground to cover to have a meaningful share of the global market.

Lingering issues stymieing growth?

While the country holds a strong potential to be developed as an EV hub, several things should eventually factor in to make this possible on the ground. Issues such as inadequate charging infrastructure, high initial cost, battery technology and availability of only a smaller number of vehicle models are some of the issues that may need further refinements immediately.

Other vital issues that make EVs less popular in India are a limited number of quality suppliers, a lack of a conducive ecosystem, costing of components and a lack of a skilled and knowledgeable workforce.

Expensive battery technology makes EVs a costly affair to potential buyers. The absence of a sufficient charging network makes them less impressive among people who, owing to peculiar Indian situations, are more conscious of the distance they can drive their vehicles than anything else. 

Thus, to materialize the dream of 300 million EVs by 2030, and more so in the backdrop of the country’s EV manufacturers coming forward to invest as big an amount as $10 billion, the central, as well as state governments, will have to reshape or rejuvenate many of their schemes such as Faster Adoption and Manufacturing of Electric Vehicles (FAME), National Electric Mobility Mission Plan (NEMMP), Production Linked Incentive (PLI) Vehicle Scrappage Policy, Go Electric campaign, National Mission on Transformative Mobility and Battey Storage, and Model Building Bye-laws 2016. 

Incentives should continue: While many of these policies played a pivotal role in making EVs popular among the common man, experts feel that opaque policies have always hindered the desired effects on the ground. They feel that instead of either stopping or reducing subsidies under various schemes, the government should come out with more such strategies at least for the two-wheeler and three-wheeler segments.

With better grid connectivity for charging stations, lower tariffs and battery swapping facilities, the establishment of planned special e-mobility zones would bode well in popularizing the adoption of EVs even among car owners.

According to experts, the rise in fuel costs coupled with the lower maintenance cost for EVs when compared to internal combustion engine (ICE) vehicles is striking a chord with vehicle buyers. The government is also pushing for e-buses in public transport and as a result, the country can expect to see more e-buses coming on roads in the immediate future.

Major vehicle manufacturing companies like Tata Motors, Mahindra & Mahindra and Hyundai have already begun manufacturing EVs which would augur well for the sector in future. Attractive designs blended with impressive performance are giving some edge to these companies. More advancement in battery technology and local manufacturing would further provide a boost to EV adoption.

Addressing the resource crunch: Currently, India relies on EV components from South America, Australia, China, and some other countries. No cell manufacturing happens in India and what the country offers is merely PLI which is concentrated in the hands of about three players. Moreover, the biggest deterrent to EV popularity is the battery cost which comes to about 45% of the vehicle cost.

The surge in demand for battery materials escalated the prices of EVs in 2022. Battery prices were as high as about $160/kWh in the year. Although lithium discoveries have happened in Kashmir, Karnataka and some other parts of India, the country still has a long way to go in becoming self-reliant.

Safety remains a concern: Another big challenge for some of the EV models is safety issues as several instances of them suddenly catching fire were reported from many parts of the country in recent times. This was seen as a glitch forcing some of the manufacturers to put the sale of such vehicles on hold.

This could be overcome by using good quality cells, ones that have passed the critical tests, adhere to the charging spectrum and have an effective battery management system. Temperature sensors, gas sensors and smoke sensors need to be deployed in detecting and preempting the cause of the fire. 

Waste management is another concern that the industry needs to work on. Although batteries could be recycled, there would come a time when that too would not be possible. Companies need to set up disposable plants for this. Stringent action needs to be taken against those who do not follow the rules and regulations in this regard.

Questions over renewability: While a debate around how to improve upon the EV sector can relentlessly go on, there are apprehensions about whether the programme will be able to achieve its set goals. A recent Indian Institute of Technology (IIT) Kanpur study quoted by India Today ascertains that in the current scenario where 75% of the electricity is produced by burning coal, a battery electric vehicle (BEV) is supposed to emit 15-50% more greenhouse gases (GHGs) than hybrid and internal combustion vehicles.    

To achieve the actual purpose of EVs and the eco-system that are supposed to facilitate, recharging of BEVs should ideally be from renewable sources. For this purpose, the country should be producing about 900 GW of electricity from the current level of 300 GW.

Filling this gap from renewable sources involves solving several economic and infrastructural complexities, and the country needs to go a long way before it can safely achieve it. Central Electricity Authority’s (CEA’s) National Electricity Plan envisages a 51GW of coal-fired power capacity addition by 2031-32 to meet the country’s burgeoning power requirement.

The IIT study showed that hybrid cars that emit the least amount of GHGs throughout their lifetime are the most eco-friendly ones and should be a preferred choice. However, the higher taxes on this segment of vehicles makes them less popular among people.

The life cycle and total cost of ownership (TCO) analyses of the study show that the purchase, insurance and maintenance of EVs are currently costlier by 15-60% compared to conventional ICE vehicles. For comparison, while the cheapest electric car is priced at Rs 9 lakhs, the cheapest ICE engine car is available at Rs 4-5 lakhs.

An EV is essentially made up of three things: battery pack, electronic motor, and transmission. The costliest of these is the battery pack which also includes its high-end technology. What lies ahead for the government, if it is serious about reducing the vehicle price, is funding cutting-edge technologies and indigenous production of components such as lithium-ion batteries, as also the promotion of R&D in this domain.

Electric cars may take time to be a popular choice but they may penetrate the auto landscape in the long run taking India closer to the realization of sustainability goals.

However, it is not going to be a cakewalk for the EV industry to satisfy the public for whom high performance, durability and low cost always outweigh their concern for the environment or conservation.