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A tough road ahead for EV manufacturers

Subir Roy | Updated on July 25, 2019 Published on July 24, 2019

Auto firms are developing their EV ecosystems, but input costs need to fall drastically for them to achieve economies of scale

The Union Budget has sought to give a boost to electric vehicles (EVs) and the infrastructure that must go with it. This is part of the early steps of a long process of cooperation needed between the government and industry so that there is sufficient demand for these vehicles, signalling the eventual demise of internal combustion engine-driven vehicles that are environmentally unsustainable.

Right now not many in India want EVs, and there aren’t enough available to meet even the minuscule demand. On the other hand, China appears light years ahead in the adoption of EVs. In 2018, China accounted for 57 per cent of all EVs sold globally. Costs cannot go down unless manufacturers are able to reap the economies of scale. This they cannot do unless there is sufficient demand to justify producing in large numbers.

Demand for EVs is currently dormant for several reasons. They are too costly and can run only for short distances (just over 100 km) per charge. Plus, the charging infrastructure is hardly there, so you cannot take your car on anything like an out of town trip.

Roadmap challenges

If government-industry cooperation is what is needed, right now this is conspicuously absent. The government is contemplating the following targets: 100 per cent electric three-wheelers by 2023; and 100 per cent for two-wheelers below 150 cc capacity by 2025. Bajaj Auto and TVS Motor, two leading two- and three- wheeler manufacturers, have termed the targets “impractical” and “unrealistic”. Industry associations, SIAM and CII, have supported their view. So, the foremost need is for industry and the government to sit together and agree on a roadmap which will enable the extensive adoption of EVs.

Despite protests, leading companies are moving ahead on the road to becoming a part of the EV ecosystem. Tata Chemicals is likely to set up a facility to manufacture lithium-ion cells, required for the batteries used in electric vehicles, and will work with Tata Motors to help it pursue its EV agenda. Similarly, National Aluminium Company is joining hands with ISRO to manufacture lithium-ion cells.

Indian Oil has teamed up with clean energy firm Fortum India to set up charging stations in cities across the country, including Delhi. Similarly, Hindustan Petroleum is joining hands with Tata Power to set up charging stations.

Once sufficient adoption takes place, enabling economies of scale in manufacturing in the process, EVs will be far cheaper than the current fossil fuel-powered ones and will also be easier to maintain as they have fewer moving parts. But for EVs to make economic sense, they must be able to get power at affordable rates. Power accounts for a significant part of the running cost of an EVs. Cab-hailing service Ola has found from a study that power is now available (where charging facilities exist) at around ₹17 per unit. This needs to be brought down drastically to ₹5/unit.

As the biggest contributor to costs right now is lithium-ion batteries that power EVs, the Budget has exempted import of lithium-ion cells from customs duty. But there are several other issues that need to be addressed down the line. Technology is changing fast and both the government and the manufacturers have to keep moving so as to reap the benefits of emerging battery technologies.

What will not change quickly is India not producing lithium, which will be needed when the cells are manufactured in India. Plus, as soon as the use of lithium-ion batteries increases, the clean disposal of used batteries will become an important issue. Right now there are no rules for the disposal of these batteries. There is also the need to be clear on some long-term realities. EVs will reduce air pollution in urban areas where it is now seriously high. But these vehicles will need electricity which, according to current Indian projections, will continue to be mainly produced at polluting thermal power plants. Real progress will be made towards sustainable living when we run electric vehicles on renewable energy stored in battery systems economically. Without this we will continue to need coal and gas-fired power plants to supply the base load.

Despite the tough road ahead, India has seen a large number of EV launches across the entire range of vehicles. Hyundai, Mahindra and Tata Motors have taken the lead in launching electric cars. There are now over two dozen electric scooters and over a dozen electric motorcycles on Indian roads. Two leading names, Tata Motors and Ashok Leyland, have launched electric buses too. If nothing else, these firms will have the early-mover advantage.

The writer is a senior journalist

Published on July 24, 2019

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