From the current to the future!

Despite the woeful lack of pointers in the direction of electrification, it would seem that the age of electric vehicles (EVs) is still due to arrive on our shores within the next few years. Not because of the Government’s ambitious targets for the next decade and the steps being taken to realise them, but simply because the automobile industry believes that India too will follow the low-carbon footsteps that are being taken by the other big car markets of the world such as China, US and Japan.

Every major car-maker existing and planning to enter our market is getting into the act. So, while Tata and Mahindra already have EVs in their portfolio (though in very small numbers), Maruti Suzuki, Ford, Hyundai, Toyota, and even Kia and MG Motors are all testing and planning to launch their own EVs within the next few years. None of these manufacturers are delusional about the mass market prospects for EVs, but they are hopeful that the policy push from the Government will translate into concrete steps that will eventually make EVs attractive even for buyers in the lower price segments.

But, apart from range anxiety and the lack of a charging infrastructure, what are the other factors on which mass adoption of EVs in India will hinge on? Here are a few factors that will determine how the segment will fare in the country.

Incentives

EVs are at the cusp of breaking out into the mass market worldwide. As yet, they constitute a very small niche and are all loaded on the top of the premium price segment. But even there, adoption has been heavily dependent on incentivising purchases. This is the scenario worldwide including markets like China and the US where the number of EVs on the road are gaining critical mass. Says CV Raman, Senior Executive Director (Engineering), Maruti Suzuki India, “In these countries too interest in EVs plummet if incentives are withdrawn. Adoption in India too will be heavily dependent on Government incentives”.

Offering an alternative view, Shailesh Chandra, President, Electric Mobility Business and Corporate Strategy, Tata Motors says “Yes, demand incentives can help in the short term. But, in the next five-six years, with the expected reduction in battery prices and the simultaneous increase in cost of ICE (internal combustion engine) vehicles due to stringent emission regulations could help EVs offer an inherent operating cost benefit and make them sustainable even in the absence of incentives.”

Cost of the battery

Currently, the cost of the battery and power electronics constitute almost two-thirds of the cost of an EV. The most widely used battery materials today are nickel-metal hydride (NiMH) and Lithium Ion (LiON). Multiple factors like demand-supply gaps, uneconomically low volumes etc, lead to the high cost of manufacturing EVs. Raman points out that an EV’s battery, power electronics and motors can together cost as much as six to seven times that of an IC engine. So, the ex-Showroom price of an EV will still be heavily dependent on the cost of the battery pack.

New battery manufacturing capacities are coming up in India and the localisation push will help lower costs of EVs just like it does in the case of IC engine cars. Tata’s Sailesh says that based on their study and discussion with experts in cell manufacturing, the economic size of a battery manufacturing plant is upwards of 8 GWh. So, clearly localisation benefits can be accrued only in the long term and with a meaningful penetration and volumes for EVs.

Price multiple?

The biggest hurdle for buyers looking to go electric is the current high price of EVs. For a buyer who is hesitant to choose a hybrid in favour of the equivalent ICE-only car, the nearly 3x price tag of an EV is too much of an entry barrier. The user profile may make a difference to how affordable it would be to operate the EV and so fleet operators with a higher usage profile will be able to recover their investments faster. Both Raman and Sailesh agree that the price multiple between ICE cars and similarly positioned EV can’t be more than 1.2x to 1.3x.

But lower-end cars will tend to be more expensive because of the higher cost of the technology spread over a lower price level. Unfortunately, price sensitivity is also higher amongst buyers in the lower price segment. And the cost-of-ownership issue will further affect long term viability of EVs.

Challenges from the Grid side

Most often, the EV discussion only veers around the non-existent charging infrastructure and about who will be responsible and when will this come up in India. The other point that is also raised is about how much of the power generated comes from old, coal-fired thermal power plants and about how EVs may well be only displacing the pollution from the cities to the suburbs where these plants are located. But what about the other challenges that the grid may be faced with if and when EVs start becoming mainstream? And what about the price of charging EVs at private charging stations?

Even assuming that renewables and newer, cleaner sources of thermal or nuclear power come on stream within the next few years, there are other factors that will affect EVs. One will be the skyrocketing demand for electricity from a country that is already seeing a surge in demand for consumer electronics and appliances, particularly split air conditioners. In many cities, the annual increase in demand for air conditioners is in the high double-digit figures. According to Rahul Tongia of Brookings India, the good news however, is that projections for 2030 show that even with a fair penetration of EVs (two,three and four-wheelers, and intra-city buses), the increase in demand for electricity is likely to be only about 100 TWh (Tera watt hours) or about 4 per cent of the total power generation capacity. So, ramping up power generation should be possible to meet that growth in demand.

But, how about the price per charge for EVs that a private infrastructure operator would need to levy for it to remain profitable? Rahul says that is a more worrying factor where studies seem to indicate that it might have to be as high as ₹15-16 per unit, assuming that input cost of electricity is ₹5 per unit. Will EVs be economical to operate if each top-up is going to cost that much? Will that lead to a messy situation where people divert electricity meant for domestic use into a commercial network? Will electricity need to be taxed by State Governments for them to compensate the loss in revenue from the drop in sales of fossil fuels? Currently, nearly 3 per cent of the GDP comes from taxes on fuels. These are serious issues that will need to be sorted out.

What next?

The EV space will also turn out to be like the proverbial ‘chicken and egg’ situation. But that was the case even with ICE vehicles, where the cars came first and the roads came later. So the charging infrastructure will take its time coming, as will the production capacities for batteries. But, in the meantime, the Government needs to also promote hybrids and plug-ins to create an enabling ecosystem for buyers of EVs and those who need to invest and profit from setting up the charging infrastructure.

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