Caught in a downshift
COVID-19 pandemic has caused a slump in India's thriving EV market — how effectively the sector recovers will depend on the immediate policies of the government
The Energy and Resource Institute (TERI) reported in 2019 that the transportation sector was among the leading contributors to PM 2.5 composition in the air. After the dust (28 per cent) and industry (26 per cent), transportation (23 per cent) stood only third. Similar has been the story with greenhouse gas emissions. The sector accounts for 14 per cent of total energy-related CO2 emissions. The negative externalities arising out of air pollution and GHG emissions require no testification — we have been seeing, experiencing and feeling the environmental disasters over the last couple of years at an unprecedented scale.
We do have a solution to these externalities in the name of Electric Vehicles (EVs), and luckily, significant headway is already made in this direction. There is a need to boost it up. Apart from avoiding negative externalities, a flourishing EV sector could open before us a sky of opportunities by providing a highly potent market, extensive employment opportunities and an entrepreneurial ecosystem among other things.
Since the adoption of EVs has a set of tangible economic benefits, the governments — both Central and state — have taken significant policy initiatives on this front. The policies are aimed at creating a demand for EVs among the target consumers and luring the investors into the sector. Public demand for EVs is limited by the high capital cost of the product and the dilemma of charging these vehicles — making their daily maintenance a bit of a clumsy affair for the consumer. Investors, on the other hand, despite ample opportunities, appear to hold back large-scale capital investments towards making a transition from Internal Combustion Engine (ICE) vehicles to EVs. Perhaps, they may be waiting for the government to usher in more incentives and primary investment.
Through this article, we shall take a look at the present outlook of the EV sector in India and then highlight what the country aspires to achieve over the coming decade. We shall further assess the performance of flagship government policies towards strengthening the E-mobility scenario in India. And finally, we shall retrospect on the possible course of action going forward.
Present status of EV Industry
Though India's Electric Vehicle industry is at a very nascent stage, it has abundant growth potential, a positive momentum and sufficient political backing.
The Central government prefers to call e-mobility a 'revolution' and places the country in the middle of this revolution. As per e-AMRIT (Accelerated Mobility Revolution for India's Transportation) — a dedicated website that records India's progress towards e-mobility — India has currently 7.96 lakh registered electric vehicles, and 380 e-vehicle manufacturers operate in the country. The website further boasts of 133 per cent growth in sales of e-vehicles from FY 2015 to FY 2020. But still, the fact remains that e-Vehicles constituted a mere 1.32 per cent of total vehicle sales in FY 2021-22.
The total number of registered EVs in India in FY 2020-21, as per VAHAN dashboard, was 1.35 lakh — an unusual and sharp dip from 1.68 lakh EVs in FY 2019-20 and 1.47 lakh in FY 2018-19. The dip could undoubtedly be attributed to the pandemic and the lockdowns that disrupted the supply chain and curtailed public demand. Notably, in the last fiscal (FY 2021-22) the number of registered EVs bounced back to 2.6 lakh — nearly double to that of the preceding fiscal. This gives us a hope that the effect of the pandemic on the sector is of temporary nature.
Interestingly, the number of registered petrol vehicles saw a sharp dip in FY 2021-22 in contrast. It dropped from 132 lakh in FY 2020-21 and 184 lakhs in FY 2019-20 to 103 lakh. The share of petrol vehicles declined for two consecutive years, irrespective of the severity of the pandemic situation. The growth and decline of EVs on other hand are commensurate with the severity of the pandemic — indicating that its growth will catch as the economy recovers.
Certainly, the difference between petrol-based vehicles and EVs in terms of absolute numbers is profound but one cannot forget that EVs have come a long way from a mere three thousand in FY 2013-14 to 2.60 lakh in FY 2021-22 — the corresponding figures for petrol-based vehicles are 133 lakh and 103 lakhs, indicating a decline only.
India has set for itself an ambitious target of 30 per cent EV transition by 2030. The pandemic came as a spoiler when the country had just started to accelerate its actions towards the fulfillment of the 2030 goal. Now as India emerges out of the grim shadow of the pandemic, the experts in the energy sector are divided on whether the aftereffects of the pandemic will dampen growth prospects in post-Covid scenario or the sector will grow with renewed vigor. There is a shadow of uncertainty over the fulfillment of the 30 per cent EV transition.
Council on Energy, Environment and Water (CEEW), in its November 2020 report, projected the vehicle stock (passenger plus freight) of India to increase by nearly 2.7 times between the base year 2016 and the projected year 2030. It is important to see how much of this growth is apportioned by the fossil fuel sector and how much by the EV sector. The relative growth of the EV sector vis-à-vis fossil fuel sector will determine India's dependence on oil imports, its greenhouse emissions and carbon footprint, and its growth along crucial economic parameters including employment.
What is India doing to achieve e-mobility?
India's flagship program towards achieving e-mobility is National Electric Mobility Mission Plan 2020 — launched in 2013 by the Department of Heavy Industries.
The plan primarily caters to the need of ramping up production of electric vehicles. Under the NEMMP, the Department of Heavy Industries notified Faster Adoption and Manufacture of Electric Vehicles (FAME)-I in 2015 and FAME-II in 2019, and introduced amendments to FAME-II in June last year.
While FAME-I focused on "demand creation, technology platform, pilot projects, and charging infrastructure," FAME-II was aimed at "supporting electrification of public and shared transportation". The amendment to the FAME-II scheme provided for greater subsidy to electric two-wheelers and doubled the limit of discount that an electric two-wheeler manufacturer can provide to the customers.
Notably, only those electric two-wheelers are eligible for the subsidy that have a minimum range of 80 km on single charge and a minimum top speed of 40 km per hour. As per a report by Credit Rating Information Services of India Limited (CRISIL), 95 per cent of the electric two-wheelers in India don't fall under this eligibility criteria!
In a nutshell, the FAME initiative basically aims to create a spurt in demand by lowering the purchase price of electric vehicles through direct or indirect subsidy. However, the government needs to go beyond such simplistic incentives and subsidies. The need of the hour is to diversify demand creation tactics and look for innovative models to stimulate the industry to invest on the supply side — for they are the ones who would be benefitted five or 10 years down the line.
Electric vehicles are undeniably the future of the transport sector and manufacturers have no way out than to get into the business. It is high time that the government comes out with policies that will stimulate competitiveness in the sector rather than just providing passive investment.
The FAME scheme additionally seeks to improve the charging ecosystem in the country by installing charging points. As per e-AMRIT website, above 1,800 charging stations have been installed across the country. This is a good move indeed and it will help remove one of the basic constraints that limit the acceptance of EVs among the consumers.
Apart from NEMMP, the Central government has taken other initiatives in the past few years, including a bunch of production-linked incentive schemes, lowering of GST rates for EVs from 12 per cent to 5 per cent, eased licensing norms etc. It is heartening to see that state governments have also shown a proactive policy approach towards e-mobility in the country.
The roadblocks and way forward
India's EV sector is replete with challenges — on both the demand and supply side. On the supply side, the biggest problem that Indian consumers face is that of high prices, and then, there is the issue of charging.
High price of electric vehicles: There is a steep gradient between the price of a conventional fuel vehicle and an electric vehicle manufactured by the same manufacturer. In such a scenario, how can one expect consumers to go for EVs that may be priced double to that of a similar conventional vehicle.
The argument that is generally floated by the government agencies is that price parity has already been achieved, for say, 5-6 years down the line. This argument isn't flawed but what's the point of it if it could not translate into increased acceptance by the consumers! The price here is divided in two components — the immediate price at the time of buying and the recurrent price that the customer will have to pay for maintenance and functioning of the vehicle in terms of petrol, diesel, charging, servicing etc. While the one-time capital cost of EVs may be nearly double to that of its conventional counterpart, the recurring costs are far lower. One has to peek into the minds of consumers who don't tend to think rationally in such a long-term perspective — particularly if the initial investment is too high and the savings over years are not of 'incoming' nature.
Perhaps the policymakers need to tweak the pricing mechanism in a way that is equally distributed over years and reduces the one-time capital cost significantly.
Charging options for EVs and range anxiety: Surety is one of the most desired aspects of a travel plan. When a person sets off for travel in a conventional fuel vehicle, she knows that she would get a petrol pump in a range of kilometers or so. This crucial link is so far lacking in the EV sector vehicles. The number of charging stations in India falls far behind the desired levels and is concentrated in metropolises.
Contrary to fossil fuel-based vehicles where the consumer will have to go to the petrol pump to get the tanker of her vehicle refilled, there could be multiple options for recharging EVs. Setting up charging stations at regular intervals in terms of distance is certainly the primary option. This can be coupled with ramping up of home charging alternatives and battery swapping techniques. Among the range of electric vehicles, the primary focus of the government has been on the two-wheelers and the three-wheelers, and that is reflected in the statistics as well. As per the VAHAN dashboard, two-wheelers and three wheelers account for more than 90 per cent of EVs in India. Home charging and battery swapping are undoubtedly the best bets for these smaller vehicles until a full-fledged network of charging stations is set into place.
Once the charging problem is done away with, range anxiety — the apprehension around reaching the destination timely in a convenient manner — will automatically be rooted out.
Technological roadblocks: The battery technology used in electric vehicles is still in its primary evolution phase. Be it the lithium-ion batteries or the nickel-metal hydride batteries — the prices of both are exorbitantly high in the market. Though the use of lithium-ion batteries is widely prevalent among mobile phone battery manufacturers, the one used for the EVs has an altogether different chemistry. It is only after more and more e-vehicles land on the roads that the R & D segment of the industry will find the reasons to make some progress towards improving the technology.
However, if the government aims to set itself free from the import cycle of these components, and facilitate use of electric vehicles in the country by the earliest, it will have to take the onus upon itself to undertake rigorous research and development in this sector. R&D has to be an integral part of any new transformative system — the question is who is willing to shoulder the extraneous responsibility!
EV batteries: an opportunity and a challenge
The normal life of the batteries used in EVs ranges from six to eight year. Given that India started ramping up its EV vehicle production after 2015 and is growing steadily, the country will also produce a large amount of lithium-ion battery 'waste' in the coming years. This waste has the capability to degrade soil and water resources of the country.
At the same time, it could also prove to be a great asset if managed properly. Lithium and cobalt are scarce metals that are found in only the limited pockets of the world. As per a CEEW report, around 58 per cent of the world's lithium reserves are found in Chile and about 43 per cent of rare earth mineral reserves are in China. Since the supply of the metal is limited, India and other countries are forced to import the batteries from these select nations.
It would be wise to make optimum utilization of the high amount of money spent on these batteries. In the first place, the batteries become useless for EVs after their capacity reduces below 80 per cent. As per a report by IndiaSpend, these batteries still remain useful for a variety of secondary utility purposes. After being further used for a couple of years, these could be sent to recycling units from where the expensive and highly scarce metals can be extracted.
As we have made our mind, and rightly so, that EV is the future, the government should parallelly work towards erecting an infrastructure to manage the out-of-use EV vehicle batteries. Sadly, as for now, such an infrastructure is lacking and we are left with very little time to work in this direction.
As per certain reports, the EV battery market in India is expected to grow at CAGR 37 per cent from 2022-2023 itself. By 2030, EV batteries will account for 80 per cent of the total lithium-ion battery market. Efficient recycling of these batteries will not only save the country from the clutches of import imperatives but also avoid possible fallouts on the environment — one of the prime reasons for which we have pushed ourselves into the EV sector!
Views expressed are personal