If you watch a butterfly come out of its cocoon, it’s a long and difficult process. There is squeezing and moving, the cocoon clings to its body until it manages that last wriggle, that last push and it's out. Indian Electric Vehicle (#EV) Industry is that butterfly making its last push, raring to fly.
The Year That Was
The Government of India launched the National Electric Mobility Mission Plan (NEMMP) 2020 in 2013. The plan had an ambitious target to achieve 6 to 7 million sales of hybrid and electric vehicles year on year from 2020 onwards. While we are nowhere close to the target, the discourse in last 12 months has elevated from articles and events to firm policy decisions and investment commitments.
Goods and Services Tax (GST) on all types of EVs was reduced to 12 % compared to 50 % for high end SUVs. Department of Heavy Industries (DHI) extended the demand-side incentives under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme till September 2018, while a more comprehensive FAME-2 is under works. Multiple state governments (Karnataka, Maharashtra, Uttar Pradesh, and Andhra Pradesh) notified their EV adoption and manufacturing policies. Energy Efficiency Services Limited (EESL) floated 2 car tenders of 10,000 each. And most recently, Ministry of Power in its landmark notification clarified that "charging of batteries of electric vehicles through charging station does not require any license under the provisions of the Electricity Act, 2003."
Corporates have equally matched the steps taken by the Federal and State Governments. Suzuki announced its partnership with Denso and Toshiba to set up a USD 200M cell manufacturing plant in Gujarat. Mahindra Electric announced fresh investments of USD 150M on top of USD 100M it has already invested. Tata Motors and Ashok Leyland too have announced considerable investments. From barely two electric cars currently on offer, 15 new models were showcased at the Auto Expo 2018. The much-anticipated battery swapping solution for buses was also demonstrated by Ashok Leyland and Sun Mobility.
Brave New World
While we continue to make the advances, the path is strewn with challenges. Government earns USD 30B in annual tax revenues (15 to 20% of total tax) from oil and products; EVs make moral case when fuelled with renewable power, which currently contributes a meagre 7% to our total power output; automobile sector with more than 90% indigenization constitutes 50% of manufacturing GDP and employs 30 Million people but EV components – namely batteries, motors, and power electronics contributing more than 50% to its value are currently not manufactured in India – and their manufacturing process is highly automated. And we can effortlessly speculate on the fate of dealerships, repair, and spare part business. If one fact could surmise the metamorphosis, battery companies own 33% of the value of an EV compared to 0.3% for an ICE (Internal Combustion Engine) vehicle.
Start-upping the EV Value-chain
For an industry ripe for disruption, start-ups have a part to play. We have a vibrant start-up ecosystem ably supported by both Federal and State Governments. At the last count, 18 states had launched their start-up policy, there were 250 incubators, and 22,000 start-ups in the country. But there is a chink in our armor. We don't have a history of product/hardware start-ups mushrooming out of India. Among the plethora of factors, Indian Venture Capitalists (VCs) love for asset-light start-ups is one. Government, however, could play a role in alleviating this gap by creating an EV dedicated start-up fund. It could be created as a standalone fund, an allocation within the FAME scheme, or be carved out of USD 1.5 Billion 'Fund of Funds' for Start-ups. While the structure can be deliberated upon, taking cognizance of the role of start-ups and empowering them is critical.
Path to Adoption
The debate on how the EV adoption will happen in India seems to have been settled. There is a consensus that it will be driven by Total Cost of Ownership (TCO). The signs are visible with initial push coming from State Transport Utilities (STUs), E-rickshaws and 3-Wheelers, and cab operators such as Ola and Uber for 4-Wheeler segment, which are already considered TCO positive. 2-Wheelers are expected to be next in line followed by passenger cars.
There is merit in the TCO argument but the entire EV picture cannot and should not be painted with the same brush. While public transport is mobility in its truest sense and can largely be TCO-driven, personal vehicles go much beyond. There is a sense of pride associated with vehicle purchase. It ought to look good, feel good, and perform good. Hoping that consumers will buy personal electric scooters or cars just because they are TCO positive may not fly.
Learn from Solar
There are multiple parallels between utility scale solar adoption in India – and the prospective EV adoption. Solar has been fuelled by cheap imported cells and panels, while the domestic capacity has been languishing – the fate EV battery manufacturing ought to pre-empt. In addition, solar has been driven by creditworthy Power Purchase Agreements (PPAs) funded by abundant global green finance.
With the potential to be structured on similar lines as PPAs, Mobility Purchase Agreements (MPAs) could hold the key to deployment of EVs for public transportation. STUs are increasingly likely to opt for Operational Expenditure (OPEX) models, buying mobility on per kilometer basis. (This was visible in the recent DHI sponsored tender for electric buses, where 5 out of 11 cities opted for this model.) A Solar Energy Corporation of India (SECI)-like entity could enter MPAs with fleet operators on behalf of credit-rated STUs. However, the impact of this model on the design of any FAME-like incentive scheme, which provides subsidy per vehicle, must be factored in.
All Hands on Board
All said and done, EV adoption or manufacturing is not going to be a piece of cake. While some progress has been made, a lot more needs to be done. It will take serious commitment from all stakeholders viz. Government, Industry, Academia and Consumers to usher our electric future.