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Electric Vehicles Business: Opportunity & Challenges

EVs

Indian Auto Industry is one of the world’s largest industry and comprising 7% of national GDP. As per data of Society of Manufacturers of Electric Vehicles, an industry body, only 22,000 units of EVs were sold in India by March 2016, of which 2,000 were four-wheelers. At the same time, sales of electric cars grew at a staggering rate of 94% between 2011–15 worldwide, led by China, the US, and Europe.

Company’s in China, the largest EV market in the world has set a target of producing 7 million EVs annually by 2025 by forcing all automakers to kick-off manufacturing by 2019.

Further, a Stanford University study predicted that all new vehicle sales in 2025 would go electric and fuel-based vehicles would vanish by 2040. Keeping these things in mind, it is not hard to deduce that we are at an inflexion point with regard to EV technology and they are no more a pipe dream.

If India does not immediately start developing its technological infrastructure for manufacturing, there are high chances that we will lose out to big players in China and therefore may end up as an importer of EVs.

Challenges and Strategies

India lacks critical infrastructure and the necessary technology to start manufacturing EVs. Efficient components such as high-density batteries remain a key challenge. A robust supply ecosystem of charging stations is another. The government needs global collaborations, technology sharing mechanisms, and economies of scale to enable these individual but complementary requirements. In addition, the government should give clarity on the policy front as the auto industry cannot switch to BS-IV emission standards, and then to CNG and then to electric vehicles overnight. Relevant inputs from corporates need to be urgently sought and considered.

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Affordability is another critical issue as there would be no demand if customers find traditional alternatives much cheaper. As per a research report of the Technical University of Munich, Lithium-ion batteries are the single most important component of an electric vehicle, comprising 40% of total production cost.

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As per McKinsey, a consulting firm, the cost of lithium-ion batteries has fallen from $1000 per kilowatt-hour to about $230 in 2016 potentially reaching $190 by the end of the decade and to $100 by 2030. India needs to ensure a stable supply of Lithium (Li), the principal raw material behind these batteries, along with the latest technology of the time to ensure competitive pricing.

Targeted subsidies in the form of lower taxes and import cesses would further improve EV’s unit economics.

The Indian Journey So Far

The government has launched the Faster Adoption & Manufacturing of Electric Vehicles (FAME) Scheme in 2015 to incentivize manufacturing of Eco-friendly vehicles including hybrids. The decision to levy a lower GST at 12% on EVs vs. 43% for a hybrid should benefit. Indian Space and Research Organization (ISRO)[1] is transferring its Lithium-ion battery technology to commercial players via the Automotive Research Association of India.

Besides that, large PSU players like Power Grid Corporation, National Thermal Power Corporation (NTPC) and Bharat Heavy Electricals Limited (BHEL) have come into the fray to create the “enabling” infrastructure by encouraging corporates like M&M, Tata Motors, Maruti and even Tesla to invest heavily in the project.

Now the government has taken the right step in creating an immediate market for the Electric Vehicles by announcing procurement targets. Energy Efficiency Services Limited (EESL), a joint venture company set up by the Ministry of Power, floated a tender to procure 10,000 electric sedan cars to replace government vehicles along with 4,000 EV chargers — a contract won by Tata Motors as we go to press.

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NITI Aayog, the government policy think-tank, has been tasked with preparing a futuristic vision for EVs, which will be outlined in a report expected to be submitted by December this year. An initial analysis of the think-tank has already pointed that 64% of energy demand for road transportation & 37% of carbon emission in 2030 can be saved if India works towards a shared electric and connected mobility future.

The direct implication on the saving of carbon emission using EVs would help India to honour its obligation of emission cut under the Paris Climate Agreement.

Way Ahead

A clear policy objective supported by a cohesive and coordinated approach of relevant Ministries and Departments, a supportive tax infrastructure, and rising participation of market forces — all indicate that India is about to embark on a new journey, which in itself can be full of challenges. But committed stewardship would successfully secure a brighter future composed of a cleaner and greener environment, enhanced global competitiveness and an investment hub full of great possibilities.

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