In India and elsewhere, the electric vehicle story has not quite lived up to the overzealous projections of a few years ago. A course correction is under way
AS is evident from the first month of this new decade, the future of the automobile industry in India belongs to electric vehicles (EVs). Almost half a dozen new vehicles were either launched or unveiled in January. This is more than the tally for the whole of 2019.
A few of them such as Bajaj Chetak, TVS iQube and Mercedes EQC heralded the entry of established players into the mix. A couple of others, namely, Tata Nexon EV and MG's ZS EV, sought to lower the bar on affordability. Ather Energy, which has fast gained the reputation of being the Tesla for electric two-wheelers in India, took the other route with its 450X electric scooter offering hyper performance. The company calls it the 'super scooter'.
This is just the beginning. EVs are at the centre-stage at this year's Auto Expo and many new brands and models will enter the fray during the course of the year. It is not difficult to see why these developments are following the government's push for EVs over the past three years. EVs are touted as a one-stop solution to many critical problems in India. The most direct and immediate impact is on curbing air pollution and reducing import of crude oil. Crude alone accounts for more than a quarter of the country's overall imports. The country accounts for 29.4 per cent of the world's oil consumption, only behind China and the US. India is also the world's third-largest emitter of carbon dioxide (CO2) at two million kilotons behind, again, China and the US. In the national capital of Delhi, pollution due to particulate matter regularly exceeds the World Health Organization's (WHO) limits by a factor of 7-12.
EVs can provide a solution to both these problems (air pollution and dependence on crude oil import) but there are a number of issues that need to be solved before they become mainstream. For all the reduction in prices of lithium-ion batteries that power EVs today, they still remain expensive, which, in turn, makes them unaffordable. But more importantly, charging them is a bigger problem. "I have been saying for the past 10 years that the time for EVs has come but now we can say for sure that, on a business viability aspect, at least for shared mobility, the time has indeed come," says Pawan Goenka, Managing Director, Mahindra and Mahindra (M&M).
"For personal mobility needs, we need bigger batteries, which offer a range of 400 km, so a customer can drive from Delhi to Chandigarh or Jaipur. That costs money and there is some viability gap as well. There is still a need for an 8-10 per cent reduction in price before EVs become viable for the bulk of personal transportation needs," added Goenka.
Bit by bit though, these issues are being addressed, even for an individual customer. When Hyundai launched Kona EV last year priced at Rs 25 lakh, it was considered a breakthrough. In less than six months, China's MG Motors lowered the benchmark when it priced its EV (ZS SUV) at under Rs 20 lakh (in January this year) and in less than a week from that, Tata further reduced it to less than Rs 15 lakh with the launch of Nexon EV.
"The BS-VI roll-out, which will make ICE (internal combustion engine) vehicles more expensive, will be another enabler in the short term. At the same time, a lot of work is being done on creating charging infrastructure. The next inflection point will be somewhere in 2022 when enough number of charging stations would have been installed and the market would have multiple products," says Shailesh Chandra, President, Electric Vehicle Business and Corporate Strategy, Tata Motors. "Electric cars are powerful and fun to drive and Nexon EV has a certified range of 311 km. The moment cars with over 250 km range start entering the market - there will be many more (of these) in the next few months - they will become attractive and viable to an individual car user. I can foresee a situation then where EVs account for 10-12 per cent of new car sales," he adds. This may sound like a hyperbole when just a little over 1,000 new electric cars were sold in the first half of this fiscal in a market where around thre million new cars are sold every year, but such is the optimism.
Off the Script
Not everything, though, is going as per plan. The introduction of the second edition of the government's overarching Faster Adoption and Manufacturing of Electric and Hybrid (FAME) Scheme was intended to act as a catalyst for the industry but has ended up becoming a roadblock.
The stated ambition of FAME II, which has seen a ten-fold increase in its corpus to Rs 10,000 crore for financial years 2020 and 2022 from just less than Rs 1,000 crore under FAME I, is to build a capacity of 10 lakh two-wheelers, five lakh three-wheelers, 55,000 four-wheelers and 7,000 buses that operate on lithium-ion batteries by 2021/22. But the scheme has also put in caveats that have taken the industry by surprise. For two-wheelers, for example, a minimum range of 80 km per full charge and a minimum top speed of 40 kmph has been specified to qualify for the incentive of Rs 20,000.
In contrast, under FAME I, even low-speed two-wheelers with top speed of up to 25 kmph qualified for incentives of up to Rs 17,000. This had caused widespread disruption in the market. According to the Society of Manufacturers of Electric Vehicles (SMEV), sale of FAME II qualified electric two-wheelers in the April-December 2019 period was just 3,000 units as against 48,671 units in the year-ago period when FAME I was in place, a decline of 93.84 per cent. "There was a certain trajectory when we had FAME I. However, with FAME II, whatever be the logic and reason, the manner in which it was introduced (has led) the industry into a downturn and we are still in the process of recovering from that," says Naveen Munjal, Managing Director, Hero Electric, the largest electric two-wheeler company in India.
"The new policy came as a shocker and hasn't delivered for sure. It needs to be completely changed. If the industry has to pick up, it has to be from ground-up. It has to focus on low-speed vehicles for masses. The focus has to be on the base of the pyramid, which is low-speed, if EVs have to really work," he adds.
With its focus squarely on shared mobility, FAME II also offers no incentives for electric cars meant for private usage. This has restricted its ambit to just 20 per cent of the new car market today. According to the industry, no incentives for private cars may not be wise in the long term. "We would definitely like FAME II to cover private cars. That will help us make them more affordable," says Chandra of Tata Motors. "Nevertheless, we will keep launching products for individual customers because if electric cars are branded as those meant only for fleet and taxis, it will damage the industry in the long term," he explains.
For buses also - a key focus area for the government - there has been a reduction in the subsidy amount. While FAME I offered a subsidy of Rs 85 lakh to Rs 1 crore for low-floor electric buses, depending on the level of localisation, FAME II has pruned it to Rs 35-55 lakh. This has already led to an increase in bid amounts in tenders for e-buses by state transport authorities in the past six months. The lowest quote received by Dehradun Smart City for 12-metre buses in a recent tender was Rs 90.90 per km, while for Jaipur City Transport Service, it was Rs 85.95 per km. This is far higher than the bids in the pilot round of FAME I Scheme when Goldstone-BYD had placed bids of Rs 29.28 per km for a nine-metre AC bus for Bengaluru and Rs 36 per km for a similar variant for Hyderabad. Tata Motors had won a similar contract in Jaipur with a bid of Rs 70 per km.
"The subsidy amount under FAME II has been reduced from Rs 1 crore to Rs 50 lakh. But earlier, the subsidy was of a different type. The FAME I subsidy was over three years. Now, it is in a single shot," says Nishant Arya, Executive Director, JBM Auto. "Now, the methodology, policy and roadmap are clear. The government has asked for bank guarantee for five years so the cost is built in as well. This brings in transparency into the system. Earlier (in the first round), people were bidding in an absurd and ad-hoc manner. The bid prices were not sustainable so we should not read too much into it. In Delhi, for CNG buses, the tender that won was for Rs 84 per km for low-floor buses. With subsidy, the electric buses are able to match the prices of diesel and CNG buses," adds Arya.
There are also concerns about how long a cash strapped government like India's can subsidise EVs in future. Policymakers are happy to quote China as a template but even there recent events have not been encouraging. In China, which accounts for half the global EV sales, the government cut subsidies of as much as RMB 50,000 (about $7,165) per EV by half in June 2019. It resulted in a fall in EV sales in the country for the first time, by 4.7 per cent in July 2019. Since then, it has only worsened with a 16 per cent decline in August, 27 per cent in September, 45.6 per cent in October and 43.7 per cent in November. EV sales fell another 22 per cent year on year in December (2019). "The basic demand has to come from customers and at this moment, there is no such demand (for EVs). In China, the demand was artificial, due to government support. The sales dropped once the government reduced subsidy support," says Kenichi Ayukawa, Managing Director and CEO, Maruti Suzuki India, the country's largest carmaker.
Ayukawa also feels the pace of technology development is an issue. "It takes time for technology to mature as also for infrastructure to be developed. In future, it may come after 5-10 years. But it needs time. Battery technology is still developing. There are raw material limitations. Safety concerns also need to be addressed," he says.
In India, the failure of an ambitious project to convert part of the government's fleet of vehicles to electric undertaken by state-run Energy Efficiency Services (EESL) has dampened sentiment. Some government officials were reportedly unhappy with the performance owing to low range and limited options. EESL realised belatedly that it needed to invest in developing charging infrastructure first. Less than 2,000 electric cars have been procured so far against the first tender of 10,000 cars that was bagged by Tata Motors and M&M with their first-generation eTigor and e-Verito, respectively.
"The programme did not take off as the cars were suited more for shared mobility and not for senior bureaucrats. These were also early lifecycle vehicles and there were some issues and so the vehicles did not find acceptance with the target audience," says Goenka of M&M. "But it still did its job. EVs came into the limelight only because of EESL," he says.
The initial exuberance when several ministers said they wanted the industry to turn completely electric by 2030 was misplaced. "In India, we were clearly out of sync when we thought the changeover will happen rapidly. The government was making aggressive noises but the industry did not really respond," says Ravi Bhatia, President and Director, JATO Dynamics, an automotive research firm. "Globally, except for Tesla, which has done a lot of work on technology, development has been slow. We are looking at a situation that even 10 years down the line, we will have an ICE-dominated industry," he says.
Hybrids Back in the Mix?
One of the biggest challenges in the minds of consumers in India concerning EVs is range. With only a few hundred charging stations in place today instead of thousands that are needed, there has been a renewed push from several sections of the industry to look at hybrids as a temporary solution. Maruti, which had earlier said it would launch its first fully electric car, eWagon R, by 2021, recently backtracked citing lack of infrastructure and fiscal incentives. Maruti said it would only launch the car for the fleet segment where FAME II incentives are available.
"It is very difficult to focus only on one technology. We have to have many alternate technologies - EVs, hybrids, CNG and biofuels. It depends on the cost and convenience of the consumer. Focusing only on one technology is very dangerous," says Ayukawa of Maruti.
The government should also give some tax incentive on hybrid vehicles as they increase the fuel economy by reducing emissions by 30-40 per cent, adds Ayukawa. Even the government, which was once opposed to hybrids, has softened its tone. At the annual convention of automakers organised by industry body Society of Indian Automobile Manufacturers (SIAM) in September 2019, Union Minister for Road Transport & Highways, Nitin Gadkari, agreed that hybrid cars, too, should enjoy lower taxation. "We have already reduced GST on EVs and now I am trying to make sure that the hybrid cars too get a similar reduction," he said. "I am following up with the finance ministry, so should the manufacturers, so that it (hybrid cars) too can be covered under the same bracket," Gadkari said.
The 'H' word, however, divides the industry down the middle. While the Japanese lobby of Maruti, Toyota and Honda favours it, homegrown companies such as Tata and Mahindra, which are eager to gain the first-mover advantage with EVs, do not wish to be pegged back. The others, including Hyundai and the European carmakers, which have technologies readily available in their global line-up, are sitting on the fence.
"Hybrids should not be seen in the same light as electric. It is an intermediary step and is more for compliance. With stringent CAFE (corporate average fuel economy) norms in the offing, hybrids would help. Even we have the technology but our focus is on electric," says Chandra of Tata. "EVs are the ultimate answer to climate change."
The turf war over technologies concerning the future of mobility may have a geopolitical context as well. China is the clear leader in EV technologies and also has an upper hand in supply chain for batteries. There is an underlying fear that China may hold the world to ransom in an all-electric scenario, something that will impact India, the fourth largest automobile market in the world. At present, the electric revolution may merely mean substituting import of crude from West Asia for lithium, cobalt, graphite and nickel sourced from mines owned and controlled by China in Latin America and Africa.
"All that we are seeing across the world today and in every sector is a fight between the US and China. It is a fight for leadership. They want to be less dependent on oil," says Dieter Becker, Global Chairman of KPMG's automotive practice. The world's top three markets have all voiced their opinion, China for electric, the US for gasoline and Japan for hybrids and fuel cell vehicles. The fourth largest, India, which could soon become the third, is yet to make up its mind.