By Ravinder Singh
In 1957, the Hindustan Ambassador rolled off the lines, making it the first car to be manufactured in India. It was based on the Morris Oxford from the UK, and carried with it a strong, muscular presence. Sixty-five years later, the Indian automobile industry after several evolutions is at the threshold of the future of mobility – electric vehicles.
Almost all car manufacturing companies in India have announced their plans for electric vehicle foray. Some have launched electric versions of some of their popular brands with fairly good market acceptance. I believe that India is currently at the gateway of an EV revolution.
Recent reports highlight that the global sales of EVs in 2020 increased by 39% year on year to 3.1 million units, but the total passenger car market declined by 14%. A Centre for Energy and Finance report says that India’s 2030 vision of e-mobility translates into 102 million EVs. The market is witnessing a robust growth, expected to touch over 63 lakh units annually by 2027. For meeting its 2030 target of replacing 30% of new vehicle sales by EVs, the Union government has announced various initiatives and policies to encourage the adoption of EVs and to make the space more lucrative.
Strong tailwinds for EV adoption
The increasing reliance on oil imports (expected to double to USD 200 billion in 5 years) and high degree of pollution are driving policy changes to move away from the traditional fossil fuel-based economy.
The growth in e-commerce demand has also led to increased last-mile penetration.
India has the second largest 2-wheeler market and one of the largest 3-wheeler markets in the world. These vehicles are better suited for electrification as they require smaller batteries. There is also a fast-growing shared mobility market, which will provide a fillip to large- scale EV adoption.
Technological developments are leading to lower battery costs and improved vehicle and charging performance. Most importantly, we are finally waking up to the environmental impact of gasoline- powered vehicles.
The increase in the EV penetration is expected to add 120,000 new jobs across different sectors such as battery recycling, construction of factories, telematics, operation of EV charging infrastructure and the like.~
One of the key components that can lead to greater adoption of EVs is the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme. Under the scheme the government will give additional incentives on electric vehicles. Recently, the Centre has also announced a 50% increase in incentives for electric two wheelers. Additionally, the ministry of heavy industries has mandated the different government bodies and ministries to procure 300,000 electric three-wheelers.ICRA estimates that by 2025, the electric two-wheelers will account for 8%-10% of the total EV sales whereas over 30% of the three-wheelers will be battery-powered. Globally, EVs accounted for 4.4% of new car sales during CY2020 and their share is likely to cross 5% level in CY2021. ICRA believes that while the transition to EVs is inevitable, the pace of penetration will be relatively gradual in India unlike markets like China, Europe, and USA.
However, thrust by the government in the right direction will certainly accelerate adoption.
CVs can lead
Three-wheelers in India have proven to be the largest early adopters of electric mobility. E-rickshaws currently comprise 83% of the Indian electric vehicle market.
India has around 15 lakh e-rickshaws that increase with additional sales of 11,000 new ones every month. These figures could be much higher as a large percentage is still unregistered. The market is expected to witness a sale of 9.25 lakh e-rickshaws by 2024.
Early adoption of EVs by 3-wheelers has primarily been thanks to the favourable cost of ownership, environmental benefits, policy support, and access to financial solutions. However, I believe that India’s electrification will be driven by commercial vehicles (CVs).
Large fleet operators such as Amazon, LetsTransport, Blackbuck etc. must go electric. Lower operating expenditure, better torque, higher mileage and simpler maintenance will drive this shift.
Challenges in the EV Space
One of the single biggest roadblocks in the mass-adoption of EVs has been battery technology – i.e., storing large amounts of energy in a small battery economically. The two main factors that continue to make internal combustion engines more lucrative than EVs are range and refueling. Researchers across various universities have claimed to have developed a technology that enables the production of environment-friendly Lithium-Sulphur (Li-Si) batteries which will be more energy efficient.
Additionally, battery swapping comes with the hassles of training, hazards, and inventory management. It mainly means higher prices, higher inventory costs, and risk of obsolescence. In the battery swapping model, the battery is sold separately from the vehicle – this reduces upfront vehicle cost as the battery is now leased by the OEM. This also avoids range anxiety and downtime during business hours. Finally, successful swapping at scale requires standardisation of batteries across OEMs.
While a lot of focus has been on pushing EV adoption in India, the public charging infrastructure has been lagging. Good public charging infrastructure is crucial for retail and commercial adoption of EVs – giving rise to a chicken-and-egg situation.
A recent report by Grant Thornton Bharat-FICCI highlighted that India needs about 400,000 charging stations to meet the requirement of two million EVs that could potentially ply on its roads by 2026. It further states that for India to reach its vision of 30% EVs by 2030 and to accelerate the transition, factors such as increasing government support, decreasing cost of technology, and distressing pollution levels, would be very important.
Reports say that there are 1800 charging stations in India as of March 2021. The report highlights that the overall EV Infrastructure is coupled with the EV and charging station characteristics, battery technologies, and electricity markets.
As the Indian consumers are mostly driven by pure economics, the TCO (total cost of ownership) gap between ICE and EV has prevented mass adoption of EVs. However, TCO is favourable for commercial vehicles.
Large fleet operators such as Amazon, LetsTransport, Blackbuck etc. must go electric. Lower operating expenditure, better torque, higher mileage and simpler maintenance will drive this shift.~
Financing will also play an important role in creating charging units across the country. The union government is working on favorable policies to make India the manufacturing hub for electric – two and three-wheelers and cars. The government is also recommending e-commerce companies to shift to electric vehicles for delivery of goods and there has been a considerable movement on that front.
Where is the opportunity?
In addition to job creation, EV batteries and charging infrastructure will also witness an uptick in demand. The India Energy Storage Alliance (IESA) report highlights that battery demand is forecasted to grow at 32% by 2027. The estimated potential for the battery market is 14.9 billion by 2027.
Growth in EVs will also boost the aluminium industry which will fulfil the need for lightweight vehicles. The insurance companies will also have access to various data to assess the authenticity of claims.
There is also a huge opportunity to create fundamental innovations in the motor technology that is used in EVs. (Our conviction in this thesis led to Kalaari’s investment in Chara, a startup, earlier this year.) Switched reluctance motor (SRM) is gaining much interest in its applications to EVs due to its simple and rugged construction, high‐speed operation ability, insensitivity to high temperature, and its features of fault tolerance.
Startups which create deep technological innovations for fast charging infrastructure will emerge victorious in this space.
Conclusion
People often say that change is the only constant. This is true across all sectors and industries. The way we commute has slowly evolved over the years, and we’re now at the next stage of this evolution.
The shift to EVs is essential not only for its environmental benefits, but also for its ability to create new industries which will give rise to new jobs. The increase in the EV penetration is expected to add 120,000 new jobs across different sectors such as battery recycling, construction of factories, telematics, operation of EV charging infrastructure and the like.
The future of mobility is well and truly electric.
(Disclaimer: The author is Partner, Kalaari Capital, an early-stage venture capital firm. Views expressed are personal)
