When India’s state-owned Energy Efficiency Services Ltd (EESL) awarded a coveted Rs1,120 crore order in September to Tata Motors Ltd to supply 10,000 electric cars, it signalled the government’s intent to walk the talk on electric mobility.
The electric cars will be procured in two phases; 500 will be supplied by November end and the remaining 9,500 cars in the second phase, for which a deadline hasn’t yet been specified. Mahindra and Mahindra Ltd won part of the order and will deliver 150 of the 500 electric vehicles (EVs) to be delivered this month after it matched Tata Motors’s winning bid.
These electric vehicles will be used to replace the petrol and diesel cars used by the government and its agencies, which have around half-a-million cars, of which about one-third are leased. The government has given the EV sourcing mandate to EESL, with the next set of tenders expected to source e-rickshaws and e-autos under the faster adoption and manufacturing of electric vehicles in India (FAME) scheme.
The National Democratic Alliance (NDA) government wants only electric vehicles to ply on India’s roads by 2030 as part of its commitment to reduce greenhouse gas emissions under the global agreement on climate change, and to reduce spending on oil imports, which, according to one estimate, could double to an annual $300 billion by that year.
While the EESL order “sends out a strong signal with regard to government’s intent on EVs, policymakers have to think through the impact of such a rapid shift,” said Harish H.V., partner at consulting firm Grant Thornton. “It is going to create a big disruption in the ecosystem of vehicles that run on internal combustion engines (ICE) and impact several jobs.”
The urgency comes against the backdrop of the fact that six Indian cities, including capital New Delhi, are among the 15 most polluted cities in the world ranked by the World Health Organization (WHO) last year.
Under the new goods and services tax (GST) regime starting 1 July, EVs are being taxed at 12%, compared with 28% that petrol and diesel vehicles are subject to. Hybrid vehicles are taxed at 43%. The government is also considering offering benefits that include zero import duties on electric vehicles as well as lower electricity costs.
To be sure, India, one of the least penetrated automobile markets in the world with only 18 out of 1,000 Indians possessing a personal vehicle, isn’t the only country to have mapped out a future of electric mobility. In the past 12 months, four other countries have come out with a definite time frame to ban the sale of ICE vehicles in favour of EVs.
The Netherlands and Norway want to do it by 2025. The UK and France want to phase out ICE vehicles by 2040. The UK has said it won’t even allow vehicles running on traditional fuel to ply on its roads from 2050.
China is yet to come out with a timetable to end sales of fossil fuel-based vehicles, but it has pulled off a coup of sorts by signing a deal with Elon Musk’s Tesla Inc. According to a Wall Street Journal report, the electric carmaker has reached an agreement with Shanghai authorities that would make it the first foreign auto maker to build its own plant in China. It will be also Tesla’s first manufacturing plant outside of the US.
China’s EV vehicle market is already the world’s largest and is expected to keep growing rapidly. The Chinese government plans to require that all auto makers’ sales include a certain percentage of EVs starting in 2019.
Auto makers scramble
In 2016, 336,000 electric vehicles were sold in China and 160,000 in the US, according to the International Energy Agency. In India, just 450 EVs, less than 1% of the total market, were sold last year. The government wants six million EVs on Indian roads by 2020.
Indian auto makers are beginning to scramble to acquire electric technologies.
The country’s largest passenger vehicle maker, Maruti Suzuki India Ltd, has invested Rs1,200 crore to set up a new plant manufacturing lithium-ion batteries for electric and hybrid cars, in partnership with the Denso Corp. and Toshiba Corp., both of Japan. Tata Motors is running trials of its electric buses and looking to revamp the small car Nano as an EV. M&M plans to ramp up production of EVs tenfold with an investment of Rs600 crore over the next three years and enter the cab aggregator sector with EVs.
Bajaj Auto Ltd is working on another niche business codenamed ‘Urbanite’. The new franchise will make aspirational products in the electric two-wheeler space. EVs, including three-wheelers, under the new franchise, will go on sale before 2020. Hyundai Motor India Ltd also plans to introduce electric cars. JSW Energy, a unit of the Sajjan Jindal-led JSW Group, plans to launch EVs and enter the renewable energy storage sector in India by 2020, citing a lull in the power generation sector. The firm has committed about Rs4,000 crore for the next three years.
In August, India’s largest power generation utility, state-owned National Thermal Power Corp. Ltd, said it was seeking a pan-India licence to set up charging stations. Other firms such as Exide Industries Ltd, Amaron Batteries Ltd and Microtek International Inc. are looking to supply batteries and set up repair shops.
Start-ups are not far behind. Ather Energy Ltd raised about Rs180 crore in investment from Hero MotoCorp Ltd in October 2016 to build an indigenous electric scooter, which was launched in February. ION Energy raised funds from founders of OMC Power Pvt. Ltd, Nippo Batteries Co. Ltd, and others in May. The company is working towards building a horizontal layer of infrastructure that can help vertical companies build EVs in a more affordable and efficient manner with shared expertise.
“Automobile industry whole-heartedly welcomes the prospects of electro-mobility. There is no doubt, and let me be clear, about it,” Abhay Firodia, chairman of Pune-based Force Motors Ltd and president of the Society of Indian Automobile Manufacturers (Siam), said. “The question is the need to bring everybody on a single platform...in terms of what that transition is. No matter who says what, electro-mobility is not coming day after tomorrow. It will take years...”
Going too fast?
Some manufacturers think the government’s target is too ambitious, and it is moving too fast.
The target should be a “little more moderate...,” said Pawan Goenka, managing director of Mahindra, which makes electric cars such as the E20 and e-Verito. India should move a lot more aggressively than others, but be “more moderate than being 100% electric vehicles by 2030”, he said.
Mahindra recently signed an agreement with Detroit-based Ford Motors Co. to leverage each other’s strengths to address rapidly emerging challenges in the global automobile industry. Mahindra is in early talks with Ford to procure a vehicle platform on which the Mumbai-based firm aims to build an all-new electric sedan. In lieu of this platform, Mahindra will share its affordable EV technologies with Ford, which the American firm plans to use in its entry-level cars such as Figo and Aspire.
Mercedes-Benz India Pvt. Ltd would be able to introduce EVs in India by 2020, provided it receives adequate government support, managing director and chief executive officer Roland Folger said.
Folger is critical of the move to an all-electric fleet by 2030. In January 2016, the government said manufacturers should move up to the toughest emission standards of Bharat Stage-VI (BS-VI) from the current BS-IV by 2020, skipping an intermediate level. “It took us 10 years to go from BS-III emission norms to BS-IV and now we are moving in an unheard-of time frame to BS-VI; we have only two years left. Now, everybody has only 12 years to recuperate the investments made in BS-VI. That doesn’t make a lot of sense in my book,” Folger said.
Folger has other concerns as well.
“These new lithium-ion batteries are too poisonous and should be recycled properly. The recycling process is so demanding that even Germany has its doubts. It’s also very expensive,” he said.
The technological requirements of EVs are complex. An electric vehicle, also called an electric drive vehicle, uses one or more electric motors for propulsion. EVs are differentiated into three types based on the source they draw power from.
The first relies on continuous electric supply from an external generation system; this includes electric buses and trains supplied by overhead wires. The second runs on stored electricity drawn from an external source; chargeable battery-EVs are the most popular example. The third relies on on-board electric generation; these are typically hybrids with a small internal combustion engine (ICE) to power an electric generator. The car is powered either by the electric generator or both the generator and the engine, depending on the make. Fuel-cell vehicles, which use oxygen (usually from the environment) and hydrogen from fuels such as natural gas to power electric generators are also part of the third kind.
The conversation surrounding electric vehicles in India has been around chargeable battery EVS, so the primary issues arise on account of electricity generation and charging infrastructure.
The government hasn’t specified how it plans to generate uninterrupted electricity in cities, where power shortages are routine, let alone provide universal access to electricity in the hinterland.
And the present level of charging infrastructure in India isn’t encouraging. According to a Bloomberg New Energy Finance report, India currently has about 350 charging points, while China had about 215,000 installed at the end of 2016. Without adequate charging infrastructure, auto makers will not have the incentive to manufacture EVs. One of the largest disadvantages of EVs is their limited range, meaning they can run only for a fixed, limited distance on a single charge.
Consumers will not shift to EVs unless the very basic requirement of charging stations at regular intervals is met.
The government is stepping on the gas. In January, it said it would bear up to 60% of the research and development (R&D) cost of developing indigenous, low-cost electric technology. A corpus of Rs14,000 crore has been set aside under the National Electric Mobility Mission Plan (NEMMP).
Tenders for charging stations, electric three-wheelers and battery-powered buses, will also be floated within the year. The government has also reportedly held talks with over 50 Indian and global companies, seeking investment on setting up charging stations, purchasing electric cars, three wheelers and batteries.
In May, India’s first multi-modal EV project was launched, under which Indian cab aggregator Ola will run a fleet of 200 EVs meant for public transport in the western Indian city of Nagpur. These EVs would include cars, buses and rickshaws. Firms supplying vehicles include Mahindra, Tata Motors, Kinetic Engineering Ltd, American EV maker Build Your Dreams (BYD), and TVS Motor Co.
The issues that need to be considered are “job losses in the components industry, the number of upcoming oil refineries and how dependence on petrol will be reduced, the downstream and upstream sectors in the petrol business, and the investments that will possibly go bad in these sectors,” said Harish of Grant Thornton.
Factors specific to the business such as the raw material for batteries, and if they would lead to import dependence on another set of countries (apart from oil exporters), will also have to be considered, he added.
Will it go right?
For Folger of Mercedes, the future is still uncertain.
“We don’t even know whether EVs will survive till 2030. If somebody finds a way to simplify hydrogen technology for cars, it will be the technology of the future. India is betting that a lot goes right,” he said.
The chief executive officer (CEO) of Japanese auto maker Suzuki Motor Corp. recently warned of a serious downside risk to the firm’s Indian unit, Maruti Suzuki India, from the policy-induced push to EVs.
Suzuki Motor owns 56.2% of Maruti and generates the bulk of its revenue from the Indian partnership, which has a market value of around $30 billion, higher than Suzuki’s $20.5 billion. At the moment, Maruti lags local rivals such as M&M and Tata Motors in the electric car push.
“As the industry shifts towards EVs, when it comes to India, our volumes are so large that I worry that we could be caught flat-footed if there was a sudden shift towards electrification,” Reuters quoted CEO Toshihiro Suzuki, who is also a director on the board of India’s largest carmaker, as saying in Tokyo.