During India’s biennial motor show Auto Expo in February, the Indian auto industry proclaimed its vision towards a safer, cleaner, and shared mobility. Unfortunately, just four months after the show, the economic slowdown has compelled most of the Indian OEMs to defer the investment plans and technology up-gradation needed to achieve this vision. The much talked about plan for switching over to electric mobility is no exception. However, despite the setback, there is no doubt that EVs are the future of transportation and any disruption in the plan would be temporary.
India, the fourth largest producer of automobiles, has much to gain from converting its internal combustion (IC) vehicles to EVs. The most important gain will be much lower crude oil bill. India imported crude oil worth $102 billion in 2019-20, around 9% less than the previous year mainly due to a fall in crude prices. Besides, ICE vehicles are major contributors to pollution in cities. Thus, replacing IC engine driven cars with electric vehicles has the potential to reduce greenhouse gas (GHG) emissions. Delhi and other cities experienced significant improvements in air quality during the lockdown due to the absence of vehicles on road. Emission from fuel-based vehicles are toxic and contribute to human health problems. Moreover, India is also committed to reduce its carbon intensity to 35% by 2030 under the Paris Accord.
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From the user’s angle also, the cost of charging a vehicle’s battery is much less compared with using fuels. A joint study by NITI Aayog and Rocky Mountain Institute suggest India can save 64% of the anticipated road-based mobility-related energy demand and 37% carbon emissions by 2030 by following a shared electric and connected mobility future.
The global scenario
The global electric vehicles market has witnessed a rapid evolution in recent years and achieved a volume of around 3.2 million units in 2019. Supported by favourable government policies, tax concessions, and subsidies, the annual sales of EVs are expected to grow 8-10 times by 2030. The contribution of technology in the changeover is immense as it helped in increasing battery range; charging infrastructure spread and in making the EVs affordable. The OEMs across the world have announced an additional investment of $225 billion for the development of new EVs and in related technology. Some of the important timelines announced by global leaders in the auto sector were:
- Mercedes-Benz- To offer at least one electric option in every Mercedes-Benz model series.
- Ford- By 2022, the company plans to include 40 EVs in its model range.
- General Motors- To launch at least 20 new EV models by 2023 and invest more than $20 billion by 2025 in EV technology.
- Honda- The entire range of car models to be electrified by 2015.
- BMW- To offer 25 electrified vehicles by 2023and up to 25 % sales by the year 2025.
- Volvo-To generate 50% of its global revenue from EVs by 2025.
- Toyota-Half of its global sales will be of electrified vehicles by 2025.
- Hyundai – To Launch 23 Pure Electric Cars By 2025.
- Tesla Motors- Its Model S Long Range Plus has a driving range of 402 miles (647 km), maximum in any battery EV.
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Government initiatives to promote EVs
In the backdrop of rising crude oil prices touching $117 a barrel in 2013, the National Electric Mobility Mission Plan 2020 was the first major initiative launched by the government for promoting electric and hybrid vehicles to achieve national fuel security. It committed to achieving 30% e-mobility by 2030. In March 2015, the Department of Heavy Industry (DHI) launched a scheme, namely Faster Adoption and Manufacturing of Hybrid & Electric Vehicles in India (FAME). The government supported nearly 2.78 lakh electric and hybrid vehicles with a total demand incentive of approximately Rs 343 crore under Phase-I of the FAME initiative. Additionally, 465 buses have also been sanctioned for various cities and states under the scheme. NITI Aayog put out a bold declaration in 2019 stating that after 2030, only electric vehicles (EVs) will be sold in the country.
After review of phase I, DHI formulated the FAME II in March 2019. The scheme has three components namely, demand incentives, establishment of a network of charging stations, and awareness related activities. Initially, the scheme proposes a uniform demand incentive of Rs 10,000/- per KWh for passenger cars and Rs 20,000/- per KWh for buses and will mainly focus on supporting the electrification of public and shared transportation. Under the scheme, financial support to the extent of 100% of the cost depending upon the project for setting up of public charging infrastructure can be provided.
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Additional promotional measures by the government to promote electric/ hybrid vehicles use are as listed:
- GST on EVs cut from 12 % to 5% compared with 28% with cess up to 22% for conventional vehicles.
- Allowed sale of electricity as a service for charging of EVs.
- Exemption to the Battery-Operated Transport Vehicles from the requirements of permits.
- Exemption of registration fees for battery operated/electric vehicles.
- Additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase EVs.
Indian industry response
The EV industry is at a nascent stage in India accounting for less than 1% of the total vehicle sales. More than 90% of electric vehicles on Indian roads are low-speed electric scooters (less than 25km/hr) that do not require registration and licenses. OEMs like Maruti Suzuki, Mahindra & Mahindra, MG Motor, Hyundai Motors, and Tata Motors, all have plans to roll out more affordable battery-powered electric vehicles in the country.
In general, the industry is supportive of the government’s plans and is continuously investing in EV research and manufacturing capabilities. However, there is a general concern that a forced adoption might not be sustainable and may result in the import of low-quality products adversely affecting the Indian auto sector. Thus, the switchover process needs to be gradual and supported by a phased indigenisation plan. Two and three wheelers that comprise a lion’s share in India’s vehicle population could be taken up first for converting into electrical power.
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Focus areas for development
The simplest power train of an EV consists of a high voltage battery, an electric motor with a power electronics controller, and a gearbox. Of these, the battery is the heart of the system, something like an IC engine in a conventional vehicle.
In the Indian context, 100% electrification of vehicles is difficult to achieve in the short and medium-term for lack of indigenous electric energy storage technology. Thus, there is still work to be done on the technology front to realise an electric mobility future for India with the active participation of all stakeholders. On the market front, it is also equally important to understand what it would take buyers to prefer an electric car over conventional vehicles. The current high costs of electric vehicles, lower mileage achieved per charging, and lack of charging infrastructure are the main factors affecting a buyer’s decision. This calls for intervention by the governments and the industry.
Since the lithium-ion battery technology invented by John Goodenough in 1980s and commercialised in 1991 by Sony, researchers have been actively working to improve the power density, safety, life, recharge time, cost, and other characteristics. While the demand has more than doubled since 2015, improved technology and a higher scale of production have resulted in a fall in prices of lithium-ion batteries by 87% since 2010. The current global manufacturing capacity of lithium-ion cells for electric cars is about 160 GWh per year with China holding about two thirds of capacity. Apart from the advantage of cheap labour, China also has large lithium reserves.
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Currently, Indian manufacturers of EVs are dependent on other countries for sourcing batteries, resulting in high prices of EVs. Globally, battery cost accounts for about 30% of the total cost of an electric vehicle. To make indigenous production of EVs economically viable in India, localisation of Li-ion batteries is crucial. One major impediment is the non-availability of raw materials like lithium, cobalt, nickel, manganese, and graphite, making us dependent on countries like China, Chile, Bolivia, and Australia. Given the present level of distrust with China, India must explore sourcing Lithium from other countries. The reserves in Latin American countries are not much explored and thus, open a good opportunity for India to invest in mines. The India-MERCOSUR Preferential Trade Agreement (PTA) and the India-Chile PTA are the existing mechanisms that can be expanded for preferential access to lithium.
As regards the local efforts, ISRO has developed Li-Ion battery technology for electric vehicles and it has been asked to share this technology with Indian companies. The RFQ issued by ISRO was well received, and around 10 private industries/ PSUs have been shortlisted for acquiring the technology for local manufacturing of lithium-ion batteries. It is for these technology buyers to innovate further on the baseline technology offered by ISRO/VSSC to address the specific needs of the market. Appropriate government interventions in terms of supportive financial policies like concessional land, reduced import duty on inputs/ components, and other direct government subsidies can help in adoption and modification of ISRO technology. It was also reported that Suzuki Motor Corporation, Toshiba Corporation, and Denso Corporation are investing to set up Li-ion battery assembly lines in Gujarat. Such projects with imported know-how are equally welcome, however, production from more basic stage need to be given monetary incentives to encourage localisation as against an assembly line fed by imported battery packs only adding to our import bill.
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Globally, battery makers are concentrating on three key areas: battery life, power density, and cost. CATL, a major Chinese battery manufacturer, recently announced that it will soon begin production on a battery that can operate for 2 million km. The capability puts it far ahead of any of the batteries in the market today. Another focus area is the driving range. Battery driven EVs have a shorter driving range than most conventional vehicles and can travel 100 to 300 miles on a charge, depending on the model. The third focus area is the time taken for recharging a battery, however, with the development of fast chargers, the recharge time has come down to 30 minutes. Some companies have been recommending battery swapping as a solution for solving this issue. This will, however, mean increased inventory cost and other logistic issues for the charging stations. Countries like France, Germany are spending funds in billions for achieving higher performance. India which produces around 4 million passenger cars and 26 million two/three wheelers annually should not lag behind or else we are likely to end up spending foreign exchange on import of battery in place of current spending on crude oil.
Ideally, the nationwide network of charging stations needs to be built, capable of recharging car and commercial vehicle batteries within a reasonable time, before placing EVs on the roads. With 60,799 outlets dispensing petrol and diesel as in October 2019, India is behind only the US and China in the number of petrol pumps. The charging infrastructures are to be located across the country, in small towns, and along highways. Ensuring a reliable power supply for the charging stations is another major task. Would the present electric grid network in India be able to sustain the load once multiple fast chargers are pressed into the ecosystem? What alternatives are being suggested during power cuts and low voltage periods, not uncommon in India?
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While battery and charging infrastructure for EVs have received maximum attention, there are more related issues requiring intervention by the government and industry as well. It is accepted that EVs are more energy-efficient than petrol-powered vehicles and have nil emissions at the exhaust, the reduction in GHG will ultimately depend on the generation sources on the grid used to charge them. In some cases, EVs could result in substantial GHG emissions, if charged primarily with fossil fuel-based generators. Therefore, without a major shift from coal-based power generation to renewable sources, a battery-electric car will just shift the pollutants from the exhaust pipe to the power plant where electricity is generated. Since 75% of electricity is generated in India by coal-fired power plants, the objective of reduced air pollution will remain elusive.
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For electric cars to be a green alternative, policymakers should first focus on electricity-producing source diversification with either renewable or nuclear sources. Another issue which cannot be ignored is, with a gradual shift to EVs, fuel storage, transport, and distribution network will become redundant, causing unemployment and losses to the fuel dealers. As a way out, the existing petrol pumps may be given preference and incentives for converting into charging stations. As regards India’s well-developed auto ancillary industry, those presently engaged in the production of components for conventional vehicles will have to look for alternate products for keeping their production line occupied and avoiding lay off of employees.
Despite formidable challenges, the development of electric cars will continue to evolve in the coming years and electric vehicles will not only penetrate the market but will become the preferred choice of transportation. It is the responsibility of all stakeholders to ensure that the transition is smooth and sustainable.
(Krishna Kumar Sinha is an industrial policy expert based in New Delhi. He retired from Indian Engineering Services in 2017. The views expressed are personal.)
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Krishna Kumar Sinha is an industrial policy and FDI expert based in New Delhi. His last assignment was as an industrial adviser in the department of industrial policy and promotion, DIPP, currently known as DPIIT, under the ministry of commerce and industry of the government of India.