While big ticket announcements have brought the national spotlight on EVs, India’s e-mobility shift is likely to depend on the humble two-wheeler
Tesla’s registration in India has spurred new interest in electric vehicles across the country. The national news cycle is carrying daily updates on EV policies — which in the not too distant past was a fringe topic — and the impressive Tesla Model S was also spotted being tested in Tamil Nadu a few weeks ago. Mercedes-Benz, too, has taken the plunge with its fully-electric EQC now available for bookings, while Tata’s Nexon EV sold over 2,600 units in 2020 to capture 63% of India’s electric car market.
Despite their optical appeal, however, upmarket electric cars are unlikely to lead India’s e-mobility transition. The humble two-wheeler, at an average price of ₹65,000, is by far the largest selling vehicle in the country and generally accounts for 80% of total sales every year. Its affordability is even more apparent when compared to electric cars. For example, Mahindra’s e-Verito is priced at ₹9.12 lakh (ex-showroom Delhi) and the Tata Nexon EV retails between ₹13.99 lakh – ₹16.25 lakh (ex-showroom Delhi). Both are priced well beyond the ₹4.1 lakh benchmark set by the country’s largest selling car, the Maruti Suzuki Alto — and are far removed from the two-wheelers. That Ola Mobility will be setting up the world’s largest electric two-wheeler factory in Tamil Nadu to take e-mobility outside urban India only reaffirms the point.
Lacklustre sales, but a glimpse of change
India’s EV sales have so far been disappointing since they account for not much more than 1% of its annual auto sales. Yet, the trend seems to be changing. Having grown by 20% year-on-year between FY19 and FY20, sales were gaining momentum until disrupted by the lockdown, but recent reports suggest that the two-wheeler category, especially, is experiencing exponential growth. CEEW reported that India’s EV market will grow by 200 times this decade to reach 100 million units on the road by 2030, and Gurgaon-based Okinawa Motors — a long-standing electric two-wheeler manufacturer — is expecting 200% growth in the short term. Also, Navin Munjal, CEO of Hero Electric, says that Hero’s sales this year are already 10 times that of 2020, and its online orders are strengthening the fastest. The surge in demand has converted to a ramping up of manufacturing in the country with major producers Hero Electric, Ather Energy, Ampere and Okinawa all announcing plans to expand manufacturing capacity.
Aided by falling battery costs and emergence of technologies such as battery swapping, we may be witnessing a sudden jump in EVs’ popularity.
A number of state governments are taking more action as well, with Gujarat, Rajasthan, Tamil Nadu and Andhra Pradesh each having approached Tesla to set up shop in their jurisdictions. Cheap power, guaranteed water supplies and road connectivity at the doorstep are thrown in as part of the deals, and this is outside of the work they’re doing on attracting other manufacturers through tax holidays and highly subsidised land.
What to prioritise, what to let follow
Despite the welcome uptick in interest, however, conventional vehicles will rule the roost for the foreseeable future because consumer choices when it comes to buying vehicles have been shown to depend primarily on three factors – upfront costs, ease of ownership and resale value.
At the moment, under these factors petrol internal combustion engine (ICE) vehicles are the better option. For instance, electric two-wheelers currently cost about 30-40% more than conventional two-wheelers. Even though these can save a user up to ₹20,000 over a year’s worth of commuting versus a petrol two-wheeler, the latter’s sales topped 21 million units in 2019. By comparison, just 200,000 electric two-wheelers were sold in the same year.
The reason is fairly simple. A mass-market petrol two-wheeler is a tried and tested technology that returns excellent fuel economy of around ~75 kml, can be re-fuelled practically anywhere and can be serviced even at roadside garages. Even the erratic and steadily increasing prices of fuel have failed to pull customers away. In contrast, the lack of charging infrastructure remains a primary deterrent for electric two-wheelers. Servicing them is also not yet a skill that has percolated out beyond the dealerships, even though the electric powertrain inherently requires much less maintenance.
There is also the psychological factor of being unfamiliar with the technology. Customers of all ages have grown up around ICE vehicles, but the electric powertrain is still very new. The overblown negative press around the few mishaps the vehicles have suffered, such as the li-ion battery packs catching fire, and the everyday reinforcement of “range anxiety” have not helped matters either. Thus, while there has been considerable progress on both the issues, and the percentage of mishaps with EVs has been much less when compared to ICE units, it has been difficult for the manufacturers and dealerships to erase the uneasiness from customers’ minds.
Finding the right balance
For policymakers and auto manufacturers, therefore, the dilemma is about deciding which half to promote. To prioritise ICE vehicle sales would slow the progress on EVs, while to push for more EVs would mean automakers would have to let go of sales revenue from established products. Most of the best-selling ICE vehicles on the market today are borne out of enormous investments in research and testing, and the process takes up to a decade to conceptualise, design and be set into production.
Thus, unless there is adequate demand for EVs, automakers would be unwilling to invest more funds into developing electric models. The process takes significant commitment of time and resources, but in the absence of a nationally-binding EV policy and with lacklustre sales, automakers are bound to wait for the market to decide when and if to invest. The situation may be on the turn, but it is easy to mistake a sharp jump in EV sales for a noticeable dent in the country’s larger automotive mindset.
This “chicken and egg” situation of which needs to happen first — the demand or the supply — has therefore hampered what could have been a much faster uptake of EVs.
What the governments could do
To ensure that the apparent turnaround is sustained through to 2030, there are four probable solutions:
A. Adopting mandatory sales targets: Each state, along with the central government, would need to declare that every automaker must sell EVs to meet a certain, progressively growing percentage of its total sales every year. A similar approach is in force in California and Colorado, where automakers must meet a fuel efficiency target for its entire fleet (or the sum total of all the vehicles it sells every year), and are awarded tax credits for every zero-emission unit. That the VW Group has managed to lower its average carbon emissions from its new cars by a whopping 20% in just a year — albeit in the EU — is testament to the fact that this approach works and is profitable at the same time.
B. Leading by example: Quite like the new US President’s announcement of replacing all federal vehicles with American-made zero emission vehicles, India’s central and state governments should commit to going 100% electric as soon as possible. This would not only offer an enormous opportunity for new EVs to enter service, but also greatly boost their public visibility. A number of public transport authorities are investing heavily in electrifying their fleets, but several government officials are still ferried in ICE vehicles.
C. Subsidising EVs even more: While the Delhi government has introduced a pollution tax on ICE vehicle sales to (partially) subsidise the upfront costs of EVs, other states that are equally affected by air pollution, such as Uttar Pradesh, Haryana, West Bengal and Chhattisgarh could consider doing the same. It may be an unpopular opinion, but a nominal surcharge on new vehicles and petrol and diesel prices could raise several thousand crores each year, in addition to the largely unspent Rs10,000 crore available under FAME-II.
D. Investing in expanding inter-city charging infrastructure: While every state EV policy accounts for sufficient charging points across the cities, there needs to be strong emphasis on covering inter-city routes. The recent MoU between the NHAI and EESL is a step in the right direction, since one prevalent consideration in new vehicle buyers’ minds — even if it is not entirely rational — is that they want the option of being able to drive across the country at any given point. India’s sparse charging network along the highways and its practically non-existent charging points on smaller roads has been a persistent deterrent for buyers.
Tesla’s come at the right time
Tesla’s exceptional cars may not register more than 500 sales in a year for the next couple of years. Yet, its arrival has spurred renewed interest in a sector that has long battled customer skepticism, and electric two-wheelers are likely to be the biggest beneficiaries. But this is an opportunity for India to re-evaluate its high import duties on completely-built units (CBUs), and where its EV charging network stands at the moment.
Having a reliable pan-India charging network will be key to taking EVs mainstream. For instance, Tesla is known for its Superchargers — its impressive but proprietary technology — and its cars offer excellent driving range per charge. But only because the US is dotted with Superchargers can the cars be driven from coast to coast on practically every “interstate”. Of course, driving in India would be a different challenge, but the assurance of being able to plug in to (fast) chargers on major highways will go a long way in alleviating range anxiety.
Thus, India would do its mass e-mobility market a favour by paving the way for upmarket electric car manufacturers. The cars themselves will be bought only by the very rich, but the surrounding ecosystem will help push the country’s overall EV sales that much further.