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Will Electrical Vehicles be the way forward in India?

By BWA Envoy
January 11, 2022
2 Minutes Read

In 2020, the sales of electric cars crossed 10 million worldwide. This article discusses the challenges and opportunities of electric vehicles (EVs) in India.

EV- the future of Automobiles

One of the fastest-growing sectors in the global automobile industry is the EV market. Although the EV revolution has been in the air for quite some time now, post-global pandemic, the revolution has caught considerable attention and gained momentum. Recently Ola, an Indian ride-sharing company, introduced their first electric bike in the market, marking a significant shift in the way we view and understand the future of the automobile segment. Earlier, the majority of automobile giants were not interested in investing in the EV segment until the pandemic imposed a big threat resulting in oil prices soaring to new heights. On the other hand, the electric vehicle manufacturer Tesla achieved good growth, especially during the first half of 2020. The impact of accelerating global climate changes, the increase in oil prices and the fervent call for the reduction of vehicular emissions were the factors responsible for the inevitable shift to EVs. Automobile giants like Mercedes, BMW, Volkswagen, and Tata Motors have already started investing in the EV segment. In the backdrop of these developments, we can expect more electric vehicles to hit the road by 2025.

In 2020, the sales of electric cars crossed 10 million worldwide. One of the fastest-growing sectors in the global automobile industry is the EV market. Although the EV revolution has been in the air for quite some time now, post-global pandemic, the revolution has caught considerable attention and gained momentum.

Which Industries would benefit from EVs?

Battery Manufacturers

The commitment by the automobile giants to focus on the EV segment has favourably impacted the EV battery manufacturers and the demand is expected to grow as more electric vehicles come out of the assembly line. With increasing demand, this sector is expected to be a 300 billion USD market. Moreover, the concessions by the government and increasing investments will keep this industry running alongside the EV market boom.

Transport Industry

The transport industry has been one of the top-performing industries for decades now, especially with the introduction of app-integrated ride-sharing companies like Uber, Lyft, Ola, etc. in large metropolitan areas and small cities. However, it was badly hit during the pandemic. With the introduction of electric and energy-efficient vehicles, people can expect a reduced cost of travelling, while enjoying cleaner air due to reduced carbon emissions. It is a win-win situation for buyers and investors, with a favourable impact on the operation leading to improving profitability.

Power Companies

Power companies would soon see a surge in their businesses as EVs are heavily dependent on their support. EV charging stations will require a massive power supply and companies have already started working towards getting surplus power and finding alternative ways to generate clean energy. Globally, some multinational giants have filed for IPOs to augment their capital to work faster to meet the growing demand.

Target vis-a-vis Challenges to Overcome

Charging infrastructure

India has set an achievable target of 30% electric vehicle sales for private cars, 70% for commercial vehicles, 40% for buses and 80% for two and three-wheelers by 2030. EV charging infrastructure is an essential prerequisite to achieving this ambitious goal. Looking at the current production trend of EVs, the charging station setups are few and there is an imperative need to increase the number of charging stations to meet the demand.

The government of India is framing policies, procedures, regulatory framework, and governance structure to promote the development of a charging infrastructure network. Effective charging infrastructure implementation is possible with the cooperation and support of central and state govt authorities, electricity distribution corporates and charge point operators.

Semi-conductor scarcity

Recently, there has been a worldwide scarcity of semiconductors impacting the production and sales of cars. One of the attributable reasons is the increase in sales of electronic devices during the pandemic resulting in demand for semiconductors. Production of chips takes more than three months, and it involves a huge investment as well.

Shortage of semiconductors will cost $210 billion in sales in 2021 worldwide and this shortage is expected to persist till 2023. India imports most of its requirements of semiconductors. To reduce the reliance on imports and to increase domestic production, the government is planning to offer production-linked incentives and capital support for the manufacturing of semiconductor chips in India.

Incentives for EV Manufacturers and Buyers

The government is incentivising electric vehicle manufacturers to boost their production and help the business to scale up fast.

Decreasing the GST on EVs from 12% to 5% and providing other income tax breaks to people who buy EVs are some of the key announcements made by the government to boost this industry. State governments have also proposed subsidies for the buyers which vary according to the vehicle battery capacity and various other factors.

The latest NITI Aayog report outlined a 15-year plan to start the bulk procurement of EVs and build sustainable batteries to lower the overall production cost and increase the sales of EVs. In the year 2015, India launched a program called Faster Adoption and Manufacturing of Hybrid and Electric vehicles under which the government offered incentives for clean fuel cars with the goal of increasing the sales to 7 million by 2020.

India’s Target in EV Segment

In a webinar organised by The Sustainability Foundation, Denmark, Union Transport Minister, Mr Nitin Gadkari stated a few important points on EV implementation as quoted below:

Cost of EVs will reduce the number of petrol vehicles.
The production cost of lithium-ion batteries is decreasing.
Implementation of charging points will increase drastically in the next two years.
Government is planning to introduce India’s first-ever fully electric tractor to the market.
To make EVs more affordable, there is a need to charge EV charging using solar panels and cell systems at home, offices, malls, and parking lots.

India’s Total Investment in EV and Outlook

The Indian government plans to offer 260 billion rupees in investment over a period of 5 five years. According to NITI Aayog's 2030 EV ambitions, EVs will account for 70% of all commercial vehicles, 30% of private vehicles, 40% of buses, and 80% of two-wheeler and three-wheeler sales in 2030.

The Growth Rate of EVs in the last Five Years: Global and Indian

In India, the EV sales were 22,000 units in FY16, 25,000 units in FY17, 56,000 units in FY 18, 1.29 lakh units in FY 19, and 2.95 lakh in FY 20.

EV Outlook for the next 5 to 10 Years

According to the Times of India, EV sales will increase rapidly as the U.S, China and Europe will be the fast adopters. According to Ernst and Young, by the year 2028, Europe will be the top adopter of EVs followed by China by 2033 and the U.S. by 2036. The same study also predicts that by 2045, fuel vehicles will decline to as low as 1%.

Company-wise Market share in India and Emerging Market Players

The market share is led by one of the country’s largest automakers Tata Motors followed by Hero Honda electric and Mahindra.

Lately, Ola started their electric segment introducing their EV scooters in 2021. With the encouraging response, they are planning to launch Ola electric cars in the coming years. Following them are Tork Motors backed by Ratan Tata, Okinawa; Revolt Intellicorp by Micromax Co-founder Rahul; Ather Energy by Sachin Bansal, Co-founder of Flipkart; and BattRE Electric.

Market Size

Surprisingly, Europe and China accounted for the most EV vehicle registrations in the year 2020 despite the global pandemic. The current global EV market has been valued at $ 171.26 billion and is expected to grow at a much faster rate and reach $500 billion in the next three years. Countries all over the world have set targets for reducing vehicle emissions by 2050. They have begun to promote the development and sale of EVs as well as related charging infrastructure. Tesla, the leader in this industry, has already seen an upward trend from the last year and the company’s share price has skyrocketed, taking the company’s valuation to $844.52 billion in October 2021. Similarly, battery producers and companies responsible for setting up charging stations have also witnessed a higher value in the market. This clearly shows that EV is one of the fastest-growing markets in the world.

Investment in the EV revolution by various automakers

The United States government spent $5 billion in 2017 to promote electric vehicle infrastructure such as charging stations.

Ford motors stated that it would invest USD 11.5 billion in electrifying its vehicle line-up through 2022.
Tesla received EUR 120 million from the Brandenburg state in 2021 for its new Gigafactory that is being built in Berlin.
Jaguar Land Rover invested $3.4 billion in the EV market, and the electric land rover is set to hit the roads by 2024.
Mercedes Benz has committed more than $40 billion between 2022- 2030 in the EV segment and it has confirmed the launch of 25 new plug-in hybrid electric vehicles as well as fully electric vehicles by 2025.
Nissan, a widely known automaker, announced a $1.3 billion investment in electric vehicle hub in July 2021.
Toyota announced its investment of over $13 billion in EV batteries. The Volkswagen group announced a whopping $86 billion in EV manufacturing over the next 5 years.
India’s largest automobile manufacturer, Tata Motors, has announced its investment of $2 billion in EV segment after raising a funding of $1 billion from TPG private equity firm.
Ola Electric, a subsidiary of Ola, recently launched their first EV scooters.

Conclusion

As far as India is concerned, according to a report by India Energy Storage Alliance projects, EV market in India is expected to grow at a CAGR of 36% till 2026. The EV battery market is projected to grow at 30% during the same period.

Considering the current persistent shortage of semi-conductors, EV market and EV battery market growth may get slightly hampered till the time India’s efforts in domestic manufacturing of semiconductor chips is in place.

Notwithstanding, the initial hiccups, EV revolution is taking deep root for an eventual boom as several auto giants have committed to go electric by 2023 and change their lines completely to EV by 2030. With associated benefits viz., sustainability, cost effectiveness, cutting down global carbon emission – and other high expectations, the EV segment is here to stay and flourish!

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