After Initial Success With Electric Vehicles, Will India Step On The Gas Again?

According to the Ministry of Road Transport and Highways’ Vahan Dashboard, a total of 10,41,935 EVs were registered with regional transport offices till Sep 20, accounting for about 6 percent of the total vehicle sales in the country so far this year. A Mckinsey report this month said the rapid transition to electrification signifies a “decisive inflection point” for India. It added that 70 percent of Tier-1 Indian car consumers are willing to consider an EV for their next vehicle, as compared to the record-high global average of 52 percent.

Several policy initiatives – such as the Faster Adoption and Manufacturing of Electric Vehicles (FAME subsidy) – have helped speed up the shift towards EVs. Besides, some cities have started regulating internal combustion engine (ICE) vehicles to curb rising air pollution and manage traffic congestion. Aided by a supportive policy regime, car manufacturers, including start-ups, have announced ambitious electrification targets and trimming ICE models to focus on EV products for the rising urban middle-class.

But there are several challenges on the road to achieving the government’s 2030 target. India has set a target of EV sales penetration of 30 percent for private cars and 80 percent for two-and-three-wheelers. The target for commercial cars is 70 percent and for buses, it is 40 percent. What this means is there should be around 8 crore cars on Indian roads by 2030 – an ambitious but achievable plan.

Roadblocks

A significant challenge in transitioning to electric mobility is the high upfront cost of EVs, when compared to vehicles that run on fossil fuels. There is also the problem of inadequate charging infrastructure and unavailability of a circular economy for EV components. For example, no secondary market has been developed for the lithium-ion batteries that power electric vehicles. So, the resale value of cars or the batteries is not yet clearly established. One of the reasons a consumer prefers an ICE vehicle is their resale value in the secondary market.

There are also limited financing options available for EVs. A Niti Aayog study estimates Rs 45,000-55,000 crore will be needed to finance EV purchases by 2026. But fewer banks and NBFCs lend for EVs. Those that lend offer unfavourable terms because of perceived risks linked to a new industry and still-developing technology. Probably that is why EV 2-wheelers and 3-wheelers have significantly greater sales figures than 4-wheelers. Together, they make up nearly 94 percent of the total EV sales, according to the Vahan Dashboard data.

At the same time, electric buses are yet to find any foothold. A big reason for this is delayed payments to the manufacturers by state transport corporations, which are struggling with their poor financial health. EV manufacturers, including India’s largest EV maker Tata Motors, have often complained about this issue and stayed away from bidding for government contracts fearing blocked capital.

The latest MoRTH financial data show the 56 State Road Transport Undertakings (SRTUs) collectively have a debt of Rs 38,000 crore. The PM-eBus Sewa fund aims to address this serious bottleneck in adoption of electric buses at a mass scale.

To boost the sales of e-buses and protect the interest of manufacturers, the government recently announced the PM-eBus Sewa scheme with an outlay of Rs 57,000 crore to deploy 10,000 electric buses – along with charging and associated infrastructure – in 169 cities. But it faces a formidable challenge in the historical and operational inefficiencies of city bus services.

Ban ICE Vehicles?

Last week, Union Minister of Road Transport and Highways (MoRTH) Nitin Gadkari created a flutter with his reported remarks at an event organised by the Society of Indian Automobile Manufacturers (SIAM), advocating for imposition of an additional 10 percent GST on diesel engines and vehicles. He, however, later clarified there is no such proposal under consideration by the government currently.

While imposing additional tax may be a drastic step to rollback ICE vehicles and boost EV penetration, there is a definite need for some thorough measures to discourage vehicles that run on dirty fuels. Manufacturers are making a serious effort to transition to cleaner fuels by launching new models regularly to create demand. But they too are faced with supply chain constraints.

The government needs to ensure uninterrupted supply of crucial vehicle parts and lithium. While India has extensive reserves of this invaluable resource, it still needs to be extracted efficiently and at a large scale to meet the demand for mass production of EVs. To support the manufacturers, the government is considering extending the FAME scheme into its third phase with an outlay of Rs 40,000-50,000 crore.

There is a need to focus on decarbonising the transport sector if we are to reach net zero emissions by 2070 as outlined by Prime Minister Narendra Modi at the COP26 climate change summit in Glasgow in 2021. Trucks and tractors are the two biggest guzzlers of diesel and they need to be electrified for any meaningful progress.

For trucks, charging infrastructure needs to be set up along highways and near areas these vehicles load and unload goods. At these places, the trucks have to remain stationary for hours and this time can be better utilised to reboot them.

In addition to that, there is a huge potential for expansion of the EV industry in rural India, which offers a massive real estate to set up charging and renewable energy infrastructure to power these units. It is also easier to convince potential first-time users in the countryside to buy EVs than those who already have a vehicle parked in their garage.

The deployment of EVs, say tractors and other LCVs, for farming and transportation of goods to the nearest ‘mandis’ can boost the income of farmers, already reeling under increased diesel and petrol prices. Haryana has included electric tractors in their EV policy and started offering subsidies to tractor buyers.

A momentum for shifting the economy to cleaner fuels has been built. However, a proactive approach is needed to address the challenges that arise from time to time. Otherwise, it won’t take long before consumers revert to relying on ICE vehicles.