Standardisation Gaps, High Cost, Lack Of Scale Undermine India’s Potential To Become A Global EV Hub

Much has changed since. It is difficult to keep count of EV variants one sees today, especially in big cities. With India setting a target of converting 30 per cent of its vehicle fleet to EVs by 2030, the Union government has brought several incentives and policies to promote faster adoption of clean energy-driven vehicles. Their implementation is important for the overall growth of India’s green transport ecosystem.

Government Initiatives

India is the world’s third-largest automobile market today. But it doesn't make it to the top 10 in EVs, although EV sales have grown exponentially in recent years. The share of EV sales in total automobile sales grew threefold in just one year, from 0.4 per cent in 2021 to 1.5 per cent in 2022. That's three times faster than the global average, which took three years to grow from 0.4 per cent in 2015 to 1.6 per cent in 2018.

The Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) 2015 scheme, followed by FAME II - 2019, pushed for this growth spurt. The Union Budget for FY 23-24 gave a major boost to the production of electric vehicles through the adoption of hydrogen fuel and by embracing other evolving technologies.

The Centre also declared duty exemption on import of capital goods and machinery required for the manufacture of lithium-ion cells. Furthermore, the Ministry of Power issued revised consolidated Guidelines and Standards to attract private players to invest in EV charging infrastructure across the country.

Similarly, the Performance Linked Incentives (PLI) - Auto Scheme provides Rs 25,938 crore in budgetary assistance for a four-year period spanning 2022-23 to 2026-27. The aim of the PLI scheme, which covers Battery Electric Vehicles (BEVs) and Hydrogen Fuel Cell Vehicles (HFCVs), is to boost manufacturing of Advanced Automotive Technology and promote deep localisation.

Subsidy Cuts Don’t Halt E2W Sales

Agencies like Bain & Co have predicted a 40 -45 per cent adoption of electric two-wheelers (E2Ws) and 15 -20 per cent for electric four-wheelers (E4Ws) by 2030.

Despite a 25 per cent reduction in subsidies, 91,423 E2Ws were sold in November 2023. As a low-hanging fruit, E2Ws would serve as the testbed to check the EV ecosystem’s reliability. Vahan portal data shows E2Ws have sold well despite cuts in subsidy.

Battery Replacement A Costly Affair

India's cost-sensitive market faces high battery costs. The price per kW/hr dropped from Rs 13,362 in 2022 to Rs 11,537 in 2023, but it still remains high. Most electric cars in India have 30-40 kWh batteries, requiring replacement costs of Rs 3 lakh to Rs 4.5 lakh in 2023.

It will be interesting to see if Indian consumers would be willing to spend close to 40 per cent of a car’s overall cost in replacing just the battery. What happens when the first maintenance cycle ends for these EVs is yet to be seen.

Being cost-sensitive, Indian consumers will look for some rebate or incentive when upgrading to a new battery for their EVs. Policymakers would need to iron these uncertainties out to further the EV ecosystem.

Hybrids Do Better

A HSBC Global Research note has suggested that India should prioritise adopting hybrid vehicles as a Sustainable Mobility Solution in the next 5-10 years, before transitioning to full battery-driven EVs.

Hybrids combine a conventional ICE (internal combustion engine) with an Electric Propulsion system. They are seen as a practical and viable option for the medium term as India moves towards full electrification of its vehicle fleet over the next 5-10 years.

Hybrids generally consume less fuel and emit less carbon dioxide than ICE only vehicles, and are critical for India's decarbonisation drive.

Indian buyers are more inclined towards hybrids than EVs. Vahan portal data says the number of petrol hybrids sold last year, 324,143, is nearly five times more than EV sales, which stood at 73,182 in 2023. This is despite the fact that hybrids attract a 43 per cent GST, while EVs enjoy a concessional 5 per cent GST.

Here’s why the Indian buyer is not warming up to EVs just yet:

 

Infrastructure Bottlenecks

Although there are already 30 lakh EVs on the roads, India hasn't yet decided on charging standards it must follow. Car manufacturers are producing whatever standard they feel appropriate and charging infrastructure companies continue to set up charging points in a similarly disparate fashion.

For example, most public EV chargers set up in Delhi have been based on the Chinese GB/T standard, which has been renamed Bharat DC-001. No manufacturer currently sells cars with this standard anymore making the existing charging network redundant.

Public charging tenders at the local level are still using CHAdeMO, a Japanese standard, despite the fact that there no cars with Japanese charging protocol. A lot of public tenders do not take any of these factors into account, thereby impeding the overall growth of the EV ecosystem.

Not Enough Entry-Level Options

Faster EV adoption in India will need price-competitive EV car models, which are dependent on the price of batteries. That can only be achieved if battery manufacturing is entirely localised.

The fewer entry-level car models and the overall lack of diversity is ending up pushing the buyer towards hybrids. For example, Tata, which is leading the EV race in the country, has only one model to offer in the under Rs 10 lakh range. Most other car makers have priced their EV cars at far higher price points.

Also, the lack of buyback mechanisms by OEMs is dissuading buyers from making the switch to EVs. A buyer is already taking a risk with the high upfront cost and lack of infrastructure. With no rebate mechanisms in place by OEMs, the consumer is left with no comfort when it comes to liquidity of their EV assets.

Ramping Up Components Manufacturing

Lack of scale in the production of India-made EV components is impeding their cost competitiveness against imports. But, the rise in demand for EVs in recent months has encouraged the relevant ancillary industry to amplify its momentum.

The domestic manufacturing strengths of the EV Component, Electric Vehicle Supply Equipment (EVSE) and Lithium Ion Battery (LIB) industries to dictate the supply-side potential of the local EV industry.

The Phased Manufacturing Programme (PMP) today is promoting indigenous manufacturing of EVs and their extended parts for FAME-II, increasing domestic value addition and capacity building. Localisation in motor controllers and LIB as per PMP needs to be 50 per cent and 60 per cent by 2025 and 2030, respectively.

This will encourage both Indian OEMs and global OEMs to ramp up their value chain in India. The major players involved in the Indian EV charger manufacturing domain mostly include established companies that have expanded their electrical and electronics business portfolio (consisting of inverters, rectifiers, etc.).

The PMP scheme’s impact can be seen as Tesla is trying to enter India. The government is planning to reduce import duties on electric vehicles to a 15-30 per cent range, specifically for vehicles priced between US$25,000 and US$35,000.

With reduced import duties on the horizon, more foreign players may end up manufacturing in India, triggering more innovation and research and development (R&D) efforts by Indian EV companies. Localisation in the future would reduce India’s dependence on imported equipment.

Automotive R&D worldwide is driven by increasingly stringent emission norms, higher safety standards, digital technologies, shortening product life cycles, and the emergence of connected and autonomous cars. With R&D expected to undergo a significant overhaul due to the continuous investment in new technologies, India could well become the next global EV R&D hub.

Way Ahead

India needs to quickly develop strong R&D capacity in EV subsystems. GOI has plans to give R&D grants through product development challenges for vehicles that could be commercialised within one to three years.

Last-Mile Connectivity (LMC) is another area where electric micro-mobility solutions can be offered to meet the demands of short-distance commutes. The STAMP Challenge run by WRI India is a great example of collaboration between different stakeholders, both public and private to address the LMC mobility gap.

Batteries still account for 40 per cent of the EV cost. Indian OEMs need to get into joint ventures with foreign entities having expertise so that India is not over-dependent on the global value chain for EV technologies before eventually localising the entire value chain.

Charging solutions at source (corporate parks, residential apartment complexes, etc.), battery swapping solutions for 2W fleets and Battery Management Systems (BMS) with alternative battery chemistry to mitigate high ambient temperature in India are some of the other imperatives that need attention.

Intermediate Public Transport operators, cab aggregators, last-mile micro-mobility solutions and individual vehicle owners need to be provided with lucrative incentives to ensure a large-scale transition to EVs.

In short, India has the potential to become an EV manufacturing hub, realisation of which critically hinges upon not just smart policies and innovations but also on the ability of the government and businesses to come together to play on scale and bring in a seamless, cost-effective transition to EVs.

(The author is a public policy and urban transportation enthusiast and specialist. Views expressed are personal)