India’s transition to Electric Vehicles.

Electric vehicle (EV) ecosystem in India continues to be at a very nascent stage.

Despite being the 5th largest auto market in the world, India, in terms of the electric vehicles sold, does not even feature on the list of top 15! China continues to dominate the EV market followed by the US and other European countries.

Take Norway for example. Almost 45% of new cars sold in this country during 2019 were entirely electric-powered. The number of electric vehicles registered in Norway is more than that registered in India. If we factor in population, this is something worth appreciating, isn’t it?

So, what steps did Norway take to become a global leader in EV adoption?

No import tax on EVs, reduced registration tax, exemption from road tolls, free parking etc. were some of the incentives. But even the Indian Government provides incentives. Then why is the number of vehicles sold still so low?

You see, unlike the Indian Government, the Norwegian Government has been providing these incentives since 1990s. Early support from the Government is one of the major reasons why EV sales in Norway outnumber that in India.

Well, now that the Indian Government has started to support this industry, let’s forget what they did not do and focus on what they are planning on doing.

India has a lot to gain from EV adoption (not only in terms of ecological impact but also economic)

If we consider oil import cost — India is the third largest consumer of oil with more than 80% of its demand met by imports. In 2019, crude oil imports were valued at US$ 111.96 billion. India needs to import oil to cover over 80 percent of its transport fuel. Imagine the savings if this cost is not required to be incurred, India’s oil-import bill would considerably reduce due to EV adoption.

Let’s consider another factor — employment. It has been estimated that by reducing oil demand by more efficient electric cars, 2 million additional jobs will be created. Therefore, any shift from buying imported oil to expenditure on EV production would generate additional employment.

Migration to EVs is clearly going to benefit, but the policies need to be tailored to suit India, because, compared to rest of the world, Indian automobile market is very different.

79% of vehicles on Indian roads are estimated to be two wheelers. Three-wheelers (including tempos) occupy about 4% share of the Indian market. Premium four wheelers, where most advanced EV technologies are available in the global market, has a share of only 2% on Indian roads.

Well, in segments such as two-wheelers, three-wheelers, small goods vehicle, we do have a leverage, don’t we? I mean, look at the volumes in these segments compared to other countries and the existing industrial capabilities. No other country can offer such a market in these segments. Not even China. Plus, the domestic manufacturers are better off due to their prior experience in dealing with these segments.

This gives India an edge and an opportunity to not only take steps to meet the domestic demand but also to be a global leader in these segments. Government policies to support domestic manufacturers to ramp-up electric vehicle production, and capabilities of Indian manufacturers to offer vehicles with good speed and an appealing design will help Indian consumers to migrate and make this transition.

Today, these segments are a primary mode of transport for villages in India. Focusing on these segments would also help in serving a larger population.

It is undeniable that premium consumers can play a crucial role which will pave the way for other Indian consumers to migrate to electric vehicles.

Another aspect that would play a crucial role is investment in the charging infrastructure.

Charging infrastructure must be widespread (NITI Aayog report suggests — creating an infrastructure, maybe even every kilometre, in dense areas) and to attract private investment in this space, it must be first funded by the government. Currently, there are around 170 charging stations in India. Government of India has set up an ambitious target of setting up one charging station every three km in cities and every 25 km on both sides of highways. At both the Central Government level and State Government level, policy changes are being implemented to pave the way for accelerated charging infrastructure capacity creation.

What about the vehicle cost?

With India being a price sensitive market, this should be the most important factor.

Batteries dominate costs of EVs (around 30%-40%). Lithium is one of the critical elements in these batteries. Unfortunately, India has limited Lithium reserves of its own and has to rely on imports to meet its demand currently, and is particularly dependent on China, who has dominated the lithium manufacturing industry.

China is home to 73% of the world’s lithium cell manufacturing capacity (why do they have to lead in everything!). Not only do they have their own mines but have also taken a substantial lead in acquiring new ones abroad.

The Indian Government has also started to reach out to other countries like Argentina, Bolivia and Chile to secure these mines (FYI — Chile, Argentina, and Bolivia, together referred to as the “Lithium Triangle” hold more than 75 percent of the world’s supply). Acquiring these mines would give India an access to a strategic mineral, which then can be used to manufacture batteries locally.

Manufacturing batteries locally will help reduce the EV cost significantly. This would increase the demand as currently these vehicles are priced higher than the traditional vehicles.

We cannot ignore the subservient — the Auto-ancillary industry. They can play a crucial role in manufacturing these batteries. A careful plan to hand-hold such industries and help them during the transition to EV components is required. Else, many of them will not survive.

Startups are playing a pivotal role too. Investments in Indian EV startups by corporate, venture capital and private equity firms (mostly Japanese) has seen a growth of 170% with a total of $376 million being invested in 2019, as compared to $147 million in 2018 (Ola Electric, with its $300 million in funding is an obvious outlier).

Well established corporates in India, have also invested heavily in this space as transformation towards electric will be far more sustainable and bring about a dramatic change in the industry. The automotive industry is at the cusp of the biggest change in more than 100 years.

Talking about EVs, how can we not mention Tesla, right?

Tesla accounts for more than 70% of all electric vehicle sales in the US. Look at Tesla’s vehicle delivery chart –

Last week Tesla announced that they had delivered more than 90,000 vehicles in the recently ended quarter. That’s despite having to shut down its factory for the first half of the quarter due to spread of Covid19. They did beat the market expectations, making Mr. Musk, who owns 13% of the Company, $5.2 billion richer. His response to this– “These numbers rise and fall, but what really matters is making great products that people love.” So cool!!

Considering the market size in India, why has Tesla not started selling cars in India?

Well, Elon Musk’s response to this was — “extremely high” import duties in India would make the cars “unaffordable”. Then, why won’t they consider setting up a manufacturing base in India?

You see, Tesla, before setting up a manufacturing base in any country, sells cars ahead of time which gives them a sense of the market. The current import cost does not allow them to do this either. Of course, inadequate charging infrastructure is also one of the important reasons to not sell cars here.

Anyway, we just hope that they start selling cars in India soon, so that our readers can own one of these ;)

About the author: This post is written by Porus Navale (Chartered Accountant) and Rajendra Varma.

Findustry.