Electric Vehicles: Will Challenges Outweigh Opportunities in the Long Run? – EQ Mag Pro
All indications point towards large-scale EV adoption in the country in the near future. But will the challenges outweigh opportunities in the long run?
In the last three months, petrol prices in the national capital have averaged at around Rs 100 per litre. That means for a daily commute to work of around 30 km, on an average a Delhiite has to shell out nearly Rs 12,000-14,000 per month. An electric car for the same distance will cost Rs 2,900 a month to run. Undoubtedly, electric vehicles (EVs) have a good case purely from the cost of running perspective yet they still make up merely 1.5 per cent of the total automotive sales.
Challenges like range anxiety, high battery prices, lack of charging infrastructure, etc., continue to keep first-time EV buyers at bay. Plus, people think EVs are not really all that green since the source of electricity is still mostly fossil fuels. “It’s not correct to think that EVs are not all that clean. You’re replacing the diesel and petrol. Electricity is the new fuel and the grid is getting greener which is a good thing. Yes, for now, it’s not as green,” says Mahua Acharya, Managing Director and CEO, Convergence Energy Services Ltd (CESL).
Experts say that charging systems are beginning to become cleaner. The industry acknowledges that it’s not 100 per cent clean fuel but people like Acharya are still betting on EV adoption because of one very important reason: health of citizens gets affected by ambient air pollution as they’re breathing 3-4 times more toxic fumes on the city roads due to tailpipe emissions.
State-run CESL has recently floated an initiative called ‘Grand Challenge’ which aims to create demand for electric buses aggregated across nine cities. This new-age public sector undertaking (PSU)—a wholly-owned subsidiary of Energy Efficiency Services (EESL)—is working on EV adoption at a large scale. “The next big chunk is that we have to liberalise the business of making charging stations and the grid green. That’s necessary to help close the loop. But is it really significant right now? No, because we hardly have any vehicles on the road. That doesn’t mean we don’t think about it,” Acharya adds.
According to the Society of Manufacturers of Electric Vehicles (SMEV), total EV sales in India are expected to be around 1 million units by the end of this year, surpassing the number collectively sold by the industry in the last 15 years, mainly riding on the good traction witnessed by electric two-wheelers (E2Ws). In 2021, the sales of E2Ws in the country jumped over two-fold at 233,971 units, driven by a good traction of high-speed scooters as compared to 100,736 units in 2020.
“EVs are the first step and not the end. In the next 5-10 years, the market will see organic growth. The next phase of growth will also come from rural and Tier II and Tier III markets. One year back, there was a push in the market but now there’s pull. Only the vehicles that are able to compete with ICE [internal combustion engine] vehicles will survive in the long run,” says Jeetender Sharma, MD and Founder of Okinawa Autotech.
Okinawa recently crossed domestic sales of 100,000 units of its electric scooter models on the back of its IPraise+ and Praisepro scooters which are locally manufactured. The company has expanded its operations to over 400 dealerships in India, including metro cities, Tier II, Tier III and rural markets in the country. Sharma feels that the market for EVs is already there. In 2019, the industry sold around 21 million two-wheelers, achieving the highest-ever sales mark. In 2020, due to the pandemic this number came down to 17.5 million while last year the industry sold around 16.5 million two-wheelers. “This year, it will be somewhere around 15.5 million. There is already the gap of 5 million vehicles from 2019 to 2021. Now everyone is talking about EVs and I think that gap in the market is going to be captured by EVs only,” Sharma adds.
He also makes a case for detachable batteries being the future. “Electric two-wheelers don’t really need charging stations. They can have detachable, fast-charging batteries and people can charge it anywhere like a mobile device. Our EVs can charge 80 per cent in 45 minutes. We need to create awareness in the minds of consumers who are stuck on charging infrastructure being the be-all and end-all of E2W adoption,” says Sharma.
According to the 2017 FICCI and Rocky Mountain Institute report, titled ‘Enabling India’s Transition to Electric Mobility’, India’s shift to shared, electric and connected mobility in the passenger vehicles segment could help save nearly 1 gigatonne of carbon dioxide emissions by 2030. Energy experts feel that given India’s targets of achieving 50 per cent of energy by non-fossil fuels by 2030, EVs are an inevitable way forward. “While today the share of fossil fuels in the whole energy mix is high, as EV deployment on a large scale happens, the renewable energy share will keep increasing on an annual basis. So the dynamics would change.
The share of renewable energy has gone up to about 10-12 per cent. As big players like Reliance, Adani and Jindal are committing big investments, we’re hoping for favourable results,” says Vibhuti Garg, Energy Economist, Lead India at Institute for Energy Economic and Financial Analysis (IEEFA). “We need 30 GW of annual installation which might not happen in the next 2-3 years but post that India will witness 25-30 GW of annual installation,” she adds.
Apart from the challenge of making the grid greener, another challenge that the industry faces is battery prices. Batteries account for nearly 50 per cent of the total cost of an electric vehicle. While the prices of lithium-ion batteries used by most EVs have dropped 73 per cent over the last six years, it is still expensive for an EV manufacturer to sustain for the long haul. Since India does not have any lithium deposits, R&D labs across the world are working on making it a viable business proposition.
“While this does present a challenge to setting up a viable battery manufacturing plant in India, it also means that companies must look for other options to power such vehicles. Another challenge is electricity generation for batteries. How additional capacity can be created for electric generation? The plan should consider renewable options over fossil-based options, ensuring the dream of an all-electric passenger vehicles fleet is realised with minimal carbon footprint,” says a Grant Thornton report.
The other piece that we need to address sooner rather than later, Acharya says, is what happens to batteries after they finish their life in transportation. “The first generation of old batteries will probably come from buses. It’s not critical mass for any company to make an investment today but we need to build out this repurposing segment because there’s a life of these batteries after you finish them in a car. You can use them for rural electrification, for storage to light up street lights or backup power,” she adds.
SMEV Director General Sohinder Gill says battery disposal is going to be a serious problem and it has to be seen from two points: one is policy intervention to make sure that batteries are recycled and the second part is that it has to be economically viable to recycle. “That’s beginning to happen at the R&D stage. If you take an old lithium-ion battery and try to take out its minerals and recycle, and make use of those imports then you have an economically viable business there,” he says.
Experts say that the time is not far off when disposing of batteries will be a viable business model. “In 3-4 years, there will be big businesses created in recycling of lithium batteries which will include laptop, telephone and EV batteries,” he says.
India’s energy import bill is expected to double from around $150 billion to $300 billion by 2030. “The shift to EVs will also help reduce India’s energy imports where it looks to cut the oil import bill to half by 2030 and reduce emissions as a part of its commitment to the Paris climate treaty,” Sridhar V., Partner, Grant Thornton Bharat LLP, wrote in the report.
According to a report by RBSA Advisors, a transaction advisory firm, the EV market is expected to grow at an estimated CAGR of 90 per cent from 2021 to 2030 and be worth more than $150 billion by 2030.
Experts have also identified rooftop solar options to solve the problem of a greener grid. “If individual houses or businesses can combine rooftop solar and EVs, it kind of provides like a mobile storage. When you have excess, you store your energy in EV and you use solar rooftop to meet your electricity needs. In a decentralised manner, discoms can promote it. That is what we’re propagating,” says Garg of IEEFA.
Stakeholders of the industry are confident that EVs are the future and it’s just a question of when and not if, they say. “EVs are not going to happen overnight. The government’s plan of overlapping EVs with cleaner energy is well on track. As EV adoption progresses, the electricity comes out cleaner from the renewable sources of energy. Today EV volumes are hardly 2 per cent. The day it becomes 15-16 per cent perhaps the energy will also be cleaner. You can’t stop one thing for the want of another. Both have to work in tandem,” says Gill of SMEV.
According to a joint report by Colliers and Indospace, the EV segment in the country is likely to witness investments of $12.6 billion, or Rs 94,000 crore, across the automotive value chain, over the next five years. Tamil Nadu currently is the frontrunner, accounting for about 34 per cent share in total planned investments for EVs, followed by Andhra Pradesh and Haryana, with a share of 12 per cent and 9 per cent, respectively.
There are a bunch of start-ups already looking at the EV sector as one of the fastest-growing investment arenas. Bengaluru-based clean mobility start-up Micelio has an $18-million fund that is the country’s first seed fund aimed entirely at clean mobility. “We see a huge opportunity for growth in the EV market. We are working towards powering innovation and driving long-term, sustainable change in the clean mobility space, and our strategy is in tandem with the government’s plan of promoting electric mobility in the next decade,” says Shreyas Shibulal, the Founder Director of Micelio.
Industry players say that the government’s Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) II scheme and rising fuel prices have been a contributing factor towards the growing contribution of EVs in the country. But the key now is scale. “It’s a chicken-and-egg situation. Till the time you don’t create volumes you don’t reduce costs,” says Gill who is also the CEO of Hero Electric. Hero Electric sold over 65,000 e-scooters in India, the maximum units in the year 2021, and commands a lion’s share of 36 per cent of the market.
From Kinetic Honda to Bajaj Chetak, the quintessential Indian middle class has always embraced the scooter as their preferred mode of transport and experts believe that electric mobility will be the next big disruption in the entire two-wheeler space. McKinsey forecasts sales of 4.5 million to 5 million units, or 25-30 per cent of the market in FY25. Both start-ups like Ola Electric, Ather Energy, Okinawa Autotech, Ampere Vehicles, etc., and legacy companies like Bajaj Auto, TVS Motor, Hero, etc., are competing for a larger share of the pie.
“People will stop thinking about ICE in a few years. Any technology changes like in the case of ICE engines to EVs follows a normal curve from early adopters to early majority, to mass majority, etc. It’s a question of how compressed this curve is. In the case of mobile it was three years. It is expected to be 7 years for EVs,” says Gill.
Till about five years ago, not many people were buying these vehicles as there was no positive word of mouth, but since the cost of acquisition has come down and there have been improvements in the supply chain, the industry is finally seeing a positive momentum. “The key is to make them lighter and stronger. The vehicle for the future will have a lot more electronics, be safer and [have]self-diagnostics. The Indian customer is so conscious of the value equation that we’ll have to create products keeping that in mind. They would need the same quality that comes from the ICE engine,” says Gill.
