The oil shock is finally starting to set in.
Car makers in India have started handing out fuel vouchers to boost demand while state governments are considering subsidies to vehicles that are fuel-efficient and pollute less.
“The (petrol price) hike translates into just Rs2,700 additional fuel bills for a period of six months, given the fuel efficiency of a Santro or an i10,” said Arvind Saxena, senior vice-president of the company in a statement. The company has based its calculation on a customer using the car for an average of 50km daily.
The Delhi government, on the other hand, is considering extending a subsidy to hybrid electric vehicle owners, just about a month after it offered such incentives to battery-operated vehicles in the city. The fund for this subsidy comes from a 25 paise per litre tax on diesel, which is perceived to be more polluting, called the Air Ambiance Fund.
Reva Electric Car deputy chairman and chief technology officer Chetan Kumaar Maini hopes to induce people who are buying a second or even a third car to choose an electric vehicle (Photo by: Manoj Verma / Hindustan Times)
“Let hybrid car manufacturers come to us. We will consider it positively,” said Delhi chief minister Sheila Dikshit at the formal launch of the Reva electric car in the city. Delhi is the country’s largest auto market, accounting for almost a fifth of sales.
Delhi already offers a 29.5% rebate to buyers of electric vehicles, including cars and two-wheelers. It consists of 12.5% value added tax refund, 2% road tax refund plus a 15% subsidy to the consumer. Delhi government officials say that they have collected Rs10 crore from the air ambiance tax in the three months since they started this fund.
Reva, which has sold around 2,500 cars in the past seven years, is ramping up its capacity five times to 30,000 units a year in anticipation of increased demand because of this subsidy and the rise in fuel prices. The company claims that the vehicle will cost only 40 paise per km in terms of fuel compared with Rs4 per km for petrol-powered cars. After the the tax rebate, the car costs Rs2.99 lakh in Delhi, compared with Rs3.5 lakh in Bangalore, which offers a 4% tax rebate. These are the only two cities where the car is now officially available.
“From a customer’s point of view, the use for this vehicle is very limited” due to the distance it can travel, said Manish Mathur, who consults on automobiles for AT Kearney & Co. “Thus, the volumes will also be limited.”
Reva, the first electric vehicle in the passenger car category, is a two-seater for adults. As a result, it competes in carrying capacity with the electric two-wheeler segment in which firms such as Hero Electric in India and Ultra Motors Co. of the UK have electricity-powered products. The bikes cost a maximum of Rs40,000.
According to research firm AC Nielsen, this segment will sell 250,000 units a year at the end of fiscal 2009, or about 3% of the Indian two-wheeler market.
Reva Electric Car Co.’s deputy chairman and chief technology officer Chetan Kumaar Maini, while declining to give a sales guidance, said he hoped to induce people who are buying a second or even a third car to choose an electric vehicle.
While sceptics abound about the future of mass market electric vehicles, Nissan Motor Co.’s chief executive Carlos Ghosn, for one, is a recent convert to this technology. He says Nissan is planning to sell a mass market electric vehicle by 2010 and that “as many as 10 million of the 69 million vehicles produced each year worldwide could ultimately be electric-powered”, according to a May interview in The New York Times.
Currently, the only hybrid car sold in India is Honda Motor Co.’s Civic hybrid, which was introduced last week, while the country’s largest utility vehicle maker, Mahindra and Mahindra Ltd, is planning to introduce a hybrid version of its Scorpio before 2010.
Fuel subsidies are pretty common in developed markets, where companies incentivize customers to buy fuel at cheaper prices while they work on hybrid engines that will use less fuel. In the UK, for example, Fiat SpA recently offers about £1,000 (Rs84,300) worth of fuel to customers who buy the Grande Punto small car. Chrysler Llc., on its part, offered to pay the difference between the actual fuel price and a cap of $2.99 (Rs127.97 today) a gallon for many models for a certain period of time to boost demand.