Towards an electric vehicles only future
India’s move towards an electric vehicles future has been backed up by a supportive tax structure and policies, and a potentially large local market
When it comes to setting ambitious targets, there are few governments that can match the current Indian one. The latest in its series of high-reaching policy shifts has come in the automotive sector.
In a recent blog, the energy department said its aim is that by 2030, all vehicles sold in India should be electric vehicles. A look at the current numbers provides a good gauge of how ambitious a target this is. Electric vehicle sales stood at 22,000 units in the year ended 31 March 2016, according to the Society of Manufacturers of Electric Vehicles. Of these, only 2,000 units were four-wheelers.
Even though the energy department clarified that its target was “aspirational”, its willingness to set a time frame shows the government is focused on delivering on it. The time for this could not be more appropriate. The electric vehicle market has reached an inflection point. Sales of electric cars grew at an exponential pace of 94% between 2011-15 the world over, led predominantly by the US, Europe and China. In fact, a Stanford University study has predicted that all new vehicles sales in 2025 will be electric, and fossil fuel-based vehicles would have vanished by 2040. The growth in the electric vehicle market will change the landscape of the Indian automobile industry significantly. It will also have a big impact on the overall Indian economy.
India has a thriving automotive industry serving the local and global markets, particularly in small cars. Over 19 million people, making up 5% of India’s workforce, are employed in the sector, which is mostly centred around internal combustion engines.
As the country moves towards an electric vehicle-led future, there will be a requirement for new, efficient vehicle components such as high-density batteries. The current crop of manufacturers and suppliers will need to pivot quickly to capitalize on this wave. They will need to collaborate closely, invest smartly, establish global tie-ups to get a leg up on technology and quickly build up scale. There are several encouraging developments already, with the Indian Space Research Organization allowing companies to obtain its innovative lithium-ion technology, NTPC and Bharat Heavy Electricals Ltd entering this space, and Mahindra and Tata building a strong product portfolio in specific segments.
However, companies need to act on this urgently, not least because competition in the sector is heating up and countries like China have been making rapid progress. Chinese firms have steadily increased their electric vehicle output and technical capabilities in the sector, leaving their global peers behind in building capacity as well as sales. China is poised to become a global hub in the electric vehicle space, ahead of traditional auto hubs such as Germany. It currently has an 8.2% share of the auto component export market. However, it is expected to double that in the next five years, driven largely by its offerings in the electric vehicle space.
India’s move to electric vehicles will open diversified opportunities for downstream industries such as lithium-ion battery packs, electric traction motors and charging infrastructure. With countries across the world, including the UK and France, announcing plans to move to an electric vehicles only future, the global demand for these products is likely to surge in the coming years. While some of it will be met by the existing producers, there will be opportunities for new entrants, which will help create new jobs. India, with its well-established auto sector and relatively lower labour costs, is in a unique position to become a leading player.
The scale of the opportunity can be gauged best by the investments being made on this front. Tesla, the US-based electric car maker, and Japan’s Panasonic are investing $5 billion in a “gigafactory”. Their aim is to produce 35 GWh of battery power by 2018—more than the combined global production of batteries in 2014. China is expected to produce 121 GWh of batteries by 2020.
India’s move to embrace an electric vehicles only future has been backed up by a supportive tax structure and policies, and a potentially large local market. However, the progress in the next five years will be critical to long-term success.
India has announced the FAME scheme (Faster Adoption and Manufacturing of [Hybrid &] Electric Vehicles in India) to make all personal vehicles electric by 2030. Lower GST (goods and services tax) on electric vehicles at 12%, in comparison with 43% for hybrid vehicles, is also a step in the right direction. The government can next look to support the growth of the supply ecosystem and infrastructure. A road map for systematic build-up of charging infrastructure in public works is needed. Additionally, proposals to set up electric vehicle component manufacturing can be fast-tracked, and new testing facilities set up to support rapid scale-up.
Affordability will be a key success factor in India, especially in the small car segment. Targeted customer subsidies in the form of lower registration tax, road tax, and even lower GST rates in the formative years would go a long way in kick-starting adoption. India’s pre-eminent position in two-wheelers, small cars, light commercial vehicles and buses is a natural advantage, given that these are the segments most amenable to a large electric vehicle share. India can become a dominant global hub for electric vehicles with concerted effort from all stakeholders. Gear up for an “electrifying” future!
Vinod Kumar and Sriram Kaushik are, respectively, partner and principal at AT Kearney India.
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