BackInside the stand-off around electric mobility
Automakers make a strong case for phased transition to electric mobility, but will the government take note?
PremiumNew Delhi/Mumbai: At the sidelines of a recent industry dinner, two doyens of India’s automobile industry were heard making an impassioned counter to the government’s roadmap to develop and manufacture products with electric powertrains. When another industrialist piped in that this resistance would have to factor in a global push by governments to develop electric vehicles (EVs), one of the auto men replied, “We shall see, we shall see."
Citing its intent to curb rising pollution in cities and over dependence on crude imports, the Narendra Modi government—through NITI Aayog—has set a deadline for two-wheeler manufacturers to shift to electric powertrains. This plan, which seeks a complete ban on internal combustion engines (ICE) for two-wheelers up to 150cc by 2025 and three-wheelers by 2023, has been completely rejected by the key players: Hero MotoCorp Ltd, Bajaj Auto Ltd, TVS Motor Co. and Honda Motorcycle & Scooter India Pvt. Ltd.
In fact, after a heated meeting with NITI Aayog on 21 June, Honda Motor Co. Ltd—parent of Honda Motorcycle & Scooter India—is contemplating getting its president Takahiro Hachigo and other senior executives from Japan to call on Prime Minister Narendra Modi to present its case against what it terms a stiff deadline. In the past, Japanese automakers have managed convince the Indian government to offer incentives for hybrid vehicles. Most Japanese automakers consider hybrid the intermediate level before shifting completely to EVs.
This strong reaction probably draws sustenance from fact that in 2017 NITI Aayog took a step back from its original proposal to ban ICE vehicles by 2030. But now things appear to be different: over the past year, policymakers’ perception of two- and three-wheelers as major pollutants has only strengthened. This has come on the back for four reports—from The World Bank, The Energy and Resources Institute, Indian Institute of Technology (Chennai) and Centre for Science and Environment—which showed two-wheelers are a major source of pollution across the country.
This propelled the secretary, ministry of road transport and highways (MoRTH) to make a presentation in the third meeting of the inter-ministerial Steering committee of the National Mission for Transformative Mobility and Battery Storage on 15 May, barely a week before the 2019 election results, to set the agenda for the new government in the space of electric mobility. Mint has reviewed the minutes of the meeting.
The officials from eight ministries and Bureau of Indian Standards decided to adopt MoRTH’s proposal, and narrowed down on a timeline for the ban. Though, NITI Aayog has taken the lead when it comes to negotiating with the auto industry, the idea was proposed by MoRTH which is in charge of implementing the Motor Vehicles Act, 1988.
The industry viewpoint
Amitabh Kant, chief executive officer (CEO) of NITI Aayog, is of the opinion that India should not lose out in the race to develop a manufacturing hub for EVs just like it did for mobile handsets and solar equipment manufacturing. But that is not going down well with the traditional two- and three-wheeler manufacturers, who have recently invested heavily in upgrading their products to Bharat Stage-VI (BS-VI) norms. Of course, given the global shift to electric mobility after the dieselgate, India’s automakers cannot hold the investment made on BS-VI as a pretext for not investing in EVs.
The top executives of a leading two-wheeler maker have been urging the government for a phased transition rather than a blanket ban. According to Vikram S. Kasbekar, executive director operations (plants) of Hero MotoCorp, a phased introduction (of EVs) will not only allow for a smooth transition but also enable all involved parties to understand, accept and if required, make course corrections. “Hero MotoCorp supports the government’s vision of a more sustainable and environment-friendly future. In keeping with this vision, Hero MotoCorp—and indeed the entire two-wheeler industry—is making considerable investments in migrating to the next generation of emission norms and alternative mobility solutions," added Kasbekar. Hero MotoCorp has already invested more than ₹300 crore into Ather Energy Pvt. Ltd—an electric scooter manufacturing startup, while other manufacturers have been relying mostly on in-house technologies.
Honda Motorcycles and Scooters India, TVS Motor did not respond to email queries sent on 26 June and 2 July.
To encourage EV manufacturers, the government sanctioned an outlay of ₹10,000 crore for the Faster Adoption and Manufacturing of (Hybrid &) Electric (FAME) vehicles scheme for a period of three years. However, the significant costs involved in building the entire ecosystem are not covered under the scheme. Also for setting up charging infrastructure, a meager sum of ₹1,000 crore has been earmarked. Clearly, incentives will not be able to convince customers to adopt a new and expensive technology, and manufacturers—both original equipment manufacturers and component manufacturers—need to embrace financial viability.
Hence, the traditional automobile industry is demanding that the government finalize a long-term roadmap via a National Automotive Policy.
“Most of these automakers have been pampered for a very long time. They need to invest in electric or other eco-friendly technologies going forward. Some of the startups have already started to invest in manufacturing electric scooters," said a senior bureaucrat in one of the ministries associated with formulating policies related to EVs. According to a person who attended the meeting, NITI Aayog officials made it quite clear to the traditional manufacturers that the startups will take their space in EV segment if they didn’t invest.
The electric challenge
There is indeed the risk of a disruption by startups. According to Suvranil Majumdar, project lead, electric mobility, International Finance Corporation, startups will now have an advantage as they have already set up their supply chain for EVs, giving them a two- to three-year advantage over mainstream automakers. Moreover, these firms have a low dependence on retail customers as e-commerce firms and food and other service delivery chains are buying such products in bulk (Flipkart being the latest example).
“The traditional manufacturers though have the huge delivery network across the country and that will be the key to success once they get hold of a good product. It may be difficult for them to disrupt an established supply chain and invest in a completely new technology. Ultimately companies with a good product and economies of scale and delivery networks in non-metro places will emerge successful," added Majumdar.
According to Tarun Mehta, co-founder, Ather Energy, electric scooters will get a lot of traction in the near future and the change has to be done quickly, otherwise both Indian companies and startups will stand to lose because companies from other countries will take control of the market. “Startups can change the business model very quickly. So if the transition takes around 10 or 20 years, then it is comfortable for everyone but if the transition is quick then the startups can take the lead," says Mehta.
Ather is in the process of raising funds to set up a new manufacturing capacity to spread its operations beyond Bengaluru.
According to the founder of a startup in the electric scooter space, the real gap was in the two-wheeler category where most of the popular products are decades old with incremental improvements in efficiency. Here, there is scope for disruption.
Another EV manufacturer Twenty-Two Motors Pvt. Ltd is also gearing up to launch its electric scooter in India through its own dealerships in the next few months. Taiwanese two-wheeler manufacturer Kwang Yang Motor Co. Ltd (KYMCO) has also invested in the startup and may export some of the products. According to Parveen Kharb, CEO and co-founder, Twenty-Two Motors, the first product of the company can run for 80 kilometre (KM) and the space is available for another battery which essentially means that the product can run for 160km.
“We want to sell a product that can be used for daily need as well as for long distances, should be of good quality and must address the customers’ cost concerns. Before we tied-up with KYMCO, the product was fully ready and we were at the last leg of meeting all the formalities for the regulations. The partnership with KYMCO has helped us getting access to a lot of new technologies," added Kharb.
The next steps
The top two-wheeler makers are in a tight spot as the government wants them to move as fast as possible. Significant investments in upgrading the products need to be recovered and at the same time the companies need to maintain a healthy cash flow so that they can invest further in futuristic eco-friendly technologies.
“If we are trying to solve the air pollution problem then there are several sources of it. The government should come with a mandate to take the polluting BS-II and III vehicles off the roads. Also, I agree that we are trying to reduce the dependency on crude oil imports. But should we do this at the cost of creating a new dependency on other raw materials such as lithium and cobalt," asked Rakesh Sharma, executive director, Bajaj Auto.
Besides raising these questions, Sharma also calls EV charging infrastructure another key concern. “There are execution issues around the charging ecosystem," he adds, highlighting the challenges in setting up these charging stations, their utilization, impact of fast charging on lithium-ion batteries, customers’ willingness to stick to charging process, which can last up to a few hours, among other problems.
Prashanth Doreswamy, managing director of Continental India Ltd, one of the biggest manufacturers of powertrains across segments, thinks that such a quick shift will leave the companies in losses, and a healthy balance sheet with good cash flow is needed to invest in research and development of other technologies.
According to an industry veteran, who currently works in a senior capacity at one of the top four two-wheeler makers, if the government passes a mandate of banning the ICE-powered vehicles up to 150cc category, then the manufacturers may work around the specific engine displacements and roll out re-engineered 151cc or 155cc models to breach the ban.
A similar trend was seen in 2016 when Mahindra & Mahindra Ltd had launched 1998cc Scorpio to breach the ban on registration of diesel cars with 2 liter and bigger engines in Delhi. He also pointed out that, of course, such a ban will demand a lot of re-engineering of products that are sold under the well-established commuter brands such as Splendor, Passion and others from Hero’s stable; Activa, Dio, Shine from Honda; and Jupiter from TVS Motor.
In conclusion
The auto industry is not in the pink of health at the moment. Going by the government’s track record, industry is betting that it is unlikely that such a disruptive policy framework will get cabinet approval given the potential of an adverse impact on employment generation. After all, the automobile industry has been the poster boy of the manufacturing sector in India, and the existing players feel government needs to ensure that a shift to electric mobility should not push the companies into red and damage an efficient supply chain.
In all probability, the NITI Aayog’s deadline is the initial gambit in the government’s drive to electrify automobile movement in the country. But given the fact that two- and three-wheelers account for a bulk of pollution, and the disruption that appears to be around the corner, it is high time India’s legacy automakers propel a quick shift towards electric powertrains.
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