Are we EV ready?

Unlike conventional petrol and diesel vehicles, EVs use one or more electric motors for propulsion. Electric vehicles have a battery that is charged through an electricity supply. The electric energy is then stored and used to power the electric motor. There are many types of electric vehicles such as electric cars, electric trucks, electric buses, electric bikes, electric trains, electric scooters etc. It crossed a mark of 7.5 lakh unit sales in May 2019.


NITI Ayog, headed by CEO Amitabh Kant rolled out certain proposals in June this year for the Auto sector, one of which was the push towards Electric Vehicles. The proposal was targeted to make all the 2-wheeler (below 155cc) and 3 wheelers to be completely electric by March 2025 and March 2023 respectively. But this took many industry players by surprise and there has been a continuous debate over the application of this proposal in light of slump in demand. Though the idea might be a progressive one, we need to understand its feasibility in the current scenario of the auto sector and the economy as a whole from the following perspectives:


The rationale behind the proposal: The Paris Accord was signed in 2016 which aimed to limit the rise in global temperatures by only 1.5 Celsius every year. India currently has 22 of the world’s 30 most polluted cities and as an effort towards reducing greenhouse emission, the plan to increase the use of EVs has been charted out by the government. Also, increased EVs would reduce the dependence of the government on import of crude oil which in turn improves the trade deficit.


Government’s effort: The Centre seems to be determined to develop India as a hub for manufacturing EVs. It has introduced several incentives in its budget proposals to attract investments in EV manufacturing. In her maiden budget, finance minister Nirmala Sitharaman announced income tax rebates of up to ₹1.5 lakh to customers on interest paid on loans to buy EVs, with a total exemption benefit of ₹2.5 lakh over the entire loan period. Customs duty exemption on lithium-ion cells was also announced, which will help lower the cost of lithium-ion batteries in India, which are not produced locally. Additionally, manufacturers of components such as solar electric charging infrastructure and lithium storage batteries will also be offered investment-linked income tax exemptions under Section 35 AD of the Income Tax Act and other indirect tax benefits. The central government has approved an outlay of ₹10,000 crores for three years till 2022 to subsidize electric vehicles and drive the adoption of electric mobility in the country.


Source: Frost and Sullivan

Industry Opinion: Automobile sector is seeing one of the biggest slumps (decline in sales by 18.71% in July’19) in the last 19 years. In the midst of falling sales, profits and job cuts, the movement to EVs might not be its top priority and that is the reason Society of Indian Automobile Manufacturers has approached the government to re-think the proposal. Also, many manufacturers recently started investing and upgrading their vehicle to BS-VI norms and a switch to EVs might become a bit too soon for them.


Consumer Opinion: The term recession is doing rounds because the demand in most of the sectors is falling and that is because the consumers are finding it difficult to afford new purchases. So, this creates a big question in the rising sales of EV vehicles in the near future. Currently, EV constitutes only 1% of the market share currently and making it 100% in the next 6 years might not be practically possible. Even consumer preferences would play a role as they might not prefer an electric vehicle with range anxiety, slow pick-up and speed over fuel-driven cars. According to Frost & Sullivan study, customer awareness and understanding about EVs is limited; only 49% of the respondents were willing to pay more than their current vehicle price for purchasing EVs and FHEVs, while 38% would like to pay less than their current vehicle prices.


Conclusion:

Considering all these factors and absence of EV charging points and other infrastructure, a complete switch to EVs does not seem possible by 2025 and industries might require a longer horizon to be in sync with government’s view but it certainly is the way forward for India to be sustainable and meet its climate change obligations. Electric vehicles are a sunrise opportunity as India has over 72 per cent two-wheelers in the auto industry which can be replaced by EVs, and also manufacture EVs for the world, in India.


On a positive note, mobile phone manufacturer Micromax founder Rahul Sharma has ventured into EV manufacturing by launching his new company Revolt Intellicorp which has invested Rs 500 crores into a manufacturing facility with an annual capacity of 1.2lakhs units in Manesar, Haryana. On the same lines, India’s first EV manufacturer Mahindra and Mahindra have forged a partnership with Ford to develop electric mobility solutions that are affordable for the Indian consumers. According to a report by NITI Aayog, India can save up to 64% on its energy demand for road-based mobility and cut down on 37% of carbon emissions in 2030 if it works towards a shared, electric, and connected mobility future. If such a framework is implemented, it could lead to a reduction of 156 Mtoe (Million Tonnes of Oil Equivalent) in diesel and petrol consumption for a year, along with a net saving of roughly INR 3.9 Lakh Cr in 2030 at present oil prices.


Though the Indian market has given a tepid response to electric vehicles there exists an immense opportunity for the growth of electric vehicles. The government of India is dedicated to the adoption of Electric Vehicles for a cleaner and greener environment. Robust supporting infrastructure with a lower tax on EVs could help to achieve the dream faster.

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