Insurance Article, The Insurance Times August 2022, The Insurance Times December 2020

A CHALLENGING PHASE FOR INDIA’S ELECTRIVE VEHICLE (EV) MARKET

The electric vehicle industry in India is picking pace with new manufacturing hubs, and increased push to improving charging infrastructure. The global automotive industry is undergoing a paradigm shift at present in trying to switch to alternative/less energy intensive options. India, too, is investing in this electric mobility shift. By making the shift towards electric vehicles (EVs), India stands to benefit on many fronts: it has a relative abundance of renewable energy resources and availability of skilled manpower in the technology and manufacturing sectors. Regardless of the country’s ambitious targets, India’s EV space is at a nascent stage. However, looking at it differently – India offers the world’s largest untapped market, especially in the two-wheeler segment. The rising adoption of charging stations powered by solar energy is expected to create numerous growth opportunities for the market players. With the increasing use of EVs, there is a need to harness a more-sustainable energy source to run the vehicles, and the sun is a potential source of renewable energy for charging systems. India plans to attain renewable energy generation capacity of 175 gigawatts (GW) by 2022, of which 100 GW would be in the form of solar energy. Thus, the use of unconventional sources of energy for charging electric vehicles is expected to generate new growth opportunities for the players in the market. India is seeing rapid growth in sales of Electric Vehicles (EVs) as consumers rush to switch from gasoline-powered vehicles due to the rising cost of fuel.

The total registered EV volumes (all segments put together) stood at 3.13 lakh units in the calendar year 2021. The global automotive industry is undergoing a paradigm shift at present in trying to switch to alternative/less energy intensive options. India, too, is investing in this electric mobility shift. The burden of oil imports, rising pollution, and as well as international commitments to combat global climate change are among key factors motivating India’s recent policies to speed up the transition to e-mobility. By making the shift towards electric vehicles (EVs), India stands to benefit on many fronts: it has a relative abundance of renewable energy resources and availability of skilled manpower in the technology and manufacturing sectors. In addition, multiple production-linked incentive schemes intend to create a local manufacturing ecosystem to support goals around greater adoption of electric mobility transport. This is sought to be achieved by incentivizing fresh investments into developing indigenous supply chains for key technologies, products, and auto components. The Indian government had set up the aim of replacing all internal combustion engines with EVs by 2030.

Market Overview

The Indian Electric Vehicle (EV) Market is segmented by Propulsion Type (Battery Electric Vehicle, Plug-in Electric Vehicle, Fuel Cell Electric Vehicle) and Vehicle Type (Passenger Cars, Commercial Vehicles, Two-wheelers, and Three-wheelers). This electric vehicle market was valued at USD 1,434.04 billion in 2021, and it is expected to reach USD 15,397.19 billion by 2027. Total electric vehicle (EV) retails reached 4,29,217 units in 2021-22, a rise of three-fold from 1,34,821 units in the financial year 2020-21. The sale of electric vehicles in the nation increased by nearly threefold in the previous fiscal year. Two-wheeler dominated the sector. EV retail sales in 2021-22 reached 4,29,217 units, a threefold increase from 1,34,821 units in 2020-21. 100 percent foreign direct investment is allowed in this sector under the automatic route. Heavy investments from automakers are expected to cater to the growing demand for EVs and play a major role in the evolution of the electric vehicle market. OEMs offer electric vehicles in different segments ranging from hatchbacks such as Nissan Leaf to high-end sedans like Tesla Model 3. See the data of the previsou fiscal:

  1. Two-wheeler dominated the sector. EV retail sales in 2021-22 reached 4,29,217 units, a threefold increase from 1,34,821 units in 2020-21,
  2. Total electric three-wheeler sales last fiscal stood at 1,77,874 units, registering an increase of two-fold over 88,391 units in the preceding fiscal.
  3. Electric commercial vehicle sales rose to 2,203 units last financial year as compared with 400 units in FY21.

The level of market maturity

In India, the level of market maturity varies according to the state depending on factors, including demographics, income levels, regulatory landscape, and urbanization. For instance, the state of Uttar Pradesh, with one of the lowest urbanization rates, has seen significant uptake of electric two-wheelers. Maharashtra, on the other hand, with a higher urbanization rate, has the highest penetration of electric three-wheelers and passenger cars. Delhi is home to the largest electric commercial vehicle fleet due to a higher demand for electric buses and trucks. The Indian EV market being in its nascent stages is viewed as an opportunity waiting to be exploited. Other players who also have products in the EV market include MG Motors, Maruti Suzuki, Renault, Audi, Volvo, Hero, Ather, etc. An expansion in the EV industry will also see other associated industries catch on too. This includes the battery and EV chargers. Interest has been shown by many companies like Siemens, Schneider, Delta, etc. But unfortunately, these companies will only move in once a significant demand arises in the public 4 wheeler segment. On the other hand, one of the major factors for the EV industry not expanding has been consumer concerns regarding the lack of Fast Chargers in India

Setting up EV chargers

Unorganized and small players are dominating due to the limited scale of business. In order to combat this, the NITI Ayog is laying a key role in setting up EV chargers. There are currently 270 units of installed EV chargers in India. NITI Aayog has partnered with NTPC in order to set up 100,000 EV charging stations across India. Other government entities like BHEL have partnered with ISRO in order to develop batteries using Lithium technologies. Most lithium requirements are currently imported from China, South Korea, Vietnam, Singapore, and Japan. Other players who have shown interest in the Lithium battery production business in India include Reliance, Suzuki, Toshiba, Denso Corp, JSW Group, Adani, Mahindra, Hero Electric, Panasonic, Exide Batteries, Amara Raja. Some of the largest Lithium-Ion battery manufacturers in India are Exide Industries, a joint venture between Suzuki, TOSHIBA and DENSO, in Gujarat; Amara Raja Batteries, Li Energy and ATL and Manikaran Power Ltd.The Top EV Charging stocks are Tata Power, Indian Oil Corporation, BPCL, Reliance Industries, NTPC and Powergrid Corporation. Among these, IOC and BPCL have already pledged to use their outlets to set up 17000 EV charging centres in near future.

 Challenging phase:

The steps taken in order to enable the acceptance of EVs will not suit their main purpose if alternative means of electricity production are not implemented. Currently, up to 60% of the electricity is produced from coal. Although the government has set major aims to bolster the growth of EVs a lot more has to be done in order to ensure they are implemented. Others include

  1. Better supply chain: The EV sector in India needs a better supply chain, not just in terms of technology but also in terms of volume. The ongoing shortage of semiconductors has only worsened the situation for the industry. India must now focus on developing a local supply chain to improve production and reduce dependence on China.
  2. Ground to cover: While growth in the EV industry is on an upward tick, it has much ground to cover to be able to realize the government’s ambitious 2030 target. The COVID-19 pandemic not only slowed the industry’s progress, but also dampened overall market demand.
  3. Huge investment: Realizing India’s EV ambition will also require an estimated annual battery capacity of 158 GWh by FY 2030, which provides huge investment opportunities for investors. Enabling policy support measures are a critical need at this juncture.
  1. Insufficient charging infrastructure: In 2019, there were only 650 charging stations in India as against over 0.3 million in China. Lack of sufficient charging infrastructure is one of the primary reasons why customers often refrain from purchasing EVs.
  2. High costs: Along with the range anxiety (kms/charge), another major concern among the potential customers is the current high price of EVs. As compared to lower-end (internal combustion engine) ICE cars, electric cars in the same segment tend to be more expensive. This is mainly because of the higher cost of technology used in the EVs, which constitutes a substantial portion of the cost, not leaving much scope for other features usually available in premium cars. With the recent announcement of subsidies, the price rationalization of EVs in the two-wheeler segment is on cards.
  3. Limited options: Since it is still a budding industry in India, customers have a very limited range of products to choose from. Increased investment in the sector will make it more competitive in due time and this will help create further demand.
  4. Lower mileage:  The industry is young, there is immense scope for R&D. As of today, EVs in India are not cost competitive to an average customer as internal combustion engine (ICE) vehicles prove to be more cost effective.
  5. Higher dependency on imports: Reliance on imports of battery as well as other components is also one of the factors adding to the cost of EVs in India.
  6. Grid challenges: Another concern is regarding the price of charging EVs at private charging stations once EVs become mainstream. Even with a fair penetration of EVs, the increase in demand for electricity is likely to be about 100 TWh (tera watt-hours) or about four percent of the total power generation capacity. So, increasing methods of power generation are necessary to meet that growth in demand.
  7. Department of Science and Technology: It has launched a grand challenge for developing the Indian Standards for Electric Vehicle Charging Infrastructure.
  8. Due to a lack of sufficient charging infrastructure, potential electric vehicle purchasers are experiencing “range anxiety.” The biggest problem is that the charge in an electric vehicle will not last until it reaches its destination. To ease range anxiety, we need to build a wide network of charging infrastructure, create better battery capacity – yet at a cost-effective price – and develop battery-swapping technologies that save time.
  9. Ultimately, the scope of India’s EV market growth rests on availability of capital for original equipment manufacturers, battery manufacturers, and charge point operators as well as improvements to infrastructure and diversified options for consumers.

Existing EV ecosystem

The government is prioritizing the shift towards clean mobility, and recent moves to amend the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) II scheme to make electric two-wheelers more affordable, is a case in point. Under the phase two of the FAME scheme, about 1,65,000 electric vehicles have been supported, as on November 25, 2021, by way of demand incentive amounting to about INR 5.64 billion (US$75.16 million). Further, under the scheme, approvals have been granted for 6,315 electrical buses, 2,877 EV charging stations amounting to INR 5 billion (US$66.63 million) in 68 cities across 25 states/Union Territories and 1,576 charging stations amounting to INR 1.08 billion (US$14.39 million) across nine expressways and 16 highways. In addition, multiple production-linked incentive schemes intend to create a local manufacturing ecosystem to support goals around greater adoption of electric mobility transport.

Strategic developments

In recent years, the major players in the Indian EVSE market have undertaken several strategic measures, such as partnerships and product launches, and secured client wins to gain a competitive edge in the market. For instance, Magenta Power Pvt. Ltd. partnered with Lodha Group, a real estate developer, for EV charger installation. Under the terms, Magenta will install its charging stations, named ChargeGrid Pro, at the real estate projects of Lodha in Mumbai. Additionally, Panasonic Corporation announced plans to set up mini-charging stations, mostly at parking spaces, malls, fuel outlets, and specially-developed zones, across cities such as Pune, Bangalore, Chennai, Hyderabad, Noida, and Delhi. With this charging infrastructure network, the company is planning to reach EV owners/users, logistics companies and fleet owners and help them manage their fleets more efficiently. As part of the National Electric Mobility Mission Plan 2020 (NEMMP) 2020, the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME India) Scheme was notified in April 2015, to promote the manufacture of electric and hybrid vehicle technology. It has mainly focused on four aspects – demand creation, technology platform, pilot projects, and charging infrastructure. For demand creation, incentives have mainly been disbursed in the form of reduced purchase prices.

Government initiatives

The government of India has undertaken multiple initiatives to promote the manufacturing and adoption of electric vehicles in India to reduce emissions pertaining to international conventions and develop e-mobility in the wake of rapid urbanization. The National Electric Mobility Mission Plan (NEMMP) and Faster Adoption and Manufacturing of Hybrid & Electric Vehicles in India (FAME I and II) helped create the initial interest and exposure for electric mobility. For instance, in phase two of FAME, the government announced an outlay of USD 1.4 billion through 2022. This phase focuses on the electrification of public and shared transportation through subsidizing 7,090 e-buses, 500,000 electric three-wheelers, 550,000 electric passenger vehicles, and 1,000,000 electric two-wheelers. To promote the domestic electric vehicle industry, the Indian government has provided tax exemptions and subsidies to EV manufacturers and consumers. Ministry of Road Transport and Highways has announced that both commercial as well as private battery-operated vehicles will be issued green license plates. It has also notified that all battery operated, ethanol-powered, and methanol-powered transport vehicles will be exempted from the commercial permit requirement. Ministry of Power has clarified that charging EVs is considered a service, which means that operating EV charging stations will not require a license. It has also issued a policy on charging infrastructure to enable faster adoption of EVs. The revised consolidated Guidelines & Standards for Charging Infrastructure for Electric Vehicles was promulgated on January 14, 2022. Exhaustive in scope, these guidelines include provisions for a) individual owners of EVs and b) for public charging stations (PCS) infrastructure. It covers land use and access, power tariffs, state and central government roles, timelines for providing connectivity for installation of PCS, among other concerns.

Emerging market players

Many leading battery producers like Amara Raja Batteries, have picked up the cue from theses incentives to orient new investments into green technologies, including in lithium-ion batteries. In April 2022, one of the world’s most energy dense batteries at 54MWh, developed by a Bengaluru-based battery startup – Pravaig, was acquired by a European renewable energy company, Eren Groupe, for its storage applications. This new acquisition by a European company will not only give boost to domestic manufacturing, but will also make pave way for making EVs more economical, considering batteries usually account for 35-40 percent of the total cost. Further responding to the opportunity that India’s EV industry presents, many leading industry players like OLA Electric Mobility Pvt, Ather Energy, and Mahindra Electrics are rapidly growing their market presence. Moreover, certain states like Karnataka and Tamil Nadu are rolling out innovative and timely investor-friendly policies besides building necessary infrastructure. Recently, the American electric vehicle and clean energy company Tesla Inc. marked its entry into India by incorporating its subsidiary, Tesla India Motors and Energy Pvt Ltd, in Bengaluru. There have also been positive developments in the expansion of charging infrastructure across the country – states like Andhra Pradesh, Uttar Pradesh, Bihar, and Telangana are setting impressive targets for the deployment of public charging infrastructure to increase uptake of electric vehicles in the country.

Competitive Landscape

The Indian EV market is moderately consolidated with the presence of major players in the market due to cheap and readily available manpower. The startups are also expanding their presence by raising funds from investors and tapping into new and unexplored cities. Companies are investing a tremendous amount in R&D and launching new models to mark their presence in the market. However, established players in the market are introducing new models to gain a competitive edge over other players. The Indian EVSE market is presently consolidated in nature; however, with the entry of many start-up and established global players, it is expected to become fragmented in the forecast period. Some of the major players operating in the market are ABB Ltd., Schneider Electric SE, Delta Electronics Inc., Magenta Power Pvt. Ltd., Tata Power Co. Ltd., Exicom Tele-Systems Ltd., Ather Energy Pvt. Ltd., Bharat Heavy Electricals Ltd., ANI Technologies Pvt. Ltd. (Ola), and EV Motors India Pvt. Ltd. Tata Motors is leading the Electric Vehicle sector in India. Tata Motors was one of the first companies that decided to develop a fully autonomous electric vehicle on its own. Being a leader in the commercial vehicle segment, it has huge plans to go electric in commercial buses, Trucks and is preparing to launch its first electric truck soon.

Major roadblocks

There are many roadblocks that are giving Indian customers the creeps and preventing the widespread adoption of electric vehicles. India would need 400,000 charging stations by 2026. The cost of a battery accounts for 40–50% of the overall production cost. Although sales of these electric vehicles are increasing, there are several issues on the ground. EVs are more costly than ICEs and have a much larger initial investment. The price difference between an electric car and a comparable ICE vehicle can go up to as high as three to four times, making EVs a less appealing alternative for the ordinary Indian buyer. Electric vehicles are expensive in India because the batteries used in EVs alone form around 30% to 50% of the cost of EVs. These batteries are very expensive, hence increasing the cost of EVs. Another major factor for Electric Cars being expensive in India is because this industry is not able to utilize economies of large scale production. When the demand increases and EVs will be manufactured in high volumes, we can expect that the prices might reduce.

Electric vehicle industry:

The Indian automotive industry is the fifth largest in the world and is slated to be the third largest by 2030. Catering to a vast domestic market, reliance on the conventional modes of fuel intensive mobility will not be sustainable. In an effort to address this, federal policymakers are developing a mobility option that is “Shared, Connected, and Electric” and have projected an ambitious target of achieving 100 percent electrification by 2030. The EV market in India will be a US$206 billion opportunity if India maintains steady progress to meet its ambitious 2030 target. This would require a cumulative investment of over US$180 billion in vehicle production and charging infrastructure. When it comes to transport, new technologies just keep popping up around the world. These alternative technologies in transport are mainly based around electric vehicles with many companies jumping on the bandwagon to get some traction before the industry gets a radical shift away from traditional fossil fuels. The electric vehicle adoption rate in India is less than 1% according to a McKinsey & Company report. According to Bloomberg, in the six years leading up to October 2019, India has barely sold more than 8,000 electric cars. If compared to countries like China these sales figures are achieved in less than 2 days. The Indian EV industry being in its nascent stages does not have an established market leader in all vehicle types.

Production-linked incentive schemes

In May 2021, the government rolled out a Production-Linked Incentive Scheme (PLI) for ACC Battery Storage Manufacturing, which will incentivize the domestic production of such batteries and reduce the dependence on imports. This will support the EV industry with the requisite infrastructure and will significantly cause a reduction in cost of EVs. On September 15, 2021, the government approved a PLI Scheme for the automobile and drone industry, which intends to incentivize high value advanced automotive technology vehicles and products, including ‘green automotive manufacturing. The PLI Scheme for the auto sector is open to existing automotive companies as well as new investors who are currently not in the automobile or auto component manufacturing business. The scheme has two components:

  1. i) Champion OEM Incentive Scheme: This is a ‘sales value linked’ scheme, applicable on battery electric vehicles, and hydrogen fuel cell vehicles of all segments.
  2. ii) Component Champion Incentive Scheme: This is a ‘sales value linked’ scheme, applicable on advanced automotive technology components of vehicles, completely knocked down (CKD)/ semi knocked down (SKD) kits, vehicle aggregates of 2-wheelers, 3-wheelers, passenger vehicles, commercial vehicles, and tractors etc.

One-stop platform- ‘e-AMRIT’ portal

India rolled out the website e-AMRIT – https://www.e-amrit.niti.gov.in/ – at the COP26 Summit in Glasgow, which will function as a one-stop destination for all information on electric vehicles. It addresses key concerns about the adoption of EVs and their purchase – such as charging facility locations and EV financing options as well as information about investment opportunities, government policies, and available subsidies for drivers and manufacturers

Positive outlook

India has been recognized as one of the prominent regions in the automotive industry globally. The automotive sector in India is dominated by two-wheelers (scooters, motorbikes) and three-wheelers (autos and rickshaws) that play a significant role in last-mile mobility in the country. Rising government emphasis and focus on private and government players’ partnership to enhance EV ecosystem in the country. Increasing investments and product launches by major OEMs into the country and their focus on localizing supply chain facilities are expected to create a positive outlook in the market. The Top Companies that are investing in Electric Vehicles are Tata Motors, Eicher Motors,  TVS Motors, Bajaj Auto, Hero MotoCorp, Greaves Cotton, Amara Raja Batteries, Exide Industries, Tata Power, Ashok Leyland, Mahindra & Mahindra.  Other leading EV stocks in India that are working on Electric Vehicles or related EV ancillary products are JBM Auto, Olectra Greentech, Kabra Extrusion Technik, IOC, BPCL, Reliance Industries, NTPC, Power Grid, Tata Chemicals, Gujarat Fluorochemicals, Neogen Chemicals, Tatva Chintan Pharma, Motherson Sumi, Suprajit Engineering, Minda Industries, Fiem Industries, Tata Elxsi, L&T Technology, Hindustan Copper, NALCO and Hindalco. In addition, six big Tata Group companies joined hands under the name Tata universe to create an EV ecosystem. India buys approximately 25 million autos every year, according to certain estimates (including two-wheelers). By importing batteries, micro controllers, motors and the ores that account for 60% of a vehicle’s cost, India will spend upwards of $65 billion per year to make transportation completely electric.

The government is rolling out incentives to boost market demand in priority segments like electric two-wheelers, and localizing production of key components like ACC battery storage as well as electric vehicles and auto components through respective PLI schemes. Besides, several Indian states have now passed EV policies intending to attract industry investments and make EV adoption more viable proposition for the consumer market. One of the major reasons why countries are forced into adopting an electric alternative is climate change. India according to Environmental Pollution Index (EPI) 2020 is ranked 168 out of 180 in terms of air quality. The government has also realized that it is best to target their efforts toward the public transport system in the initial stages. This is because the purchase of EVs in the private sector will depend on major other factors like attractiveness etc. The public transport system being one of the most heavily used in a country like India will definitely offer a huge boost to the sector. The future of EVs in India seems very bright. The Indian government wants to join the Electric Vehicle Revolution and plan to have 30% of private cars, 70% of commercial vehicles, 40% of buses and 80% of two-wheelers and three-wheelers go electric by 2030. India plans to make 10 million two-wheelers every year, which is about 15% of the world’s production. Currently, the majority of electric vehicle (EV) original equipment manufacturers (OEMs) do not benefit from their sales. High manufacturing and R&D expenses, raw material supply restrictions, and poor production capacity all have an impact. Costs are coming down as a result of increased expenditures in R&D and manufacturing capacity, as well as an increase in the number of EV sales, thus this promises a good chance in the industry’s economies of scale. With the Indian government aiding infrastructure development, India is getting closer to its aim of being an electric vehicle nation.

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