Electric Vehicles – Still not mainstream on the Indian roads?

India’s electric car story is one and a half decades old. Seeds of this innovation driven industry were sown in the early 1990s when R&D on ’Reva’, country’s first electric car began in 1994. At the time, the Reva Electric Car Company, was a joint venture between the Maini Group and Amerigon Electric Vehicle of USA. Reva rolled out its first two-seater electric car model in India in 2001. The company was eventually acquired by the Mahindra Group in 2010. Mahindra Reva currently has a facility in Bangalore with a capacity of producing 30,000 electric cars every year. Electric variants are today available in other vehicle categories as well. Electric motorcycles, scooters and bicycles have been launched by various startups – Ampere Vehicles, BSA Motors, Electrotherm, EBike India etc. India’s first electric bus was launched by Ashok Leyland in 2014. Electric pick-up trucks have also been launched by the domestic commercial vehicle manufacturers- Mahindra, Tata and Ashok Leyland.

EVs are an important solution for addressing burning issues of energy security, climate change and road transport emission. By displacing vehicles running on internal combustion engines, EVs provide benefits for urban air quality with zero to marginal emissions, as well as reduced noise levels for city dwellers. Electric car users also enjoy a quieter drive and the engines are more reliable than petroleum-powered internal combustion equivalents.

Over the last 10 years, the EV market in India has gone through a business cycle. The market saw euphoria during 2005-10 when several players entered the market. In 2010, the Ministry of New and Renewable Energy proposed a 20% subsidy for EVs that resulted in a big uptake in the e-bikes segment. There was a peak in annual sales with 110,000 EVs in 2012. But the withdrawal of 2010 subsidy scheme and delay in the release of the National Electric Mobility Mission Plan (NEMMP) led to a shake-up with many players exiting the industry. As per the Society of Manufacturers of Electric Vehicles, only 16000 EVs were sold in India in FY2014-15. But the EV industry has again started reviving with sales of 22,000 EVs in FY15-16, a year on year growth of 38%. Over the last 2 years, the industry has also started attracting interest from VC/HNI investors.

Select PE/ VC Investments in the Electric Vehicles Industry

The Government of India has been trying hard to promote EVs. The National Electric Mobility Mission Plan (NEMMP) 2020 was introduced in January 2013 with an objective of reaching 6-7 million EVs and HVs on Indian roads by 2020. The plan had an estimated outlay of about Rs. 140 bn during the span of the scheme. To incentivize demand of EVs and HVs through subsidies, a pilot scheme in the name of Faster Adoption & Manufacturing of Hybrid and Electric Vehicles (FAME) was also implemented from 1st April 2015 for two years. Ministry of Power, Coal, New and Renewable Energy is working on a scheme to provide electric cars on a zero down payment option and make India a 100% electric car nation by 2030. Under the Indian Motor Vehicles (Amendment) Act of 2015, battery-powered e-rickshaws have also been recognized as a valid form of commercial transport.

Electric vehicles (EVs) still constitute only a miniscule proportion of vehicles on Indian roads. EVs made up only 0.1% of the total 20.5 mn vehicles sold in the domestic market during the same period (SIAM). This is in sharp contrast to the trend being observed in developed and many emerging countries. There are 1.26 million electric cars (IEA) plying on the roads globally with an estimated market share of 1.4% in March 2016. Market shares have reached as high as 23% in Norway and 10% in the Netherlands in 2015. Today, the global sales of EVs are at an all-time high on the back of strong policy support, price competitiveness (reducing battery costs) and increasing range of electric cars. There were two defining events in the evolution of the global EV industry- 1) the launch of the hybrid electric vehicle by Toyota (Prius) in 1997 and 2)Tesla Motors announcement of launch of a luxury electric sports car in 2006. Today, every major auto manufacturer in the world is developing or has developed an electric vehicle for launch till 2020.

The impact of various government schemes including implementation of NEMMP has been minimal on EV sales in India. Reasons for low penetration of electric cars in India are not hard to understand. For the price conscious Indian consumer, electric cars cost much higher than the petrol/ diesel variants of the same power. Maintenance costs are also higher due to battery replacement after every 2-3 years, expensive spare parts and limited repair options. Low resale value of EVs is an additional bottleneck due to battery replacement issues and uncertainty in future price. Lack of charging infrastructure is also an impediment for the consumer. Limitations on distance per charge and speed of the existing EVs reduce flexibility and mobility of the consumer. Finally, India imposes 60% customs duty on import of completely built electric cars like Tesla.

India can probably take a leaf out of Norway’s book. There are over 100,000 EVs on Norway roads today. As of September 2016, 29% of new car sales in the country have already gone electric, and all-electric cars have 19% market shares. Norway provides strong incentives for electric vehicles in the form of registration tax reductions and, for Battery Electric Vehicles, the exemption from value-added tax (VAT), waivers on road tolls and ferries, and access to bus lanes. Norway has also developed an extensive network of charging stations for electric cars, the locations of which are listed on a publicly available database. The stations were created in a government infrastructure drive in 2009-2010. The country is also looking to ban all fossil fuel powered cars by 2025.

In order to honour its commitments under the Paris Climate Change Agreement, widespread adoption of EVs by the Indian population is the need of the hour. The Government will have to launch strong incentive programmes that will bring down car prices and ramp up adoption of the technology. A first step in the direction could be making all new government vehicles electric. This has to be followed up with creating a charging infrastructure across petrol pumps and service stations. Waiver of taxes and customs on such vehicles could also be considered, until the local manufacturers catch up with the technology curve.