Electric Vehicles – Still not mainstream on the Indian roads?
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
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.