Business Today

Gearing Up For An Electric Future

India's automakers will have to make a lot of effort to survive the coming electric vehicle revolution.
Sumant Banerji   New Delhi     Print Edition: December 3, 2017
Gearing Up For An Electric Future
Illustration by Nilanjan Das

Nitin Gadkari, Union Minister for Road Transport and Highways, created a flutter earlier this year when he threatened the domestic automotive industry to start thinking about a future without the internal combustion engine. Speaking at the annual meeting of the Society of Indian Automobile Manufacturers or SIAM, Gadkari was caustic. "We should move towards alternative fuel.. I am going to do this, whether you like it or not. And I am not going to ask you. I will bulldoze it," he said. "You may not like it, but I wish that your growth should be less. If this growth continues, I will have to add one more lane to national highways, which will cost a whopping Rs 80,000 crore. If you do not make electric cars yourself, we will force you to do it."

Gadkari is not alone. Piyush Goyal, the Minister for Railways and Coal, had in March mooted the idea of an all-electric fleet by 2030. In May, government think tank National Institution for Transforming India (NITI) Aayog and Colorado-based Rocky Mountain Institute released a report that recommended a push to electric vehicles or EVs, with fiscal incentives and discouraging petrol and diesel vehicles.

The sudden urgency within the government - whose policies (at least the tax rates) actively discourage the development of a robust EV market - has set the cat among the pigeons in the industry. India has been a laggard in alternative fuel technologies, for reasons ranging from lack of any plan, incentives and infrastructure. Talk of a ban on conventional vehicles, without any effort to develop alternatives and bring down barriers to the development of hybrids and EVs, is making manufacturers nervous.

The government's vision of only electric cars by 2030 may seem outlandish today, but when all major countries are making similar noises, India cannot afford to be left behind. But to move ahead, it requires an overhaul - of policies, tax rates, infrastructure and, last but not the least, the mindset. For, the world of automobiles is changing faster than we can imagine.

The In Thing

The credit for making electric cars hip and happening the world over goes largely to Elon Musk of Tesla. By taking the top-down approach - launching a series of high-performance sports cars, premium sedans and crossovers before venturing into the mass market segment recently - it debunked the notion that EVs ought to be utilitarian. As the world's largest pure EV maker (Tesla sold 76,233 units in 2016, accounting for over 15 per cent of pure EV sales), strong demand for its cars had a rub off effect on the industry. Its latest launch, the Model 3, also its cheapest offering till date at a starting price of $35,000 (`22.75 lakh), got pre-launch orders of nearly half a million. The waiting period stretches over months, but that has not deterred customers from queuing up. Musk says the demand for the sedan could top 7,00,000 units.

Kenichi Ayukawa MD and CEO, Maruti Suzuki India Ltd (Photo: Vivan Mehra)

Tesla is not alone. Franco-Japanese alliance Renault-Nissan decided long back to put all its eggs in the EV basket when rivals like Toyota and Honda were hedging their bets with hybrids. Nissan's Leaf is the all-time best selling electric car with sales of 3,00,000 in seven years.

The development of technology is still largely non-linear and skewed towards countries that offer more support to the industry. In Norway, nearly one in every four cars sold is an EV. China is, of course, the biggest market, accounting for nearly half of all EVs sold worldwide. Chinese firms such as BYD, SAIC, Chery and Geely have a significant presence in the game.

The traditional players are also fast shrugging off their inertia. Toyota is working on a car that can be charged in minutes and will offer far greater range than its vehicles today. Volkswagen has said it will launch 80 new electric cars by 2025 and by 2030 all its cars will have at least one electric version. Honda recently showcased an urban EV concept at the Frankfurt Auto Show and promised to launch it in Europe by 2019.

Hyundai already has a mass-market electric car, Ioniq, and is developing its first dedicated EV platform. It plans to launch eight battery powered and two fuel cell vehicles. Swedish luxury car maker Volvo, now owned by Geely of China, has said it will launch only electric/hybrid cars from 2019. According to Bloomberg New Energy Finance, the number of pure battery EV models will swell from 96 today to 150 by 2020. Add plug-in hybrids, and the tally rises to 246.

Globally, electric cars have proliferated on subsidies, an area where India is way behind Europe, the US and China. Given India's growth potential, pollution levels and dependence on imported fuel, a shift is a necessity. But is the country ready for its EV journey?

High Cost, Range Anxiety and Charging Woes

In 1998, much before Elon Musk and Tesla Motors made EVs cool, Chetan Maini's Reva Car Company was the first one to get off the block. When Reva was launched three years later, it was the first all-electric car in the world when the global industry was still experimenting with the middle-of-the-road hybrids.

The lack of success of Reva and the iconic stature of Tesla can be attributed as much to the products as to the inherent pain points of an electric car - cost, range and charging. The only electric car in India today, Mahindra e2o, the modern avatar of Reva, comes for an ex-showroom price of `7.46 lakh in Delhi, inclusive of incentives. A comparable petrol car (Wagon R) costs 40 per cent less at `4.5 lakh. The high price, the maximum range of 140 km and lack of adequate charging points - Mahindra says there are only 200 charging stations in the country - have been major stumbling blocks. In contrast, China has over 1,00,000 public charging points. It is expanding by thousands every year.

Better batteries and super-fast charging have been able to mitigate some of these problems. A lithium-ion battery, the heart of an electric car, can account for 40-60 per cent cost of the vehicle. Their prices have fallen sharply in the past few years. In 2010, the price of a lithium-ion battery was around $1,000 kilowatt hour or kWh, which meant a standard 30-35 kWh battery pack cost $35,000 (`22.75 lakh). Last year, it was under $300 kWh. Tesla said in early 2016 that its batteries cost $190 kWh and that it was aiming for a further 30 per cent reduction. The trend would make EVs more viable. And the launch of more vehicles and rise in demand would lead to a further drop. According to a Bank of America Merrill Lynch report, the cost of a battery cell and the pack is expected to decline by 75 per cent to $72 per kWh by 2030.

Nitin Gadkari Minister for Road Transport, Highways and Shipping (Photo: Rajwant Rawat)

"The cost of batteries is declining every day. Today we are talking to suppliers for a 30 per cent reduction two years down the line. It may be more," says Pawan Goenka, President, Mahindra & Mahindra, India's only manufacturer of electric cars. "This could be used to lower the cost of the vehicle or offer better batteries. In due course, electric vehicles will achieve price parity with conventional vehicles."

Production of batteries in India is just about starting to take off. Earlier this year, market leader Maruti Suzuki said it would set up the country's first lithium-ion battery plant in collaboration with Toshiba and Denso with an investment of `1,150 crore in Gujarat. The first battery will be produced by the end of this decade. Mahindra & Mahindra and Tata Motors have also lined up investments in battery plants. A number of relative outsiders such as JSW Energy plan to join too.

But finding a solution to the slow pace of charging could be trickier. Tesla, which is leading the development, has set up superchargers across North America that deliver consistent 72 kilowatt power, almost 10 times the output of a normal charging station (7.4 kW). But it takes 30-50 minutes to charge a car as opposed to a couple of minutes that it takes to fill a petrol/diesel tank.

The government has suggested swapping batteries as an alternative to charging. China has tried this with buses. It has also been successful with two-wheelers as they use smaller and lighter batteries. With passenger cars and SUVs, it may not yield the desired results.

"You can look at swapping batteries for commercial vehicles, two-wheelers and even a fleet of cars, but it will not work for individual transportation cars," says Sohinder Gill, CEO, Hero Electric, India's largest electric two-wheeler firm.

"Battery swapping has been tried in France and Israel. It is an immensely complex model with challenges related to both vehicles and batteries," says Bruno Grippay, Vice President, Product Planning, Design & EV Business, Nissan Motor India. "Apart from that, it requires setting up swapping infrastructure, including own charging stations, which is far more expensive than EV charging infrastructure."

Lack of Policy

Lack of clear government policy and the fear of the unknown among automobile manufacturers are the two big reasons why EVs have remained a pipe dream in India so far. In 2016/17, just 22,000 EVs were sold in India, the majority of those two- and three-wheelers. There are high chances of India missing out on the opportunity.

The government says a broad policy that takes into account every aspect of EVs is being formulated, but its actions do not inspire confidence. Apart from penalising hybrids with 43 per cent tax under the Goods and Services Tax regime, the government imposed a 12 per cent tax on EVs and 28 per cent on lithium-ion batteries, which flies in the face of the stated aim of encouraging battery replacement technology. There are also questions on what technology the industry must use and whether the government is right in giving priority to one technology over the other? "The policy should be technology agnostic. The government should lay down markers for emissions as it happens elsewhere in the world. Let the industry decide the best way - hybrids, electric or even fuel cell - to achieve these targets," says Girish Wagh, Head, Commercial Vehicles, Tata Motors.

Previous instances of the government abruptly changing its stance have also made the industry cautious. The only policy document in this area, the National Electric Mobility Mission Plan 2013, laid down a road map targeting annual sales of six-seven million hybrids/EVs from 2020 and provided for incentives and tax rebates for both. This government, however, has been quick to debunk hybrids. It wants manufacturers to directly make the transition to an electric future.

"It will be very difficult to change things from tomorrow. I have never seen that kind of a change anywhere in the world," says Kenichi Ayukawa, Managing Director and Chief Executive of Maruti Suzuki India Ltd, India's largest car maker. "I am not sure what the government wants. We need to know what is the realistic programme for shifting to EVs. It is difficult to verify. There are difficulties in expanding sales as the cost is very high. How will we absorb that kind of thing?"

There is a gulf between the industry's expectations from the government and the latter's ambition. The mistrust often flows into the public domain. The government has set a target of reducing its oil import bill by 10 per cent by 2022. That is where EVs will play a big role. A NITI Aayog report says the reduction of 156 MT of oil equivalent worth `3.9 lakh crore was possible if its target of EVs, accounting for 40 per cent two-wheelers, cars and SUVs and 100 per cent commercial vehicles and three-wheelers, is achieved. It is not possible if the industry does not come on board.

"It is a campaign run by companies who do not have EVs. These companies have come to me also to convince me not to oppose hybrid cars. The world is moving towards EVs, and the country will promote EVs," says Piyush Goyal. "Hybrids reduce fuel consumption a little, but the future is electric cars. I had also recommended to the finance minister that it is not advisable to support an intermediate technology which reduces fuel consumption a little. The future is all electric cars."

"First, when I urged you to go for electric vehicles, you said the battery is costly," Gadkari said at the SIAM convention. "I coaxed you to start at least. Now, the batteries cost 40 per cent less. And if you start now, the cost will be reduced further on mass production. Teething trouble is everywhere."

EVs have already started disrupting transportation worldwide, and India cannot keep itself isolated. But it cannot be forced from one end nor resisted from the other. "It will start with a clear policy roadmap because that is going to push investments," says Chetan Maini, Vice Chairman at Sun Mobility. "There is a time lag between the expectations of the industry and what the government is doing or has been doing and it is valid. There is a top-level big push towards EVs and excitement within the industry. But we need to move fast now. The policy is the missing puzzle."

Without that, the electric vehicle story in India will only be a false dawn.

 @sumantbanerji

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