Will volatile fuel pricing push India towards faster EV adoption?

CONTENT SUPPORT BY

Vision plan and the road ahead for Electric Vehicles (EVs) in India

The government of India has been advocating a shift to electric vehicles, claiming to have a lower environmental impact. The government has been working proactively towards the EV segment, even providing financial incentives to non-fiscal incentives to boost the demand and supply. Initiatives such as allowing registration of 2-wheeler & 3-wheeler EVs without battery clearly shows the government's intent to drive faster adoption of EVs. With the recent technological developments, 2-wheeler EVs are at par with conventional 2-wheelers in terms of cost and performance. The 2021 budget also emphasises the need for EV adoption. Current vision is to reach 30% EV penetration by 2030.

Attracting big ticket foreign investment in the EV sector

Large investors look at scale and visibility for investing capital in foreign countries. At this moment counterparty risk is keeping few large investors away from investing in the sector. State Public Sector Enterprises are not receiving investor confidence looking at their past history. A large central regulatory body like the SECI model in the power sector is a good structure which can be replicated in EV space too. We need to create risk mitigated structures to attract low cost capital.

Financing initiatives to be game changers for the sector

Each segment in Electric Vehicles comes with its own set of dynamics. Financing schemes can start with the 2- wheelers and passenger Vehicles (privately owned) segment where standard documents like Income tax return can aid in getting a loan. For 3-wheelers it is slightly difficult to achieve financing at the moment. Financing for EV buses & other public utilities can be achieved by raising  sovereign debt. Vehicles powered by Internal Combustion Engine (ICE) have a history of 120 years and EV is a relatively newer segment therefore it will take time for financing since cash flow history is currently unavailable.

Tipping points for EV adoption

Tipping points for EV adoption have been in terms of technology, battery range, affordability & economics. Globally there is increasing investor interest in the EV space. With the incremental improvements in battery efficiency, this interest is expected to increase. From a technology point of view EVs is a hot space right now. In India activity on ground has significantly increased and a lot of start-ups are surfacing. Market in India is still nascent therefore achieving supernormal scale for startups is difficult at this point. Investor interest is definitely high at this point.

Creating a quality urban space should be the plan and vision. Once this is done EV push will be inevitable. Push towards quality urban parking policy to be important in EV transition and the government should provide EV charging facilities for demand to pick up. Promoting battery swapping will definitely aid faster EV adoption by reducing acquisition cost of an EV.

Impact of Covid-19 pandemic on EV sector

Although the demand in the automotive sector went down at the start of the pandemic, as we move towards partial lock downs and no lock downs the demand is picking up. Covid has led to awareness in minds of consumers looking at cleaner air due to lockdown, the verdict is still out on whether that translates in increased demand remains to be seen. With EV 2-wheelers and 3-wheelers facing supply side issues and demand is definitely coming back  to normalcy.

How can we create financially sustainable charging infrastructure for EVs

Demand assurance needs to be present for EV charging infra to pick up pace. Availability of raw materials important to reduce dependence on import which increases the cost of battery. There is a need to assess how this dependence on imported materials can be reduced by focusing on domestic production. FAME has provided a demand side boost and PLI scheme is helping  ease the supply issue. It needs to be noted that charging infrastructures do not make money by themselves, they make money from allied services and asset monetization for example – advertisement revenue. Focus should be on such monetisation.

Challenges in battery manufacturing

Inverted duty structure needs to be corrected. GST on raw materials is high and needs correction from the Union Government. Paying 18-28% GST and charging consumers 5% GST,  clearly impacts battery manufacturers. Similarly GST rates on charging stations and swapping batteries needs to be corrected.

Everyone believes that this is the decade for shift to EV. ‘S’ curve adoption is expected to take place in this decade. Size of the EV market could multiply 20 to even 30 times by the end of 2030. Innovative and flexible financing structures/models need to be in place to achieve this goal.