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Published on February 15th, 2016 | by Guest Contributor


How Can Electric Cars Make Their Way In The Cost-Sensitive Market Of India?

February 15th, 2016 by  

Editor’s note: I just flew to India to present at an institutional investment conference on the topic of disruptive innovation, so it was interesting/serendipitous that I edited two great, original, India-focused articles on the flight here. This one is on the electric car market in India, its historical boom–bust cycle, and how the market could most effectively move forward. (The other is on various nuances of the off-grid solar market.) Enjoy! –Zach

By Ankit Bhatt

Low awareness, negligible charging infrastructure and lower ranges can be acutely targeted as the reasons for snail-paced development of the electric vehicle (EV) market in India. With 2010–2012 suddenly witnessing a boom in the EV market (mainly due to MNRE offering subsidy), the Indian market has since then been in the bust. While 2011–2012 saw 85,000–100,000 EVs sold, the April–December of 2014–2015 period saw a small number, just 21,000 EVs, sold. This is still a very good number as compared to the sales of April–December 2013–2014, though, when only 7,000–8,000 EVs were sold. So, we can say, “Yes! Sales are up for the EV market in India,” owing to the Faster Adoption and Manufacturing of Electric (& Hybrid) Vehicles in India (FAME) subsidy under the National Electric Mobility Mission Plan (NEMMP).

The FAME scheme, initially rolled out for 2015–2017, speaks about dispersing INR 795 crore to help develop the EV market in India. The General Budget for FY 2015–2016 passed an initial amount of only INR 75 crore (which has been hardly utilized). It has been in the news that the government may pass INR 500–700 crore under its upcoming budget for FY 2016–2017. But even then, what will play an important role is utilization of those funds. The funds must be used for pilot projects, creating awareness, or developing charging infrastructure through innovative business models.

Also, the subsidy disbursement under the FAME scheme is only for EVs manufactured in India, and so it becomes essential that car manufacturers in India must be motivated to manufacture EVs domestically. Apart from Mahindra Reva’s e2o (and the upcoming Mahindra’s eVerito), no other car manufacturer has entered into the EV market. And since existing car manufacturers in India aren’t coming out with any sorts of EV in the near future, startups can steer the market in a different direction. That’s where the campaign Startup India might play a vital role. New startups like Ather Energy have already declared aims to come out with game-changing EVs in the market. Soon, we shall see such startups in the 4-wheeler segment, too.

Since the cost of EVs is significantly higher than their petrol/diesel counterparts, it makes very little sense to introduce any more EVs in the compact & ultra-compact segments. Until the cost comes down to a break-even point — where no government support is needed to create demand for EVs — I think Indian manufacturers and startups must target the luxury & sports segment, where customers are willing to pay a premium. As EV prices come down, they can swiftly introduce EVs in the small-car segments. This way, demand and awareness will be automatically created by the high-end EVs running in the market. Such strategy along with inclusion of pilot projects from government and industry will also create charging infrastructure in the country.

India EVs

Figure 1, source: Electric Vehicles in India, A GERMI White Paper *ICEVs means Internal Combustion Engine Vehicles (refer source)

One good way India should look at is to waive off taxes like value added tax (VAT), road tax, and registration tax on EVs. This would significantly bring down the net cost of ownership of EVs, making them a viable option for consumers in India. In those very footsteps, the Maharashtra government has committed to waive off road tax and registration taxes for all EVs in the state. More states from India must come forward to such a level of commitment if India wants to adhere to the targets of NEMMP.

AnkitAbout the Author: Ankit Bhatt is a Senior Project Fellow at Gujarat Energy Research & Management Institute, specializing in solar energy. He is currently involved in developing innovative business models for various government-funded projects and carrying out market research regarding sustainable energy solutions.     

Gujarat Energy Research and Management Institute (GERMI) is an institute dedicated to research and management initiatives relating to environmental, renewable, and petroleum research. GERMI endeavours to bring together developers, investors, policymakers, and financial institutions, among others; with the objective to promote development in the field of energy technologies.

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  • Vikram Singh

    Dude. How can an Indian startup design & develop a luxury car without significant investment? And even if it somehow manages to do so, do you think you can overnight create a brand image of a luxury brand like Jaguar,BMW,etc. Even Maruti Suzuki failed with its Kizashi offering in India, just because it did not had that luxury player image! Can any startup manage to pull that off without any background, investment & required skill set?
    This is not the solution in my opinion.

    Instead the startups, should focus on innovation to reduce the EVs costs further and setting up of infra. Then, they stand a reasonable chance to push some entry level vehicles into the market, without the need of creating a brand identity!

  • Brian

    Solar electric rickshaws are beginning to dominate in Vietnam, and the Philippines. I think solar electric Velomobiles like the ELF could be mass produced to bring the price down and replace dirty gas cars, and rickshalls in India, and Asia. Electric Velomobiles are much cheaper than cars, and therefor could explode in countries like India, with the right incentives, and policies.

  • Aditya Vyas

    YES Ankit, you are right, if the government reduces the value added tax (VAT), road tax, and registration tax on EVs, then the business case seems viable.

    Other than the regulatory framework, the technology framework should also increase. we require a very high density energy storage material, if somehow, we succeed in it, people would have no option to buy other than EV’s.

    • Ankit

      Yes Aditya! very true. Thats where I feel companies like MahindraReva needs to work. They have been long enough in the market to know that the demand creation and economies of scale would very much work in favor of aspirational EVs. But it seems technological barriers (or some other reasons) have stopped them from doing so. If they continue to do so, it wouldn’t be long when we would see another ‘Tata’ emerging from the startups and turning the markets.
      About battery technology, true and hence storage is one of hot research area these days. researches all over the world have brought down prices of lithium-ion technology significantly.

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  • JamesWimberley

    Are there any city-level initiatives to support evs? Delhi has “won” the unenviable title of the most polluted capital in the world, and has massive traffic congestion. A city-wide scheme to favour evs, as in London, could pay off.

    The “luxury first” strategy for EV introduction is of course the one Tesla has successfully followed. Starting with cheap-and-cheerful looks more democratic, but fails to connect to social mechanisms of fashion, envy and aspiration: George Clooney or his Bollywood equivalent turning heads in a sexy Tesla or equivalent.

    Two-wheelers, as in China?

    • Ankit

      Bangaluru, is the one city in India, which is far ahead than other cities of India, in exploring EVs through pilot project. But more cities need to come up with attractive pilots. recently declared 20 to-be smartcities of India, should definitely initiate support for EVs.

      and I personally very much like the way Tesla created a rock solid market for itself, which is why I also say Indian EV market is in need of an aspirational product more than ever.

      Two wheeler EVs in India also need upgrades in terms of performance. Companies like Ather Energy are exploring that segment.

      • kart

        Hello Ankit,

        Nice Article. I agree.Public Charging infrastructure is one of the main drawbacks which prevents people from going electric. I hope the govt sets up this infrastructure and even mandate all automotive companies to do the same regardless of what vehicles they manufacture.

        Do check out this page for like minded EV enthusiasts, If you don’t mind 🙂

  • Jamset

    Privatize the petrol stations and remove the import tax on hybrid cars for the next 36 months.

    And get government funded institutes to switch to hybrid and electric cars.

    • Ankit

      Good point Jamset! Private oil companies do own and run petrol stations in India, if that’s what you are implying! and I agree, waiver on import tax even for few years can change the markets upside down.
      And as a research and consultancy firm, we, (GERMI),are looking to explore opportunities where we can change the conventional cars with electric cars in government institutes or so. Although just not enough, but it would create the much needed initial impact, apart from saving tonnes of fuel.

      • Jamset

        My point about privatising Hindustan Petroleum is that it is worth billions on the stock exchange, so sell it to Shell or Essar and use the money to buy hybrid buses.

        Volvo has now launched hybrid buses in Hindustan and they would be less polluting than normal buses.

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