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

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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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