Electric vehicles: Is India missing the spark?

• A new revolution is quietly simmering in Indian automobile industry. This is the electric vehicle revolution, which could usher in a paradigm change in India’s energy sustainability goals.
• In order to help the revolution to gather some steam, the government is offering tax rebates on the purchase of EVs. In the past too, the government designed the FAME scheme to facilitate transition to cleaner automobile.
• While this is a great move, it has its own share of problems like the soaring cost of batteries, high import dependence for raw materials, lack of charging infrastructure and customer inertia.
• Measures like offering tax holidays to firms manufacturing EVs and offering incentives on exchange of diesel/petrol vehicles could facilitate this change.

Three years ago in Paris, a resolve was made by the leaders of the world in Paris to limit the global temperature rise to 1.5ºC above pre-industrial levels. Keeping in line with the Paris commitments on climate change,the Indian government is steering a revolution, which is directed not only at reducing its greenhouse gas emissions, but also facilitating the adoption of electric vehicles (EVs).

The government has already taking some steps to make this transition a reality. Battery rickshaws were introduced sometime around 2012 in India. It also revamped the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme. With an outlay of ₹10,000 crore till 2022, FAME 2 intends to augment the number of EVs in the commercial fleet. The Union Budget introduced an additional income tax rebate of ₹1.5 lakh on interest paid on loans to purchase electric vehicles. The GST Council has also cut the tax on EVs to 5% from 12%. Further, the government has set a 2-phased strategy to switch to EVs. In the first phase (from 2025), it wants two- and three-wheelers with internal combustion engines (ICE) to be replaced with electric two- and three-wheelers with engine capacity of up to 150cc; while in the second phase (from 2030) it has suggested that only electric passenger vehicles be sold in the country.

NITI Aayog estimates that India can save about 64% of anticipated passenger road-based mobility-related energy demand and 37% of carbon emissions in 2030 by pursuing a shared, electric, and connected mobility future. This would result in a reduction of 156 Mtoe in diesel and petrol consumption in 2030 and net savings of roughly ₹ 3.9 lakh crore (approximately US$ 60 billion). While India is well ahead in its trajectory to become a 100% EV nation in the coming years, there are some impediments that it needs to address in order to facilitate this switch.

Paving the way for EVs

One major roadblock in the adoption of electric vehicles is the high cost of manufacturing them. As Dr. Ashok Jhunjhunwala from IIT Madras notes, “I see technical challenges pertaining to battery development, development of motor, development of cells, procurement of raw materials for EV production. Also, there’s the question of making these automobiles affordable and reliable for the consumers. We have to come up with new ways to manufacture ₹50,000 two-wheeler and a ₹4 lakh electric car”.

Another major hurdle is the lack of availability of raw materials – lithium, cobalt, manganese and nickel– to produce EVs. India’s lithium requirement is expected to be roughly 350,000 tonnes per year according to auto industry estimates. Around 65% of lithium reserves are located in Bolivia and Chile, while 60% of cobalt reserves are in Congo. While India has recently leveraged its way into the Bolivian lithium reserves through an MoU, this imported metal will drive up the cost of the vehicle. It is said that EVs will increase import dependence to 70% or more.

While FAME 2 is definitely a significant improvement over its predecessor, it also has its shortcomings. For instance, it should not have kept private vehicles (except two-wheelers) out. The policy also ignores the possibility of battery swap. Also, while the policy aims to give a boost to local production, it does not have many supply-side incentives to realize this goal.

There are also apprehensions about the performance of the vehicle. All the EVs that currently exist in the Indian market have a top speed of around 85 km/hr & cover a maximum distance of 120 km. Moreover, these new age modes of transport will require our technicians & engineers to acquire new skills.

This situation is further complicated by several infrastructural bottlenecks like lack of sufficient public e-charging ports. While it is said that EVs can be charged overnight conveniently at home, quite a few parts of the country still don’t have access to electricity. Moreover, even those regions, which have access to electricity, grapple with the problems of load shedding – frequent power cuts, fluctuation of voltage & low voltage. Further, a lot of times, electronics are damaged due to voltage fluctuation. In this kind of a scenario, are EVs robust enough to withstand these erratic pressures of electricity? 

Last, but not the least, leapfrogging to EVs entails a shift in the behavior patterns of consumers. It was observed that just 9 months after the launch of Ola’s ambitious electric vehicle project in Nagpur, many drivers wanted to return their electric cars and switch back to conventional variants owing to high operating expenses and long queues at charging stations. 

Fixing the bugs!

In order to facilitate the switch to EVs, the government will need to sign trade agreements like the one that has been signed with Bolivia. This, as pointed out earlier, may increase India’s import bill. Given this kind of a scenario, the government should also consider alternatives to lithium and cobalt like sodium & hydrogen. As on April 4, 2015 as much as 16.03 million tones of sodium have been found in Mandi, Himachal Pradesh. As Professor C.N.R. Rao, JNU, notes, “We have been able to prove in the laboratory about the efficiency of fuel cells made of sodium, magnesium and hydrogen. Fuel cells of hydrogen cause no pollution as water is a by-product. The challenge is to scale it to commercial operations and it is very much possible.”

The government needs to create incentives on the supply side & the demand side. For the producers, this could mean things like getting tax holidays initially, easier availability of land, easier FDI rules and low import duties. “As the EV industry scales up, our supplier ecosystem will build up. As more indigenous players enter the market, we will witness greater diversity and healthy competition in the industry which will eventually reduce our dependence on other countries for imports. We believe: a) Designing products for Indian consumers will limit dependence on imports. b) Since it is a new industry, there is huge potential to build IP and value which will allow Indian manufacturers to define standards,” notes Mr. Ravneet Phokela, Chief Business Officer, Ather Energy.

On the demand side, it could mean things like offering incentives to scrap diesel/petrol vehicles, increasing tax on conventional fuel and developing adequate infrastructure. Given the past record of how customers have resisted a shift from diesel vehicles, this last leg of the EV challenge could well be the most daunting.