2021 will be a breakthrough year for the EV industry
Rohan Rao, Partner – Industrial and Automotive, KPMG in India, opines that 2021 will be a breakthrough year for the EV industry, which will see the coming of age of EV ecosystem. This year will see the launch of new models offering customers adequate variety, better specs offering improved performance, closer to what customers are used to in ICEs.
IBT: How did the pandemic impact the Indian EV industry in terms of lockdowns and the ensuing operational challenges?
Rohan Rao: Like the automotive industry in general, the EV industry also saw a significant slowdown in demand. Similarly, EV supply chains, that are predominantly dependent on China were heavily impacted due to the general slowdown in global trade.
However, post the lifting of the lockdown, the industry has seen a strong revival in demand, restoration of supply chains and consequently, there has been a healthy increase in volumes. Given the jolt as well as thrust on localisation, most major EV players have very actively begun to scout for component suppliers in India in order to create a robust domestic supply chain.
IBT: There are two counter tendencies that were created by the pandemic. The rise of remote working & decline in purchasing power, which dented consumer demand. On the other hand, there was a preference for private vehicle ownership due to social distancing norms. How did these 2 trends impact the demand for EVs?
Rohan Rao: The revival of vehicle sales witnessed over the past few months has been led by tier 2 & 3 towns and rural India, largely due to the pent-up demand built up over the last 18 months or so. Preference for a personal vehicle instead of public transport and shared mobility have positively impacted sales of ICE 2W and PV sales mainly.
A number of factors led to the rise in EV sales in the country. These include a general realisation of the benefits of EV ownership, namely lower TCO, the introduction of city speed models, increase in options due to introduction of better and newer variants where the user experience in nearly on par with ICE vehicles, environment friendly vehicles, etc. However, comparatively, EVs saw limited benefit due to the social distancing-related buying. This is due to the fact that EVs are still mostly viewed as a 2nd vehicle or alternative means of commuting due to range and performance issues.
IBT: In your opinion, what does 2021 hold for the Indian EV industry?
Rohan Rao: 2021 is likely to be a breakthrough year for the EV industry, marked by the following trends:
- Customers looking at EVs as a genuinely viable alternative to ICEs.
- Launch of new models offering customers adequate variety, better specs offering improved performance, closer to what customers are used to in ICEs.
- Infrastructure being developed, which makes buying and owning EVs easy.
- EV ecosystem coming together – innovative business models, finance, servicing of vehicles, recycling of used batteries etc.
IBT: What expectations does the EV industry have from the government in terms of the establishment of EV charging infrastructure?
Rohan Rao: FAME II incentives are in place to provide an initial thrust to set up charging infrastructure. Further, the government has set targets to create charging stations; if these targets are met it will be a good starting point. Beyond that, it depends on the commercial viability of a business which, in turn, depends on a host of factors as discussed.
IBT: How can the government promote localisation of the EV supply chain? What are the main challenges when it comes to the domestic production of EV batteries in India? What provisions can create demand for EVs in the country? How can costs of EV batteries be brought down to make EVs more affordable for customers?
Rohan Rao: EV battery costs are driven by global factors, which are hard to control or influence from India. As demand for EVs goes up and production of EVs and batteries goes up, the costs will come down. Hence, the government should include demand creating measures through policy interventions, which will make it incumbent on various customer segments to have a minimum proportion of their fleet made up of EVs – e.g. shared mobility, logistics, LCVs operating intracity routes etc. on cash incentives. Similarly, it may include measures which make EV ownership easier and privileged – EV lanes, road tax waiver, lower insurance premium, mandatory setting up of charging points in housing complexes etc.
Further, the government should bring in supply-side incentives, making it attractive for manufacturers to set up EV focused units, thereby increasing localization – accelerated depreciation, subsidy on capital costs, sales subsidies, GST waiver, power cost benefits etc. This will be crucial in driving localisation, thereby reducing dependency on imports for the supply of critical components.
IBT: What can be done to attract investments into the sector?
Rohan Rao: Policy clarity and consistency are needed for this at the central level. In addition to the demand creating measures through policy interventions, there must be healthy competition amongst states to attract EV manufacturing. Further, the Centre and states must work towards creating a conducive environment for EV-focused manufacturing units to be set up.
Rohan Rao is a Partner – Industrials and Automotive, KPMG in India. Prior to this, he was Director – Deal Advisory, M&A Consulting. He has also served as the Vice President at Avalon Consulting and an Associate at Ernst & Young.