The future of mobility is clearly electric!
Air pollution has emerged as one of India’s gravest environmental problems and reducing air pollution is a policy priority for the country. About 70% of the country exceeded the recommended national annual average concentration level of 40◦µg/m³ of PM2.5 in 2019. Out of the 50 most polluted cities in the world, 35 are in India. The road transport sector contributes to NOX and PM2.5 emissions. In 2020, road transport accounted for one third of national NOX emissions and for 5% of primary PM2.5 emissions. Trucks are the prime source of NOX emissions from road transport (55%), followed two-wheelers (17%). Trucks also account for about two-thirds of road transport-related PM2.5 pollution. An early sign of a buoyant industry mood towards electrification of mobility was the GoI’s push to this sector with FAME, its flagship scheme. This incentive-based scheme and its successor aimed to foster the adoption of EVs and hybrid vehicles.
The results seem favourable because India is witnessing a surge in EV demand across various categories like 2-wheelers, cars, and buses. Between FY20 and FY21, electric 2-wheelers on the road grew by 422%, 3-wheelers by 75%, and 4-wheelers by 230%. Interestingly, electric buses plying in the country have increased by 1200%. Furthermore, NITI Aayog has set an ambitious sales penetration target of 70% for EV commercial cars, which it intends to achieve by 2030.
Using the growth of the EV sector as a springboard, the EV components market in India is naturally booming. Crisil reports indicate that by 2027, our EV component market is expected to grow at a CAGR of 76% to a record size of Rs. 72,500 crores. This is all good news because private and commercial EVs can help plug the gaps in mobility while simultaneously limiting or even reversing the adverse effects on the environment.
These signs all point to one thing — a new era of mobility is further strengthened by the efforts of various OEMs and startups in the EV ecosystem. Moreover, investments in EV startups are on an upward trajectory, having grown from just $195 million in 2020 to $673 million in the first three quarters of 2022. There is global precedence for PLI schemes and buyer incentives to be weaned away and funds redirected towards fueling the next wave of innovation, certainly forming a viable strategy for India.
However, despite these hopeful developments in the core areas of the EV ecosystem, we need a lot more to accelerate the advent of an electric future. The allied sectors associated with EVs’ development, distribution, and adoption must overcome the challenge.
Are our allied sectors ready to support a clean and green future?
A strong collaboration between the primary sectors in the EV ecosystem and the key players in associated sectors can allow us to successfully transition to a green future. Allied sectors particularly relevant here include EV dealerships, financing for electric vehicles, EV infrastructure, and insurance, among others.
EV financing
There have been some positive developments in financing passenger EVs in India. The State Bank of India leads in this segment, offering as low as 7.95% green car loans. Axis Bank also provides EV financing for electric car purchases at interest rates that are 50 basis points lower.
However, we are yet to see significant leaps in the commercial EV lending segment. Banking institutions and NBFCs need to be encouraged to help make EVs financially viable by providing a lower interest rate. The current interest rate is almost double of that of combustion vehicles. The existing interest rate should ideally be 4-5% lower or as much as combustion engine vehicles. A higher rate is acting as a huge deterrent in adoption of commercial EVs.
- PSL was launched to support those sectors that the GoI and RBI consider as important for the development of the basic needs of the country and are to be given priority over other sectors. Carbon emissions & sustainability being paramount not only for India but globally. Commercial EVs play an important role towards carbon neutral & sustainability. To encourage faster EV adoption & ensure the availability of financing option to EV buyers, EV financing needs to be part of PSL
- Creating leasing instrument – Customers need customised vehicles, options based on the useability, monthly payout, ownership period. Traditional loans are not flexible in structuring customized vehicle finance. There is a need to recognise the leasing instrument as a formal financing option. To support this, OEMs’ role shall be pivotal in supporting the leasing instrument by providing product reliability, longer battery life & warranties.
EV insurance
The insurance sector is pivotal to the success of EVs. With the sale of electric vehicles gathering speed, India’s insurance providers are expanding their product suites and including green insurance covers. The IRDAI announced that insurers must offer a 15% discount on mandatory third-party covers for electric vehicles to foster faster EV adoption. Incentives like these are precisely how we need such affiliated sectors to respond.
In addition, the insurance sector could expand its product offerings to cover accidents and contingencies in public and commercial EVs. This will encourage faster and more widespread adoption of electric alternatives among fleet owners and commercial vehicle pliers.
EV infrastructure
EV infrastructure is another crucial sector to track. The electric charging infrastructure in India has undoubtedly seen many positive developments in the recent past. Operational public charging stations rose by around 77% between June 2020 and February 2022. We are also seeing a rising share of solar-powered charging stations in the country to augment EV charging infrastructure.
We need to focus on
- Public policy to expand the existing charging infrastructure can help counter range anxiety, and hence a focus on fast charging setup is imperative if we are going to encourage acceleration of EV adoption.
- Easy single clearance window for putting up the infrastructure
Improving electric charging infrastructure in public spaces can be a game-changer for private vehicles and EV fleet owners.
EV dealerships
With electric vehicles continuing to grow popular, many auto dealerships in India recognise the shift and are willing to embrace the change. As it turns out, around 80% of the auto dealers in the country are keen on embracing retail EVs. Some dealers are eager to venture into related businesses like charging infrastructure, battery swapping, and vehicle scrapping.
That said, we need greater clarity on how many dealerships are ready to retail commercial EVs because only then can we truly plug the mobility gaps in the country. For example, battery swapping is not the best option for commercial vehicles, so manufacturers should focus on hyper-fast charging battery pack technology that will negate the need for dealerships and customers to invest in capital-intensive battery charging infrastructure. Today, the paradigm of fast-charging is being redefined, and stable battery chemistry allows full charge for a 100 km range within 20 minutes. Government incentives to encourage more dealerships to promote the adoption of commercial EVs may be the need of the hour.
Miles to go: Preparing our allied sectors for the era of electric mobility
Although the other relevant players in the EV ecosystem are taking great strides in augmenting the adoption of electric alternatives, we still have miles to go before India’s EV sector becomes a success story that the world can look up to.
The entire EV ecosystem — with primary, secondary and tertiary sectors all in the mix — needs to come together like the essential pieces of a puzzle to facilitate holistic and future-facing growth. Public-private partnerships and policy frameworks are particularly relevant in this regard. If apex institutions like the RBI and regulatory bodies like the IRDAI intervene and encourage banks and insurance companies to offer EV-friendly products, the rise in commercial EV adoption could be accelerated.
With a robust mix of public policy and private participation in these sectors, the Indian EV ecosystem can stand shoulder-to-shoulder with its global counterparts. If one scales back a decade, EVs are closer to flying cars on the abstraction curve in India. Today, the power of the ecosystem has brought us to the cusp of the genuine possibility of an electric future for mobility.