Growth Potential and Challenges for Electric Vehicles In India

Tesla entering the Indian market has created huge ripples and is expected to pave the way for a more competitive electric vehicle (EV) market in India. In its recent decision to enter the Indian market, Triton Electric has stated that it will work towards building the country into ‘one of the biggest markets for Triton EV outside the US Market’. As Petrol and Diesel prices continue to inch upwards, and become more volatile, electric vehicles could prove to be an attractive alternative for consumers. However, there is a considerable distance to travel before the average Indian consumer considers electric vehicles to be a mainstream alternative to petrol or diesel automobiles, as evidenced by the fact that EVs currently make up less than one percent of vehicle sales. 

Opportunities for Growth

The Indian market presents a huge opportunity for electric vehicle manufacturers simply because of its large size. For electric vehicles, this scale has, for the most part, remained untapped. These two facts mean that the potential for growth of this sector is very promising. An independent study released by the CEEW (Centre for Energy Finance) estimates a $206 billion market opportunity for electric vehicles over the course of the following decade. With the National Electric Mobility Mission Plan, there is a target to achieve 6 to 7 million EV and Hybrid vehicle sales year-on-year from 2020. The recent vehicle scrappage policy means that several older gas-guzzling automobiles stand to be phased out of the market, and former owners of such automobiles could be the ideal immediate target consumer class for EVs or Hybrid vehicles. 

Battery technology is advancing quickly, with batteries costing lesser and providing larger ranges, and this trend is expected to continue with more research and development. This gives EVs a considerable recurring cost advantage — the need for charging is less frequent as a result of the higher ranges per charge, furthered by the fact that electricity is considerably cheaper than petrol or diesel. A commonly used metric to measure the cost of battery packs needed to produce EVs is the ‘Cost Per kWh’. This metric is growing more and more competitive. Since the battery pack is the most expensive part in the production of an EV, this means that the prices grow more competitive in tandem. This has a positive impact on demand, as it makes them even more compelling in comparison with other automobiles. 

Apart from private buyers of EVs, there is also scope for commercial adoption. One of the largest areas for potential commercial use is in cab services, with ridesharing services such as Ola and Uber having a national presence. Since commercial entities are cost minimizers, this transition could occur if electric vehicles are significantly more cost-effective to operate, as they are expected to become. In the longer run, EVs could play a role in trucking and logistics, as well as in public transport. 

Policy and Incentives

Creating the right business and consumer environment aligned to this potential involves having the right policies and incentive structure in place to have both robust demand and competitive supply. From the side of growing demand, since a significant part of the upfront cost of a vehicle consists of taxes, providing tax benefits on the purchase of electric vehicles can offset the negative effect of the higher base cost. As for commercial adoption, the Delhi Government’s new electric vehicle policy expects delivery service providers, E-Commerce logistics, as well as courier facilities to convert 50 percent of their operating fleet in Delhi to electric vehicles by March 31 2023, and their entire fleets by March 31 2025. 

In order to ensure supply at competitive prices, there must be minimal barriers to entry to producers that wish to enter the market, since this drives up competition and pushes down price. Further, incentives for producers to enter the market by means of production linked incentives and tax breaks also works towards increasing competition. Increased competition has a positive effect not only on price, but also the extent of research and development carried out by firms in order to maintain a competitive advantage. 

Challenges to Widespread Adoption

While the potential to grow is huge for electric vehicles, there are some challenges that need to be considered. The previously mentioned study by CEEW-CEF not only concludes that the market opportunity is very large, but also that a substantial amount of investment is required to achieve it, estimating a cumulative investment need of over $180 billion. Companies must be sufficiently incentivized to invest such large amounts in  vehicle production and in the research and development necessary to make the vehicles more efficient, which will be key in stimulating demand. The investment will not just have to be undertaken by the companies, but also by the government by way of ramping up charging infrastructure. A key worry in the minds of potential consumers is that of the ability to charge vehicles when and where needed, given that charging stations are nowhere near as ubiquitous as filling stations. 

EVs are expected to become cheaper as the cost of battery packs becomes more competitive. However, presently, the upfront cost of EVs is higher than other automobiles, leading to lower demand. This can be offset by providing customers with other benefits such as a certain number of free charges. Tesla has effectively employed such tactics in the past. The effectiveness of such benefits, however, again depends upon the number of charging stations. Another factor related to charging that customers factor into their decision is the amount of time taken for a charge. As it stands, this factor is not yet very competitive. 

Outlook

The presence of a huge opportunity for EV manufacturers in the Indian market is easy to see. But for this opportunity to be capitalized on, the right environment must be ensured. This includes incentivizing manufacturers to constantly innovate in order to be competitive, as well as ensuring the right infrastructure so that both customers and business are able to adopt EVs on a wide scale. Under this environment, India’s electric vehicle goals are very realistically achievable, given the market opportunity.   

Arvind Gururaj is a second-year undergraduate student at Ashoka University, majoring in Economics and Finance and minoring in Mathematics.

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