If both swapping and demand aggregation work as per plan, India may reach an EV sales volume of more than 1.6 Million vehicles in FY23, mainly driven by government procurement and 3-wheelers.
Government procurement is expected to be a major driver for growth in the coming few years, through procurement of 4-wheelers for government offices and 3-wheelers and buses for public transportation. Investment by fleet operators like Ola and Uber, as well as some food delivery operators, is also likely to drive initial growth in electric 4-wheelers and 2-wheelers. However, adoption of lower mileage, privately owned 4-wheelers and 2-wheelers could also reach an inflection point in 5-6 years, on the back of decreasing battery costs and increasing charging infrastructure availability. The customer mix and drivers for each category is expected to be as follows:
- 4-Wheelers: This will be largely driven by government procurement and fleet operators in the early stage. Government procurement is expected to be 30,000 vehicles till 2023, by which time there could be an inflection point for adoption amongst low mileage private owners. Mahindra and Tata will continue to grow their presence to cater to government contracts and growing private demand. Entry is also likely by MNCs like Nissan, Hyundai and Honda in the coming years.
- 2-Wheelers: The segment will be private ownership and subsidy driven, and will be characterized by a migration from Lead Acid to Lithium-ion batteries and from low speed to high speed vehicles. For example, all major OEMs like Hero, Ampere, TVS, Lohia have high-powered electric 2-wheelers in the pipeline. Numerous start-ups focusing on better performing vehicles are also emerging and will begin sales in 2018, such as Ather, Tork and Emflux. However, most of these manufacturers will continue to import electronic components.
- 3-Wheelers: E-rickshaws are likely to be the fastest growing segment – OEMs like Mahindra, Kinetic Green and Autolite have already launched models or will be launching models in 2018, which will increase enforcement of standards and registration, creating a powerful market driver. E-Auto sales are also expected to grow through the entry of OEMs like Bajaj and TVS, though they will still account for a relatively smaller share of the overall electric 3-wheeler category. Demand aggregation through public procurement and battery swapping is expected to play an important role in early adoption.
- Buses: Major OEMs like Ashok Leyland, Tata and BYD, will continue to pilot and test in the coming years. Battery swapping will reduce upfront cost and spur greater procurement from EESL and STUs. However, ramp-up is likely to be slower than 3-wheelers.
In the long-run, innate economic and social attractiveness will make an EV boom in India inevitable. The continued fall in Lithium-ion batteries will drastically lower upfront costs. Improvement in battery technology will lead to affordable and higher range EVs. Private investment in infrastructure will likely be a function of demand driven by the above. To remain cost-competitive and enable faster scale up, EV OEMs will increase domestic sourcing.The target set by the government is ambitious and expected to be missed due to the industry and the consumer not being ready to adopt rapidly, given the relative economics of EV vs. ICE becoming favourable only beyond FY23. Although we project a 6-fold growth in EVs from FY17, this will still not be enough to meet the government’s target of 100% EV sales by 2030. Our projections suggest that EV penetration will reach a level of 1.82% by FY23, partly due to a low penetration of 0.60% in the 2-wheeler segment. Even if EVs grew at a CAGR of 50% from FY23 to FY30, they would still only reach a penetration of ~ 20% by FY30.
If the government’s 2030 objectives are met, India could save INR 8 lakh Cr (a 20% saving relative to a BAU scenario) in imports of petrol and diesel for the automotive industry over the period, after considering some level of domestic manufacturing of batteries. Thus, shifting to EVs will not necessarily reduce our import dependency. However, the impact on the environment will be significant. There could be two possible scenarios: a Business as Usual (BAU) scenario, where the dependency continues to be on fossil fuels for the automotive industry, or a scenario where the nation meets its 2030 EV goals.
- BAU Scenario: In the BAU scenario, India would need more than 1.6 Billion MT of petrol and diesel to fuel its automotive industry from 2017-30. At a crude-oil price estimate of USD 52/ barrel, this would amount to a value of USD 670 Billion or INR 44 lakh Cr. If India imports 90 percent of its oil, this amounts to INR 40 lakh Cr in oil imports for the automotive industry.India imports 90 percent of its oil, this amounts to INR 40 lakh Cr in oil imports for the automotive industry.
- Scenario where India Meets its 2030 Ambitions: Meeting the government’s 2030 goals will require at least 3,500 GWh of batteries, amounting to a wholesale value of USD 300 Billion, which translates to approximately INR 20 lakh Cr. Indian manufacturers can capture 25 to 40 percent of the value of this market if they assemble packs domestically. Thus, cell imports would total INR 12-15 lakh Cr. Petrol and diesel imports are expected to reduce to INR 17 lakh Cr, creating a savings opportunity of INR 8 lakh Cr.
EVs are an inevitable disruption that is changing the way we commute globally. Developing an aggressive strategy for EV adoption in India and further ensuring a well-executed implementation, is both a challenge and an imperative for the government. The sheer geography and diversity of this country will present problems that require well thought through solutions, which are not yet visible on the ground.
Credits: Avalon Consulting