We all are aware that a worldwide shift away from internal combustion engine (ICE) vehicles with increasingly electrified powertrains is underway. With this is increasing the formation of burgeoning electric vehicle supply chains. For companies that are accustomed to deploying supply chain management strategies based on decades of ICE-centered production, it is particularly challenging to determine how best to predict and plan for the electrification market.
Just a few tweaks to the automotive supply chain will not lead the rapid shift toward electrified powertrains. It will require much more. Electric cars require completely different components such as busbars, heat sinks, insulated-gate bipolar transistors-than their predecessors. Though need persists for traditional automobile components, electronics hold a large share in the completed electric vehicles, meaning high commoditization of these parts is the future. Hence, it comes as no surprise that the supply chain for electric vehicles is not nearly as mature as the traditional automotive supply chain.
Yes, challenges do exist, but so do solutions for them. Risks can be simultaneously managed through a strong, supportive supply chain with a vetted supplier network. In order to understand these challenges and solutions in EV supply chain management, we have our experts to throw light on the same…
India is one of the world’s largest importers of fossil fuels and the import of crude oil to the extent of USD $125 billion (or Rs 881,282 crore) happened in FY 2019-20 which was over 42 % from 2018 and these imports are expected to be three years high for the year 2020. Further as per ‘World Air Quality Report, 2020’, 22 Indian cities fall in the first 30 most polluted cities of the world and transportation is the major attributer of 2.5 micron particulate matter responsible for lung & breathing disorders. In India, the average pace of new vehicle registration is around 17% and with fast urbanization, the growth is expected to rise. The current trend continually increases stress on India’s precious foreign exchange reserves, increases pollution multi-fold and adversely affects the health of citizens.
E-mobility is the godsend opportunity to contain the above losses and India’s EV initiatives for mass as well as private transportation using efficient & pollution free means have prompted most established & reputed vehicle manufacturers and also many new entrants, to start manufacturing the e-vehicles in the private, last mile connectivity and bulk short/ long distance transportation space using two to six wheeled & above vehicles. With only 0.085% share of around 68000 EVs against over 8 crore registered vehicles, the potential for growth of EVs is immense.
With the governmental support through E-mobility manufacturing incentives to industry & purchase incentives to users through new EV policies of at least 10 State Government, FAME I & FAME-II, PLI schemes, scrappage policy, enhancement of e charging infrastructure, reduction of GST on purchase of EVs- large scale investments have already been planned by M&M, Maruti, Tata Motors, Hero Electric, Toyota etc. As on 06 April 2021, 38 OEMs with 114 models have been registered with the Department of Heavy Industry and around 68000 EVs have been sold in India. But still the pace is slow as the average number of vehicles sold per OEM is only around 1800 in which the share of 2 & three wheelers is maximum. The electric two-wheeler industry has about 20 players with total sales of only 25,600 units in 2020, down nearly 6 per cent from 2019. So, scale of operation is not being achieved by any player in the EV market & EVs continue to remain expensive.
For the standard parts like external body, chassis, harnesses, tyres, gear box, braking/lighting systems & electronics- experienced suppliers are available in the auto arena that can ensure the consistent supply with ensured quality at reasonable rates. However, for the specific critical components like traction battery pack with reliable BMS, traction motor & its controller, electronic throttle, vehicle control unit, DC-DC converter, wheel rim integrated with hub motor, DC/AC charging inlet, electric compressor, AC HVAC units and other key components of power-train, the consistent & reliable quality with efficient performance can be ensured more on mass production and performance feedback obtained from the field. The respectable scale of production can be achieved through variety reduction & standardization so that the same part/ component may be used by multiple OEMs of a class of vehicle like e-scooter or e-rickshaw. Through manufacturing in concentrated manufacturing hubs, the suppliers of such critical components can manufacture these components suitable for multiple OEMs thereby attaining the scaled up component production with reliable quality. Such efforts would also reduce the input costs of suppliers on account of bulk purchase of raw materials & other inputs. Such suppliers may be well trained by OEMs to adopt the good manufacturing & quality control practices.
Scaled up manufacturing can also be achieved through enhancement of demand. Union & State governments may intensely fund and focus on bulk procurement of e-buses/ cars/ bikes for city public transport, ferrying employees and use within the campus of large organizations like big offices, residential educational/research institutions, steel/fertilizer/cement/ power plants, mines, large construction sites and their residential colonies.
Many OEMs are still importing the major components & batteries imported from China and disruption due to COVID 19 is a major concern in the supply chain. OEMs need to realign their global supply chain to enhance the current domestic manufacturing capabilities availing the government incentives & tying up with global leaders. Especially the quality improvement & reliability of the battery, the heart of any EV, in addition to domestic R&D, may also be achieved through tie ups with world Li ion battery & EV leaders under make in India scheme.
Additional deterrents contributing to weakening of the supply chain through subdued purchase of personal e-vehicles are the deficient charging infra, perception of deficient performance (like range & life of battery), fire safety concerns and cheap routine maintenance infra. Such deterrents may be reduced by installation of charging infra in PPP mode, long term warranty/ battery life commitment / prompt replacement through dealer/ maintenance networks & insurance support, safe designs with optimum performance (low energy density- especially for two/ three wheeled EVs), intensive training/ skilling of roadside mechanics respectively. The prohibitive initial purchase cost may be countered through incentive based policy support for private vehicle purchase and through long term revenue sharing contracts (with minimum assured revenue) with entities -functioning in “operate, earn & maintain mode” – of public transport fleet of buses, multimodal integrated city transport like metro-bus-e rickshaw. Finally, the soft loans, battery swapping facilities and bulk charging locations having nominal charging rates, for the transport & delivery fleets of e: scooters, rickshaws, taxis & buses will promote the purchase & strengthening of supply chain through volume sales.
By NEERAJ KUMAR SINGAL – DIRECTOR, SEMCO GROUP
The Indian EV market has seen a lot of thrust in the recent past. The market is slowly moving towards maturity with emergence of new players in electric 2 wheeler and electric three wheeler production, electric four wheeler, Battery pack manufacturers, EV fleet operators, EV Charge Point Operators and IOT operators.
The Indian automobiles market appetite for EVs is growing, however the pertinent question remains about the reliability of EV supply chain. The mismatch between demand and supply could undo the market sentiments and consumer confidence.
Schemes like Atma Nirbhar Bharata and Make In India push for localisation of the supply chain which could allow the EV Industry to cut over reliance on imports.
The entire EV components can be grouped into 5 – 6 categories : Battery Cells, Chassis & Body, Motor, BMS, Power Electronics etc. Battery Cells, Motor & Power Electronics alone contribute to close to 50% of the total EV cost. It is a grim reality that the above mentioned components have the lowest level of localisation. Whether it is an electric 2 wheeler market or 3 wheeler market, batteries remain the most important component of Supply chain management.
The unavailability of Lithium, poor R&D and technology intervention, unavailability of rare earth magnets for motors, Power electronics etc are some of the major issues plaguing the EV supply chain.
Policy makers, both at Central & State level have made sincere attempts to these challenges. Indian Government has created momentum for EVs through its INR 10K Cr FAME Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles Scheme. The FAME II scheme was tweaked in favor of localisation and restrictions were placed to avail subsidies like at least 40% localisation for buses and 50% of other vehicles.
Additionally, import duties on Completely Built Units (CBUs), Semi Knocked Downs (SKDs), and Completely Knocked Downs (CKDs) were increased by 5% to 25% w.e.f. April 2020. On the other hand, duties on Li-ion cells and battery packs are set to increase from 5% currently to 10% and 15%.
Hence, it would be prudent if Indian EV Supply chain ecosystem takes measures like robust investment in Battery R&D. Organisations like ISRO & DRDO have lately been doing amazing research works at their labs. Existing & New OEMs should also pledge to procure locally made material and support the ancillary sector in providing necessary support. And lastly, we need to move towards a lower tax regime while promoting localisation, The current rate of import duties on cells and other components are high (as high as 40% on CBU, 40% on lithium ion batteries) . While it is not practically possible to ramp up production in the immediate future, we may follow import substitution policy. The lower tax duty along with Technology Transfer will provide the necessary breather to the budding EV sector. In the long run, once the EV supply chain starts graduating towards maturity, import curbs may be placed to protect the domestic industry.
Today, there is a need to follow a calibrated approach to fix supply chain issues in Indian market with support of all stakeholders.
By NISHANT SAINI, FOUNDER AND MANAGING DIRECTOR, eee-TAXI