2W And 3W Will Lead India’s EV Journey: ICRA

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• EVs will account for 8-10% of 2W and over 30% of 3W new vehicles sales in India by 2025
• Expectation of new model launches, considerable incentives, limited span of commute to drive penetration in these segments
• Lack of financing remains a key deterrent to higher EV penetration
• Battery prices should slash by further 40% to make any meaningful inroads in Indian electric car market

The global automobile industry is witnessing major technological transitions, with a shift from conventional powertrains to the electric powertrain. This transition will not only impact OEMs and their vendors within the auto industry but other stakeholders like oil producers, refineries, financiers, and others. While global automotive demand declined during CY2020 due to Covid-19 related impact, EVs remained the bright spot with approximately 40% growth over the previous years. Globally, EVs now account for 4.4% of new car sales during CY2020 and their share is likely to cross 5% level in CY2021. ICRA believes that while the transition to EVs is inevitable, the pace of penetration will be relatively gradual in India unlike global markets like China, Europe, and USA.

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Giving more insights, Mr. Shamsher Dewan, Vice President & Group Head – Corporate Sector Ratings, ICRA says, “It is heartening to see positive and proactive policy measures taken by Government of India as well as various state governments to accelerate EV transition in India. However, affordability and range anxiety continue to remain key
challenges, especially in the passenger car and truck segment and penetration levels are likely to remain low over the medium term. The absence of local supplier ecosystem and high dependency on imports make things tougher.

Nonetheless,segments like scooters, 3W and SCVs have already achieved TCO parity with conventional vehicles due to the low operating cost and attractive subsidy support, and are thereby expected to become early adopters of EVs in India. We expect share of EVs to reach about 8-10% level in two wheelers, and over 30% in 3W by 2025. The
penetration levels in cars and trucks are likely to remain low in the medium term.”
Electric 2W and 3W segments have relatively lower dependency on commercial charging infrastructure (owing to limited span of commute) and can also adopt battery swapping to allay charging related concern for commercial applications. Furthermore, operating cost metrices continue to favour electric 2W and 3W for commercial operations, in-fact e3W over life of the vehicle will be much more cost economical than its CNG counterparts. India can capitalize on its vast 2W and 3W segment, to emerge as leading manufacturer of e2W and e3W, globally; however, it will continue to lag in electric car segment.

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Unlike other markets, especially China, which has taken a significant lead in public charging infrastructure, and it will take several years for India to reach at that level of charging infrastructure penetration. Hence, India could focus on 2W, 3W and buses where requirement of public charging infrastructure is limited. Unlike the car segment where China has massive lead, ICRA believes that India can still work on electrifying its 2W and 3W segment due to favourable total cost of ownership and huge volume which translates into economies of scale benefits.

“The development of local manufacturing of batteries, critical components and charging infrastructure would remain critical for incentivizing the local EV ecosystem, which is currently weak, reducing costs and improving overall acceptability of EVs in the country. ICRA expect the recently announced production linked incentive (PLI) scheme for
auto components and ACC batteries to provide much needed impetus for localising manufacturing in the sector.

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While dependency on imported battery cells will continue in the medium term, Indian companies can focus on localizing other parts including motor and controller in the near term followed by localization of battery management system and other electronics over the next 3-5 years.”, added Mr. Dewan.

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