India’s EV Foray Running Out of Steam

India was late to the EV party, as it began its journey of electric mobility only in the past decade. It seems like it wasn’t a policy priority either for the Indian government, with our Roads and Transportation Minister, Nitin Gadkari once even quipping on a television news discussion, “What’s the hurry?” This, when the amount of oil India imports and the rising costs of fuel as well, with the government itself increasing prices domestically by raising excise duties and taxes, ought to have prompted the country to seriously consider the transition to clean energy much earlier.

This lackadaisical approach to the switch to EVs shows in the kind of half-baked policies we have been following in India, as I will argue in this piece. I have written before on my blog on the rapid technological changes taking place in the global automobile world, and on the need for India to catch up. But I hadn’t fully explored India’s progress on its EV policy until I saw TV advertisements for Tata Nexon EV suddenly, followed by more of Tata Motors EV models. Now, I see quite a few TV advertisements for EVs from Hyundai and Kia as well as Mahindra and Mahindra. While I will not comment on the adverts themselves in this article, I thought, could EVs have become popular in India that soon?

Well, the shift to EVs in India has been driven precisely by the high and rising costs of fuel. That said, the prices of EVs in India are nowhere near what they ought to be with the Tata Nexon EV costing double that of a regular Tata Nexon ICE (internal combustion engine) model. This when the Indian government has been subsidizing the purchase of electric vehicles, since 2015, when the central government launched FAME (Faster Adoption and Manufacture of Electric Vehicles). The central government approved an outlay of Rs. 7.95 billion to be spent over two years. The outlay was increased by another Rs 1 billion in the following year. In 2019, FAME was extended through a second phase in which the central government outlay was Rs. 100 billion to be spent over the next three years, and has now been extended by another two years, because of the Covid-19 pandemic. With 1.65 lakh EVs already helped by the subsidy scheme, FAME II should take us to 2024.

It is not merely the amount of money set aside to promote and subsidise the purchase of EVs in India, but how it is spent that we should look at. More importantly, what is the larger objective of shifting to EVs? It appears that there hasn’t been much thought on this, in strategic terms. I would think that for a large country such as India with limited infrastructure in terms of road connectivity – though there has been significant improvement both in new roads being added as well as their quality – power availability and congestion on Indian roads, we ought to have taken a more planned approach to building our EV capabilities.

An outlay of Rs 100 billion being spent to subsidise EVs in all vehicle categories, from buses and trucks to 2,3 and 4-wheelers seems like a wasted effort in a country like India. It spreads the money and the effort thinly across the board without achieving very much. If we had considered the poor or inadequate infrastructure aspect as well as the congestion aspect, the emphasis ought to have been to subsidise EVs where there is likely to be early tech adoption and concern for the environment, ie cars and SUVs. At the same time, the effort ought to be in relieving our congested city roads of so much traffic and the resulting pollution by attempting to shift more of the bus, 2 and 3-wheeler traffic to using the metro rail in cities where it is already available. I think in India, our metro rail adoption is still very low and people ought to see the obvious benefits of travelling by metro rail rather than being stuck behind a vehicle on congested roads for hours together.

This strategy puts India’s EV journey on a parallel track with our Metro Rail adoption and usage. That is as far as the larger cities and towns are concerned. In these very cities and towns as well as across the states, buses and trucks ought to have migrated to CNG decades ago, as was done in Delhi. In fact, even 3-wheelers in Delhi run on CNG. It is a cleaner-burning fuel and reduces emission-related pollution considerably. Ideally, the aim ought to be to phase out 3-wheelers gradually, once public transport (bus and metro rail) is fully functional and usage is high. Instead, we have been doing just the opposite, with over half of our 1.4 million electric vehicles on the road coming from 3-wheelers and another third or more from 2-wheelers, according to government data.

Electric 2 and 3-wheelers ought to wait for battery swapping and charging infrastructure; Image: Kumpan Electric on Unsplash

The largest markets for two-wheelers are in rural and semi-urban India, which is why they continue to be depressed even after the Covid-19 pandemic, while passenger cars have rebounded from the slump. Two- wheelers at the moment are being adversely affected by high fuel prices, as this is an extremely price-sensitive market and those who wish to shift to E-Scooters would do so on their own. And as I said earlier, ideally two-wheeler owners too ought to use the Metro more often if their cities have them.

Once we have enough electric cars and SUVs on the roads, we would also have created enough infrastructure for them, in terms of charging stations and battery swapping/replacement. Then subsidizing of electric two-wheelers and buses makes sense at this stage, when infrastructure and power supply are well-developed. Speaking of which, there needs to be a third parallel track, which is to ensure that more of our power supply is generated from cleaner and greener sources like solar, wind, hydro and nuclear. This is absolutely critical as I have been writing on my blog, for our electric vehicle transition to be meaningful and to make sense. There is very little that one reads about this transition to cleaner power, with all our ultra-mega power plants running on imported coal, because of being held to power-purchase agreements with states that are loth to raise power tariffs and also to end power theft.

At this point, it is worth mentioning that FAME isn’t the only subsidy in India’s EV programme; several states have their own subsidy on purchase of an EV and it is based on the kilo-watt hour power capacity of the battery. Here, too, I think it is too much to subsidise every type of vehicle; ideally these subsidies ought to be concentrated in the car and SUV segments, and especially those in the compact category. Apparently, the cap on subsidy eligibility is a factory cost of Rs 1.5 million per unit. However, the cap on subsidizing only 10,000 electric cars per manufacturer in each state ought to be dropped, as some of them might exhaust the subsidy in no time at all. These states also offer waiver of registration charges as well as 100% of road tax, in addition to the price subsidy, while many other states don’t offer a price subsidy at all.

Electric cars require cleaner energy like renewables; Image: dcbel on Unsplash

I thought what about incentives for manufacturers, to invest in more capacity and especially, to invest in R&D notably on battery technology? There seems to be no special incentives at all in this area, which is inexplicable, given the huge competition we face from the Chinese next-door. I presume that all our EVs are right now powered by imported Chinese car batteries, which cannot continue for very long. This is the main technology that powers the vehicle, and if India is not making the EV, PHEV and Fuel-cell batteries indigenously, we are in for trouble. Expect Chinese EVs to soon swamp our market, as they have been doing exceedingly well in other overseas markets.

Besides, if we are to bring down the costs of EVs and narrow the price differential between ICE cars and EVs, we have to invest in local R&D and keep innovating to bring down the costs, improve range, resale value, etc. There ought to be subsidies on EV battery technology and powertrain innovation both at the central and state levels and this ought to be on the basis of new technologies brought to market and narrowing the price differential and this can also be determined in a phased manner. I think the states that are automobile manufacturing hubs ought to also offer a subsidy on R&D and encourage greater innovation in association with IITs and other engineering institutes. Automobile companies ought to also work in close collaboration with information technology hubs out of Bangalore, Pune and Delhi-NCR.

I looked at examples of how other important EV car markets were incentivizing the shift to EVs, namely China, US and Norway. Actually, many other EU countries too might have specific schemes to incentivize EV production and adoption, but these three being the largest markets for EVs today made for a quick comparison. In the US, it is the states that are incentivising EV manufacture and Biden’s latest IRA plan of US $379 billion offers US$ 2.8 billion towards electric battery manufacturing. The US began its electric car journey in 2003 with Tesla and while their subsidies were in the form of income tax credits ranging from US$ 2,500 to US$ 7,500, the numbers of subsidized EVs were capped at 200,000 per maker. The cap on vehicles has now been removed under the new plan and they are trying to target the subsidies towards smaller cars.

In China, subsidies for EVs began in 2009 and ended just last year. The subsidies typically ranged between 3% and 6% of the cost of an EV, paid to manufacturers at the point of purchase. Even though their subsidy scheme has ended, some benefits such as 10% exemption on purchase tax on EVs continues through 2023. Besides, China is also introducing a green car credit system, targeted at EV makers for meeting or exceeding targets. I didn’t read anything about subsidies to incentivize R&D in EV technologies including battery technology, but I am sure they exist.

Norway is not a car-making country; it imports all its vehicles and yet, it is the country leading EV adoption in the world. As much as 86% of cars on the roads in Norway are electric, while car penetration is as high as 50% of population. And surprise, surprise, Norway began its electric car journey in the early 2000s. With a range of subsidies and incentives introduced in a phased and well-planned manner. Norway also taxes gasoline and diesel cars at a higher rate and has introduced legislation to completely discontinue them by 2025.

In terms of how well-planned and executed their EV shift has been, it appears that Norway leads the way, though it has also had the longest time to make the shift. The US which began its EV shift in 2003 didn’t focus enough on incentivizing R&D and new technologies, which they are attempting to start now. In terms of pace of progress and impact, one would have to say that China has been the most effective and competitive. Their subsidies too are smaller than the much more generous subsidies being offered in the US and in India, especially by some Indian states.

India needs to develop its charging stations and infrastructure; Image: J Dean on Unsplash

India has completed seven years of its FAME and EV subsidy, having begun in 2015, but I think it could have been much better planned and enforced, both from the customer and manufacturer points of view. Besides, we are a large automobile market, with a huge manufacturing base, and extremely low penetration of cars. There is plenty to be gained from our EV journey, if we can see it in the larger context of clean energy transition and decongesting our cities. Also, bringing our strengths in information technology and engineering together, India can surge ahead in EV technology. All this, with the caveat, though, of shifting our source of energy itself from coal to cleaner fuels.

According to the IEA (International Energy Agency), global sales of EVs have had their best years so far in 2021 and 2022, doubling in the first year and selling many more in the second. So, while it might appear at the end of those seven years of FAME in India that our EV foray is running out of steam, new ways to incentivize different aspects of it, from innovation to manufacture and purchase, can help us give it a new, more future-oriented lease of life. As I see it, and have been writing on my blog, mobility as a service is the future and it’s already here. Indian car manufacturers will soon have to decide whether they want to be making cars or running the mobility service. To this extent, India’s EV experience can actually help them make that decision earlier and in a more planned manner.

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