Finance Minister Nirmala Sitharamanpresented the Union budget for 2019, expectations were somewhat muted in the understanding that with an interim budget already presented, there was little scope for big announcements. As it turned out, the minister did make a few announcements on the taxation front as well as others, that have caused more than just a little heartburn. However, one announcement among just a few for the electric vehicles (EV) sector, where she managed to truly surprise, was the income tax benefit for
An exemption of upto Rs 1.5 lacs was proposed on the interest component of a loan taken to purchase an EV. This, coming along with other predicted moves like reducing the GST (Goods and Services Tax) rate from 12 percent to 5 percent, and
This effectively meant India is doing as much, if not more, than some of the world’s biggest auto markets when it comes to pushing for faster EV adoption. Welcoming the move, Ather Energy, the Bengaluru-based electric vehicle company which makes electric scooters, said that tax rebate will be a major sop for consumers to buy EVs.
The move “addresses the concern of upfront cost of purchasing which would result in the income-tax benefit to the end-customer and could be up to Rs 7,000-8,000 per vehicle. It now becomes imperative that OEMs (original equipment manufacturers) chalk out plans to allow the industry to scale up and meet the demand for compelling products. These reforms will definitely boost the adoption of EV as now the price gap between an EV and internal combustion engine (ICE) vehicle has narrowed down a lot more. EV two-wheelers will now also be in the consideration set of a potential buyer,” Ather Energy CEO and co-founder Tarun Mehta, said.
For good or bad, the government has certainly made its preferences clear. Of course, government support has rarely guaranteed success in India, as the agriculture sector and many other smaller sectors, will testify. Even the renewables sector, so closely related to the EV drive, with its objectives for green energy, has suffered from the heavy government overhand in terms of policy flip flops, price controls and more in the past year. In fact, the famous heavy hand of the government has already been on show when the NITI Aayog, its top policy making and monitoring body, called on existing ICE two-wheeler manufacturers to come up with a plan for the next 5 years in June this year. When the top three failed to respond in five weeks, the body threatened them with the possibility of having to pay for pollution beyond the EV adoption deadline for two wheelers, proposed for sometime in 2025 as of now. And this forced a manufacturer to speak its mind.
“Since the last two years, there have been lots of flip-flops as far as government policies are concerned. Sometimes they blow hot, sometimes they blow cold. Sometimes they make very definitive statements. Their own colleagues contradict their statements. And people in the industry are quite confused actually,” Rajiv Bajaj, managing director of Bajaj Auto was quoted as saying in the company’s 12th annual general meeting on July 26 by news web site moneycontrol.com.
The question is, will it work? The deadlines are tough, by any stretch. In fact, if you consider the view of incumbent ICE vehicle manufacturers, the deadlines are downright impossible, silly, or even counterproductive. Be it the time scale, the sheer volume of market that needs to be moved, or even the employment of millions at stake in an already struggling auto sector, the incumbents have reasons to resist.
“Currently, more than 95 percent of companies are just trading EVs, buying it from China and selling it here. Because of this clause, the government is encouraging the manufacturing of EVs in India, which will also help job creation. But the duration of FAME II is for three years, which is not a long time to get a new product once you start. There must be little more predictability in policy at least like 6-7 years then only it will allow OEMs and Vendors to invest,” said Aditya Ganjapure, co-founder of Lithos Motors, an electric two-wheeler manufacturing company.
At a time when the auto sector is reeling from one of its worst slowdowns in memory, with over 350,000 job cuts already implemented, the industry is getting a hearing too. However, for the new upstarts trying to steal a lead, without legacy investments in the ICE space, this is not the time for the government to bend too much. “As Tesla did for the U.S. market, startups in India are poised to make huge contribution towards adoption of EV. Free from any legacy baggage, they are well in position to offer pure electric vehicles which is also evident on road particularly in 2 and 3-wheeler sector. Traditional OEMs have also pulled up their socks and are readying themselves to hold on to their market share. Clearly, we can see that Indian EV industry is well prepared to join the bandwagon and offer a pollution free and affordable EV experience to Indian customers. With India poised to become third largest auto market of world, none of the players would like to miss the huge opportunity,” said Awadhesh Jha, VP, Charge & Drive & Sustainability at Fortum India.
So why is manufacturing important for India? In the case of EV’s, the reasons go well beyond the obvious. Besides the case for creating jobs and aiming big in an all new sector where we have a strong domestic market too (especially in two wheelers), readers should realize that the whole logic of EV’s is built on this being a green alternative, and helping the country meet its climate goals as well as reduce pollution in its cities. Cities that have earned a global reputation by now for their air pollution, with 15 of the top 20 most polluted cities from the country, according to a detailed survey by the IQAir Group, done in association with Greenpeace.
“Everyone is aware of the fact that we have to address the climate change impact if we have to make lives of our future generation sustainable. This is forcing every one of us to adopt more environment friendly habits. Same is the case in transportation as well. Having committed with the Paris Accord to reduce carbon intensity, government has rightly made it abundantly clear that it wants an electric vehicle-future in India as road transport along with energy production constitute to almost 2/3 of CO2 emission,” said Jha.
By green, we are talking about a product that not only claims to have a lower carbon footprint over its lifecycle, but also a lower resource requirement for manufacturing.
On the other hand, the three things that everyone does seem to agree on as the biggest challenges to EV adoption in India are: price, infrastructure, and range anxiety. In meeting after meeting, and across all responses we received from players in the sector, these three rang out loudly every time.
“There are a few bottlenecks when we add new technology. Main hurdle here is talent as EV is quite a new subject to India and we have very few technically rich people to handle EV construction, Lithium battery manufacturing, BLDC motors of higher range, etc. Apart from this, another big issue is charging infrastructure. Range is a big concern with most EVs as a typical e-bike would run 80-120 kms, an e-auto 80-90 kms, e-car 100-250 kms, e-bus-100-180 kms so they need charging stations on the way. India is an upcoming market for EVs so charging infra is not in place and even if it comes today than its utilization is very low as density of EVs in not that much. Charging infra is need of hour and a big challenge to deploy,” said Sunil Bhatnagar, country head, energy division at Microlyte Energy.
Range Anxiety, or the fear of running out of power in the middle of a trip, has accompanied the second coming of EV’s worldwide. Currently, besides improvement in technology, it is being tackled by building charging infrastructure as well as improvements in battery technology that are delivering ever higher range.
The government is obviously hoping for a jumpstart to initial volumes through subsidies and later through technology improvements, especially in battery technology and local sourcing,to tackle this challenge. A huge step in this direction has been the trend among logistics players, delivery fleets and their move to shift to EV’s. The government’s own stated ambition and efforts to convert its fleet to EV’s is also a support.
“The National Mission for Transformative Mobility and Battery Storage aims to provide a push to the entire e-mobility ecosystem that includes electric vehicle manufacturers, charging infrastructure development companies, fleet operators, service providers, etc. The goal of 100 percent is now changed to 30 percent by 2030,” said Dr Rahul Walawalkar, president of India Energy Storage Alliance.
On infrastructure, or more precisely, charging infrastructure, the challenges are bigger. India, even today, has one of the thinnest charging infrastructure facilities among leading EV markets of the world. Not only is this a consequence of a late entry into the market, but going forward, will also be linked to the need to enhance the overall grid network to handle EV charging.“The charging infrastructure and EVs are running into the classic chicken and egg problem. The absence of one is fueling the lack of another. Companies aren’t setting up the EV infrastructure at scale because there aren’t enough vehicles to use the infrastructure, and in turn, a lack of infrastructure is an impediment to more vehicles adopted. We are glad that the government is encouraging setting-up of an expansive network equipped to meet the charging requirements of both private and public modes of transportation,” said Mehta of Ather Energy.
One of the biggest challenges has been the availability of land linked to quality power sources. While land availability in major metros is a matter of very high prices, the country’s hinterland has an issue of power quality. Making it even more difficult is a still evolving policy environment, especially when it comes to standardization of charging infrastructure. “In Union Budget 2019, government announced to facilitate the setting up of mega manufacturing plants of Li-ion batteries and solar chargers. This is a very important step to ensure energy security for India to avoid over-reliance on imports of key components of EVs. We expect that setting up of these Giga factories will also help India in expanding the market for stationary energy storage projects for supporting renewable integration and reducing the usage of diesel for backup power generation,” said Gautam Seshadri, head of strategy at Blowhorn, an intra-city logistics company.
In China, for instance, public charging points have grown from zilch to 412,000 in June 2019.In large markets like Europe, firms from startups like char.gy to Fortum have aggressive targets on setting up charging points, with options both innovative as well as backed by huge capital investments. Char.gy, for instance, has a solution to attach a charging meter at public electric poles where parked cars can be charged based on duration and even buy subscription plans, if the pole is close to their homes.
In the Indian context, with power ending up in state control, the government will need to bring all stakeholders across states on board to ensure a uniform policy as far as possible; be it for pricing power for EV’s, standardisation of plugs and sockets, and of course, ensuring progressive policies like ensuring the announced reservation of 20 percent parking slots in residential societies with a charging point are actually implemented. For unlike ICE vehicles, EV’s do have this pressing need for a charging facility that is ubiquitous, and close to a place where the driver can pursue other work. After all, the fuel in this case is present everywhere unlike diesel/petrol or gas, and the time taken to charge a vehicle, (between 20 minutes to 6 hours) effectively means that the old distribution model of fuel retailing is not the future here.
“The government has been pushing for EV charging infrastructure and this has raised the amount of discussion that is happening. This will bring more investors into this space. But operationally, some ground level alignments are pending and they span across Ministries. For e.g.,the standards on AC charging in India are ridiculously favoured to the impractical and to government tenders only. Why would a 3-output socket be mandatory on an AC charger when an EV owner requires a single socket? The standard for AC 001 needs to consider single socket points as well. We have developed practical EV charging solutions Made in India and Made for India for e.g. the ChargeGrid Pro series, but these hit the bottlenecks of existing standards which are skewed and create artificial bottlenecks to setting up the infrastructure,” said Maxson Lewis, managing director of Magenta Power, a green energy solutions provider.
So, with so much going for it, will India realize its EV ambitions? As always, the biggest reason for the push for EV’s, to manufacture in India, remains the biggest challenge. Manufacturing is not a matter of incentives for a year, or even three, as FAME 2 envisages. It is a long-term investment, and needs policy clarity for a long-term period. Importantly, the risks in manufacturing in the country remain high, due to other structural issues, be it the labour laws, pollution norms and approvals etc, some of which the government is tackling now. However, with a typical cycle of 1 year plus for all approvals before production, the time taken remains too long, in an ever changing sector.
Past experience indicates that the minimum gestation period