Electric Vehicles: A roadmap to mass adoption in India
Let us rewind to 2001.
Amongst massive buzz and nearly seven years of development, Reva from the Maini Group was unveiled as India’s first electric car. As it took to the roads, Chetan Maini of the Maini Group was ecstatic with the possibility of adding a strong voice to the global conversation around electric mobility. Reva became the country’s most affordable electric car and soon became one of the world’s bestselling electric cars, having sold in 24 countries. In 2001, the success of Reva hinged heavily on significantly lower total cost of ownership (TCO) as compared to the other vehicles on the road, good range for regular intra-city commute, high initial torque, the promise of lower reliance on international crude oil imports, and the associated aspect of sustainability.
It has been 20 years since, and one would have expected electric vehicles to become a norm and a lifestyle in the country. However, the reality seems to be far from this. When we turn to the Indian roads of today, we see that about 1 in 125 vehicles is electric, most being three wheelers and two wheelers. And the narrative around the factors affecting the success of EVs seem to have seen no change in the past two decades. Before we look at what it takes for mass EV adoption in the country, let’s understand why we failed to make EVs mainstream.
Why EVs have seen limited adoption (so far)
Despite the launch of products by incumbent OEMs (Original Equipment Manufacturers) and new players, the EV penetration is extremely low at 0.8%. The split of overall EVs in India, by two-wheelers, three-wheelers and four-wheelers, is 17%, 79%, 4% respectively. The reasons for the failure can be looked at under the following dimensions.
1) Lack of Product Innovation
One of the key reasons for limited adoption of electric vehicles can be attributed to the lack of innovation on the product front. So far, companies failed to spotlight the practicality of an electric vehicle for the value-conscious Indian consumers. Sustainable performance was not built into the product and EVs failed to provide a satisfactory range suitable for inter city travel. Lack of charging infrastructure is popularly believed to be the number one reason for low EV adoption. However, while it is one of the reasons, it is not the primary reason limiting the success of EVs. Instead, it is the dearth of customer-first and appealing products despite the premium being charged for EVs.
2) Cost Concerns
For two-wheelers and four-wheelers, EVs are sold at a 20% and 50% premium respectively as compared to the Internal Combustion (IC) vehicles. This high upfront cost is not favorable for the value-conscious Indian consumers who would rather prefer a cheaper IC vehicle. With the increase in size of the vehicle, the price delta increases too. For example, while a two-wheeler EV will breakeven with the IC counterpart at approximately 15000 kms, a 4W needs approximately 1 lakh kms to breakeven. To add to the high upfront cost concerns is the painfully low penetration of financing and limited clarity on the resale value of EVs.
3) Lack of Charging/ Swapping Infrastructure
This comes as no surprise. For six lakh electric vehicles on the road today, we have roughly 2,000 public charging stations. This poor density of the charging stations is limiting the ease of EV usage. Lack of battery and charger standardization coupled with high capital intensity of setting up charging or swapping stations has emerged as a major infrastructural bottleneck.
This is rather a chicken and egg problem where setting up expansive CapEx heavy charging infrastructure would be financially viable for companies only when there is a critical mass of vehicles on the road. And unfortunately we do not have the required critical mass of vehicles in India today. This is, however, changing rapidly.
Buckle up, EVs are (finally) ready to take off
In September 2021, Ola Electric sold e-scooters worth 1,100 crores in just two days in India. At a cost of about 1.3 lakh per scooter, this translates to a sale of approximately 85,000 e-scooters. In comparison to the total number of electric vehicles on the road which is about six lakhs, this is a sizable number for just two-day sales – an indicator that there is a fundamental shift in consumer behavior and an increasing inclination towards electric vehicles.
While the narrative today is still largely the same as that in 2001 (i.e. significantly lower total cost of ownership for EVs, need to reduce India’s reliance on crude oil imports, and the aspect of sustainability & climate change), here are some key developments propelling EV adoption.
1) Progress in Product Innovation
People do not buy a Tesla because they want to buy an electric vehicle. They do so because they want to buy a Tesla. And what makes Tesla what it is? It is the product. Broadly, we can see a major shift with respect to the practicality offered by EVs of today.
Practicality takes into account the vehicle pricing and the range. Vehicle range has drastically improved owing to significant improvements in battery chemistry. Moreover, Lithium ion prices saw a 98% dip over the last three decades, of which 90% reduction took place over the last decade alone. This resulted in a massive drop in the cost of manufacturing batteries. And since the battery forms 25% to 40% of a vehicle’s cost, the price of EVs has also seen a decline.
Now, when consumers pay a premium, they aspire to own a premium, well-designed and feature-rich vehicle. New age tech-first OEMs are building products that are appealing both in terms of design and features and are now attracting customer interest. Ola Electric scooter offers top speed of 115kmph, range of more than 150km, phone sensing unlock through a digital key, voice control, ability to control the vehicle remotely and safety features such as geofencing alert and tamper alert. Ather also offers hi-tech features such as reverse assist, ability to manage the vehicle from the consumer’s smartphone and perform actions like accepting/rejecting calls and playing music. Based on the sales data reported by Ola Electric, one can safely infer that customers are now willing to pay a premium for these vehicles.
2) New Model Alert: Full Stack Approach
Historically, automotives have adopted a vertical-focused business model. Companies manufactured and marketed the vehicle, but did not get into retailing, servicing or fuel infrastructure. New age OEMs are going full-stack. Companies are now going beyond manufacturing and distribution, and selling directly to consumers, setting up charging infrastructure and providing financing options. This is key to accelerating initial adoption as customers are assured of charging infrastructure support and financing. The full-stack approach is going to play an important role in helping EVs reach critical mass on Indian roads. However, over time, OEMs might start verticalising by hiving off the charging business to a separate entity in collaboration with other strategic partners.
3) Turn to Total Cost of Ownership
Generally, consumers believe that they will incur high costs when they purchase an electric vehicle. While the upfront cost of an EV is still at a premium, it is important that we look at it from a total cost of ownership perspective. Total cost of ownership (TCO) is the lifetime cost of running a vehicle that is a summation of the upfront cost to buy the vehicle, running costs (fuel/charging costs & maintenance costs) after adjusting the resale value. Considering the upfront cost for two-wheelers, EVs are sold at a 20% premium compared to an IC counterpart. For four-wheelers, the premium paid for EVs goes as high as 50% more than the cost of an IC four-wheeler.
Nonetheless, there is an upside on the running and maintenance costs. For a two-wheeler Electric Vehicle, the cost of charging is at about 15 to 20% of the cost of fuel for an IC vehicle. With the fuel prices increasing rapidly, this delta is only getting larger. Since EVs also have fewer moving parts, the maintenance cost for an electric vehicle is actually about 30 to 40% cheaper than that of its IC counterpart. Due to lack of clarity on the resale value of an EV, a very conservative estimate is taken. A TCO comparison tells us that two-wheeler EVs turn out to be 50% cheaper (over the life of the vehicle) than an IC vehicle, signaling that the mass adoption for EVs will be driven by two-wheelers. In the case of four-wheelers, the TCO of an EV is 20% cheaper than its IC counterpart at a 1.5 lakh km run over the vehicle life. The TCO for EV four-wheelers is slated to improve significantly with the reduction in the premium paid for owning them.
Refer to Figure 1 for detailed Total Cost of Ownership (TCO) calculation.
So, for EVs, customers would be paying a slightly higher premium on the upfront cost and saving money throughout the life of the vehicle.
Figure 1: Total Cost of Ownership (TCO) Calculation
4) Positive regulatory tailwinds
Contributing 7% to the Indian GDP, the automotive industry is a rather important sector for the economy, demanding attention from the policy bodies. However, mass adoption of EVs does not particularly need subsidies from the government. The existing subsidies are mostly focused on manufacturing and aim to drive awareness for electric vehicles. Positive regulatory intervention through schemes such as Faster Adoption and Manufacturing of Hybrid and Electric vehicle (FAME) and…