Indian Economy: An analysis of Impact of Electric Vehicles on Indian Automobile Sector

A lot is being said about the Electric Vehicle transition in the India these days. Everyday we hear some news or the other in this respect either from the Government or from the Auto Industry or the news of standoff between the two sides due to lack of clarity on either side. 

I have taken some time out to understand the impact of this proposed transition on the buyer. Assuming that the infrastructure and policies of Government are in place and the Auto Industry too backs it up thoroughly with a range of EV’s, still a back of the envelope calculation reveals the following facts.

Firstly, an EV would cost anything around 1.5 times to 2.0 times the cost of an Internal Combustion Engine (ICE). Now assuming that the GST on EV’s will continue to be at 5% in future (GST has been reduced from 12% to 5% on EV’s)  these cars can either sell in private usage or in commercial usage. Let us try to analyse the Value for Money equation for these usages.

For Private Usage (usage by individuals) irrespective of the GST reduction the cost of running EV over a 5 years ownership period would be 30 to 50% higher than an IC engine. 

On the other side, EV’s make more sense when they have a high usage which ideally happens in a commercial usage segment. But, the GST reduction for commercial usage is Cost Neutral since all these commercial fleet companies can take input credit against the GST paid and GST does not make any financial impact on them. 

Now, here comes the FAME II benefits wherein commercial operators seem to benefit, but with stringent phase wise implementation schedule of Make In India production of 20 components , 5 to 10 of which are critical to the performance of the vehicle and wherein most OEM’s (barring a few) may not be able to adhere to this schedule, the FAME II benefits to the commercial operators too get wiped off. 

Still the commercial operator seems to gain 10 to 15% by EV usage. But this gain is at the risk of technology obsolescence (since battery technology is changing everyday), risk of residual value of the car (since the resale value of EV’s is yet to be established in the country). 

Given the above facts, how does the Government expect the things to move ahead?

The underlying benefits of shifting to EV itself are questionable. Gains expected are lesser dependence on fossils fuels and pollution free environment. 

Let us take them one by one. Lesser dependence on fossil fuels – yes this gain can be achieved, but the question is for how long and at what cost. Does India have the Lithium,  Nickel, Cobalt or Graphite,reserves to fuel an ecosystem for Make in India battery manufacturing or will we be dependent on the likes of China for the raw material. 

The answer is No, India does not have the requisite mining resources of these metals except for Graphite, making us dependent on alternate countries than the OPEC for our fuel requirements. China can afford to go the EV way since they are the fourth richest in terms of their Lithium & Cobalt resources globally, but what about us – we only have graphite? 

How does that change the equation of India’s dependence on energy needs? Since globally there are limited mining resources of Lithium, Strontium and Cobalt where the concentration of these metals is reasonable for commercial extraction, these reserves themselves are not going to last long. Other mining reserves have a low concentration of these elements making them commercially nonviable.

Secondly – Pollution free environment – yes this can be achieved but we need to have an ecosystem wherein the used batteries which have degraded upto 60-70% can be put to alternate usage. This usage could be for stationary independent usage or a combined usage wherein the power from these batteries could be used for electrification of homes or street lights through a grid or for large UPS systems etc etc. Do we have any plans to create an ecosystem for this remains a question? Has the acceptability & costs benefits been analysed for this alternate usage ? 

All the stake holders , the Government, the Auto Industry, and the related sectors like the ones who create charging infrastructure or reuse the degraded batteries or recyclers of the residual batteries need to come together and have a comprehensive plan and give each other the confidence of development of such an ecosystem. 

Moreover, the stake holders need to be governed by a policy decision which has to last for 15-20 years minimum. Any shift in such a policy will have a detrimental effect and cannot be driven by short term policies like the FAME or GST reduction unless the road map for future is decided jointly. There would be no takers for short term policies as all this involves huge amounts of investments from all stake holders.

This needs to be jointly discussed with the corporate world too beyond the auto industry, so that they are willing to adopt 40-50% of their transportation needs through EV’s with an auditable CSR commitment to reduce the carbon footprint in this regard. If it is a matter of energy dependence & environment for the country, why should only the auto industry only fund this bill. Does this not require a similar commitment from the government & corporate world? Has the government thought about this and started working on a policy framework?

Beyond this we need to be careful of technology disruptions in terms of Battery Technology or Alternate Fuel technology? This is all evolving and we may see major disruptions in coming times. What happens to the EV ecosystem and the investments made therein  if there is a technology disruption ? The industry needs to be given given an assurance that government would look at some form of compensation model in case of an abrupt technology disruption which does not let the auto industry amortize the EV ecosystem costs. 

I do not claim to be an expert on EV’s however, these are important areas which cannot be overlooked in the short or long run if we want to move the Electric way.

Author: Mr. Ashish Kaul works for a renowned Automobile company and is an experienced Business Strategy and Automation Leader in Industry for over 25 years. You can leave your comments on this blog to get his replies on any of your questions relating to this article.
Note – views expressed in this blog are personal views of the Author and not of BVSS as an organisation.

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