The end of 2015 saw a global battle at Conference of the Parties-21 event in Paris to reduce carbon emission. The event has also brought spotlight on pollution problems in mega cities such as New Delhi and Beijing. India took an important step in this direction through an electric vehicles (EVs) initiative back in 2010 when the ministry of new and renewable energy (MNRE) proposed a 20% subsidy for EVs that resulted in a big uptake, mostly in the e-bikes segment. In January 2013, the government introduced National Electric Mobility Mission Plan (NEMMP) to bolster the EV segment. It estimates a demand potential of 5-7 million EVs, which includes about 5 million two-wheelers and 1.5 million four-wheelers by 2020. NEMMP intends to save Rs14,000 crore through fuel savings.
Trend in EV adoption
Globally, the EV technology went through the classic Gartner Hype Cycle, which states that expectations from the technology initially grow faster than the maturity of the technology and later declines. In India, the cycle was seen with a peak in annual sales with 110,000 EVs in 2012. After the introduction of NEMMP, many EVs were expected on the road. However, the sales of two-wheeler EVs dropped by more than 80% and resulted in 75% of two-wheeler EV manufacturers to shut down by 2014. Mahindra and Mahindra Ltd bought a majority stake in the Reva Electric Car Co. anticipating a big four-wheeler EV market in the future and launched a new EV model, e2o, in March 2013 with a plan to sell 1,000 units per year with a subsequent rise in sales. However, they sold only 500 units till March 2015.
Evidence suggests that the implementation of NEMMP has failed to create a positive impact on EV sales. Key reasons include withdrawal of the 2010 subsidy scheme and delays in the release of new NEMMP subsidies along with increased expectation from the technology. The challenges in EV adoption are related to policy implementation along with shortfalls in battery EV technology, poor charging infrastructure and associated high costs.
Currently, Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) is the incentive scheme under NEMMP which has announced subsidies since April 2015. It has resulted in a small increase in uptake of EVs in 2015-16.
Pricing—A hindrance in uptake
The prices of EVs are a concern for prospective customers. The battery constitutes about half of the total cost of an EV, thereby making long-range EVs significantly more expensive than a regular EV. However, two-wheeler EVs are cheaper than their petrol counterparts as they use low performance and cheaper lead acid batteries and not Lithium-ion batteries. The low resale value of EVs is an additional bottleneck due to battery replacement issues and uncertainty in future price. Batteries have a two-five year lifespan, and hence battery replacement cost is a prominent component which significantly increases the total cost of ownership of an EV.
Recharging the national EV mission
The good news is that technology costs are slowly declining. Additionally, incentives such as discounts, low-cost finance, tax credits, among others, can boost adoption of EVs. Auto manufacturers and consumers need more clarity on policies. The Make in India and Skill India programmes can boost domestic manufacturing and export of EVs, and related components. In 2016, government plans improved capital goods policy with a long-term, constant, and appropriate tax and duty structure to increase EV adoption in India. Recently, Maharashtra government waived value-added tax, road tax and registration charges for EVs. Prices of EVs can be lowered using innovative solutions such as a business model of leasing batteries, which makes initial price of vehicles lower and insures consumers from issues related to performance, life and recycle of battery.
As market penetration of EVs increase, their cost will reduce simultaneously due to the synergy between economies of scale and advances in technology. The penetration of solar energy in the power sector has also gone through a similar experience.
Going forward, NEMMP has to progress in synergy with other national missions and policies in transport, climate change, solar, among others. The government, non-governmental organisations and policy think tanks should design awareness programmes to inform society about the potential benefits of EVs. Providing opportunities for demonstration and municipal rollouts of EVs, such as a Bangalore Metropolitan Transport Corporation fleet, may attract more consumers.
The objectives of NEMMP can be accomplished with re-estimated targets and time frames, strong and innovative policy frameworks, and appropriate schemes and regulations. A systematic and sustainable action plan, made from in-depth and revised studies of various EV industry related sectors, which include research and development, supply-chain development, novel services such as battery leasing and market behaviour, is essential to create an environment conducive to EV manufacturing and operation.
(Ganeshprasad Ravindra Pavaskar is with the Center for Study of Science, Technology, and Policy (CSTEP), Bangalore.)
Like this Column? Sign up for our daily newsletter to get our best reports.