Pre-pandemic, consumers showed limited appetite for EVs due to their high cost. But post-pandemic, they might be ready to look at these vehicles through the environment lens, rather than make a purely cost based decision. With the central government pushing for growth in this sector, the future of the EV market is bright.
By Nijhum Rudra
The ongoing COVID-19 pandemic has completely changed the economic structure of various countries and has crippled several industrial sectors that are now trying very hard to get things back on track. In particular, the automobile industry in India and around the world has suffered huge economic losses. Even prior to the pandemic, it was undergoing a rough patch in India. The sector has been facing several challenges simultaneously, such as the transition to BS-VI technology, a credit crunch in the NBFC and MSME sectors that affected rural sales, and also weak consumer demand. The coronavirus will pose further challenges to business operations, customer sentiments as well as the discretionary spending by organisations.
According to various automobile experts, prior to the outbreak of this virus, 2020 was a very crucial year for global automobile manufacturers selling electric vehicles. Scores of startups and large companies set up manufacturing plants and launched new models. For instance, China already has more EVs than any other country. This happened because of the government’s subsidy to help people buy electric cars and its successful policies that encouraged local production of EVs.
According to Business Wire, back in 2018, China accounted for the largest share of nearly 45 per cent (2.3 million) of electric cars on the road, globally. Europe followed with 24 per cent of the global fleet and then the US with 22 per cent. With the rising demand for EVs and stringent emission norms, automakers have focused on developing electric vehicles as an opportunistic approach to growth within a defined area. Hyundai Motor Group, South Korea’s automobile giant, is focusing on electric vehicles powered by hydrogen fuel cells. Honda Motor Co. Ltd and Toyota Motor Corp. are also focusing on hydrogen FCEVs.
Like in several other countries, India is now a very important market for EVs, which are gradually becoming popular among consumers. Government initiatives like NEMMP (National Electric Mobility Mission Plan) and FAME (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles) have also helped to increase the popularity of EVs. However, the growth of the EV market has suddenly slumped as the majority of production/manufacturing units were closed during the lockdown and even after it was lifted, production could not be carried out at full capacity due to the shortage of raw materials and labour. Ultimately, the auto industry that contributes 7.5 per cent of India’s GDP, and a whopping 49 per cent of manufacturing GDP with a large economic multiplier impact, has now been reduced to half its turnover, claim experts. According to a report by emobility+, in the short term, the increasing fuel prices in India and the economic slowdown may delay overall discretionary consumer spending, which will definitely have an impact on EV sales. Hopefully, the continued efforts of the public and private stakeholders will drive EV growth in India.
The government’s role in boosting EVs post COVID-19
Currently, the cost of owning an electric vehicle is higher than the petrol/diesel vehicle because the technology is still evolving and in several stages of experimentation. To lower the overall cost of ownership, first of all, the prices of batteries need to be reduced and there should be more charging stations. Then, if required, companies need to rethink their customer acquisition strategies and growth plans, set up the battery charging infrastructure, strengthen R&D initiatives, and also develop an export-oriented manufacturing hub in India that can completely reduce our reliance on imported Chinese components. To ensure these strategies succeed, the government should step in and play a decisive role by charting holistic roadmaps, and strengthening the policies, regulations and guidelines that will ultimately boost the electric vehicle ecosystem.
Saurabh Kumar, MD, EESL, says, “With Unlock 1.0—the gradual reopening of our economy—a special focus has to be given to the e-mobility sector, to keep its growth in the fast lane. Along with creating consumer appetite, there is a need to foster a collective push from governments, OEMs, charging infrastructure providers and financial institutions. As announced by the Finance Minister, the government has decided to offer ₹ 3 trillion (₹ 3 lakh crore) as collateral-free automatic loans to the MSME sector. Borrowers that have an outstanding loan of ₹ 250 million (₹ 25 crore) and a turnover of ₹ 1 billion (₹ 100 crore) are eligible for this loan. The loan offered will be given for a tenure of four years and will have a 12-month deferment period. The enterprises eligible for this loan will not have to furnish any new collateral to avail of it. An additional amount of ₹ 200 billion (₹ 20,000 crore) has been allocated by the government to support stressed MSMEs. This will benefit a lot of industries, including the Indian automobile sector, as most of the auto component makers are MSMEs.”
Kumar adds, “The initiative is likely to help Indian auto component manufacturers resume business and strengthen the supply chain in the country. Besides, this will also help companies to ramp up their businesses and reduce Indian automakers’ dependence on other countries for all necessary components. India has the potential to build up long-term economic advantages in this key sector and scale its domestic production capacity.”
According to EESL, the introduction of the FAME 2 initiative has underlined that the government is moving in the right direction vis-à-vis e-mobility. There are a few additional recommendations that can be considered by the government to boost EV adoption across the country. Accelerated depreciation for cab operators will help get more EVs on the road and increase investments in the sector. Besides encouraging manufacturing, it will ensure faster adoption of EVs and generate sustainable demand.
The current challenges of the electric vehicle industry
A couple of months back, auto giant Toyota stated that a majority of OEMs now see India as a strong manufacturing market. This is good news, but there are a couple of big challenges that need to be taken care of. For the successful adoption of new technology or products, consumer acceptance is the most imperative factor. Government incentives and policies are powerful drivers to promote consumer acceptance, but that is not enough. At this moment, manufacturers have failed to justify the higher upfront cost of electric vehicles, which implies that EVs will not appeal to any consumer base beyond the small circle of those concerned about green mobility. In India, overcoming these hurdles is harder. Indian consumers are cost-conscious and the domestic manufacturing ecosystem for EVs is still in the nascent stage, though many experts feel that the call to ‘Boycott Chinese goods’ could be a game-changer in the coming few years. Another challenge is that the charging infrastructure is yet to be stabilised, while India’s per capita income remains low.
To counter the various challenges, EESL has procured electric cars as part of its EV programme, to encourage more participation from industries and boost consumer adoption. The programme aims to foster an enabling ecosystem involving relevant stakeholders such as vehicle manufacturers, charging infrastructure companies, fleet operators, service providers, etc. Starting from the National Capital Region, the programme is now being implemented in Andhra Pradesh, Gujarat, Uttar Pradesh, Jharkhand, Haryana, Maharashtra, Madhya Pradesh, Telangana, and the Andaman and Nicobar Islands.
These electric cars provide multiple benefits to users, and those who have tried them out have responded positively to their appearance, low noise, and overall comfort. EESL has taken up the challenge of aggregating demand for EVs to test both innovation and infrastructure in the country. Through a tender process, EESL has procured EVs to replace the government fleets. Till date, 1,514 e-cars have been deployed and another 500 are being registered. A total of 488 captive chargers have been installed, out of which 180 are Bharat Standard DC-001 (15kW) fast chargers and 308 are Bharat Standard AC-001 (10kW) chargers. Additionally, 91 public charging stations (PCS) complying with the DC-001 (15kW) standard have been installed in NDMC Delhi, SDMC Delhi, CMRL Chennai, Maha Metro Nagpur, Noida Authority and NKDA Kolkata.
|The challenges faced amidst COVID-19: What the experts say|
|Due to the pandemic, we have seen a significant decline in overall new car sales in all major markets around the world. It is obvious that weeks and even months of lockdown in many countries as well as general economic uncertainty have kept people from buying new cars. In China, which was early in and out of the lockdown, we have seen signs of recovery in the market development over the past couple of months. However, it is yet too early to estimate the overall impact of the pandemic on a global level. Electric vehicles are the top priority for most carmakers. Therefore, I expect demand for EV drivetrains to grow even more strongly compared to the other types in the future. In fact, in Infineon’s home country, Germany, EV sales have increased significantly even in the months most affected by the pandemic.|
|With the shutdowns during the lockdown, manufacturing units and retail/sales units have been affected adversely due to inter-country and inter-state logistical challenges. Holding enough buffer capacity of components will likely determine a manufacturer’s turnaround time once the lockdown is lifted, at locations where demand picks up in the country. With Unlock 1.0, the industry is slowly picking up pace while adhering to the government rules regarding social distancing and sanitising the workplace more frequently.
Independent use of shared assets has a very important role to play in these times. The cost of a shared asset will always be lower than owning a car. Also, the standards prescribed by the government for hygiene and health will help the shared mobility space to reclaim its earlier popularity.
Also, during the lockdown, with vehicles off the roads, air pollution has come down dramatically, making the world cleaner and greener for everyone. People have realised the environmental impact of ICE vehicles and in order to build a better and more sustainable future, consumers will go in for EVs in the coming years. The consumer demand has also been flatlined, owing to the lack in disposable incomes as well as the current closure of supply chains. A relook at the supply chains, business models and markets is necessary to highlight all the red flags. The long-term outlook for the EV market is likely to remain positive.
The future of EVs post COVID-19
According to Stephan Zizala, VP and GM, automotive high power at Infineon Technologies AG, market research indicates that within this decade, we will reach the point when the majority of all new cars sold will have a partial or fully electric drivetrain. Even before the pandemic, CO2-curbing regulations in many countries around the world were driving OEMs to increase their development and sales efforts around electric and hybrid vehicles. In Europe, an average fleet emission target of 95 grams of CO2 per kilometre has come into effect this year. In addition, as a consequence of COVID-19, we see government programmes to support EV sales being extended and even increased in several countries. This includes sales incentives as well as infrastructure spending on charging stations. Considering this, the pandemic may help to even accelerate the e-mobility revolution.
The COVID-19 pandemic has brought most OEM and supplier factories to a standstill. This will result in fewer companies making cars, and a majority of production facilities across supply chains remaining closed or not being able to attain full production capacity for some time to come. With unlocking, there should be a gradual increase in the availability of maintenance/field service labour. The time is opportune for a new strategy, pivot plan or for transformation. We need to plan for possible strategic moves including adding software or advanced electronics capabilities, either organically or through acquisitions, joint ventures and partnerships.
The long-term outlook for the EV market is likely to remain positive, if clean mobility remains a policy priority and economic stimulus packages reflect the role of e-mobility as a driver of broader innovation.
Accelerating EV adoption and making the necessary electricity network infrastructure available will bring down costs and increase the options available for transportation electrification in India. Additionally, conducive policies and tech innovations will bring down the cost of EVs and EV infrastructure.