Is India charged up for electric vehicles?

The Indian Government has set an ambitious target of selling only electric cars in the country by 2030. The rising air pollution in many large cities has urged the Government to hasten the advent of electric vehicles (EVs). EVs are present in India from 2001, when Reva Electric Car Company from Bengaluru introduced their first ever electric car. [This was later bought by M&M in 2010.] Later it went on to launch e2o Plus, which costs anywhere between Rs 6-11 lakhs with a mileage of 140 km/full charge. However, these vehicles haven’t been very successful.

Some data points to look at where India stands:

What pushed the Government to set such an ambitious target?

At 2 million kilotons, India is the third largest emitter of carbon dioxide behind China and US. According to WHO, Indian cities are one of the most polluted around the world. The country accounts for 33 of the top 100, 22 of the top 50 and 11 of the top 20 most polluted cities across the world.

In the national capital Delhi, pollution due to particulate matter regularly exceeds the WHO limits by a factor of 7-12.As per a study by IIT Kanpur, vehicle emissions account for an average 25% of PM (particulate matter) 2.5 emissions, going upto 36% in winters. Further, given the high congestion in the cities that leads to stop go traffic conditions, conventional vehicles tend to idle more that leads to even higher pollution. Pollution from suspended particulate matter from vehicles is even higher at 40%.

With no tail pipe emissions, EVs hold the potential to drastically change the scenario. As per a study done by United Nations Environment Program and IIM Ahmedabad in Nov-14, in a low carbon scenario where EV penetration is the highest, emissions of PM 2.5 would fall below half the current levels by 2035.

Government’s stress on electrification of cars comes strong

The Government launched the National Electric Mobility Mission Plan 2020 in 2013 with an aim to target 6-7mn sales of hybrid and electric vehicles

from 2020. Also, a scheme called FAME (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles) was launched in the Union Budget of 2015-16 with an initial outlay of Rs 750mn.

The Government listed out various actions that were taken in 2017-18 in a move towards improving air quality that include Supreme Court’s ban on the sale of BS-III vehicles in India from April-17 and advancing supply of BS-VI fuels in Delhi. These are meant to tackle vehicular pollution. The Government is thus pushing the use of only electric vehicles by 2030.

EESL’s Tender to electrify India

EESL in August last year floated a tender for 10,000 electric cars. Bids from Tata motors and Mahindra qualified. Both companies have supplied about 500 electric cars to EESL. IN the next phase, EESL is planning to come up with a fresh tender of 10,000 electric cars by end of Mar-18.

The first batch of 500 electric sedans was delivered to the Central government around January 15 and the supporting charging infrastructure is in place. Presently, Andhra Pradesh, Maharashtra and Gujarat are the states apart from Delhi who have come forward to be a part of the electric vehicle roll out in the second phase.

 

 

 

2 and 3 wheelers are leading the EV adoption in India

Two-wheelers (2W) and three-wheelers (3Ws) have been the first in India to witness EV adoption to be followed by intra-city buses, corporate cabs and government fleet. The primary reason for fleets being early adopters are the economics that EVs offer over combustion engine vehicles and that the fleet owners base their purchase criterion on the total cost of ownership and not just the acquisition cost of the vehicle.

The 2W and 3W segments offer a huge opportunity for electrification in India given that it is the world’s largest two-wheeler market as well as one of the biggest for three-wheelers and widely used for personal mobility and cargo transportation.

Intra-city buses is another segment which is amenable for electrification as the route predictability is very high, thus enabling the development of charging infrastructure on the route / bus depots. However, high cost of e-buses due to heavier and pricier batteries remains a challenge. While the trucks segment makes more economic sense to electrify because of the fixed routes and larger distances covered, high battery capacity requirements and uncertainties around decline in residual value with decline in battery costs are impediments to their electrification.

Road to EVs can create USD 300bn domestic battery market

India’s vision of mass conversion to electric vehicles can create a USD 300billion domestic market for EV batteries by 2030 as per a report by Niti Aayog and the Rocky Mountain Institute. This is around 2/5th of the global battery demand and 25-40% of this market can be captured through ‘Make in India’, aimed at encouraging manufacturing and attracting foreign investment to India.

Since battery currently accounts for one-third of an EV’s total purchase prices, reducing battery costs through rapidly scaling production and standardizing battery components could be key to long-term success. However, high cost of lithium-ion batteries is a big roadblock to this.

 

 

 

 

 

To meet India’s domestic EV battery requirements, the country would need around 20 giga factories, each of which entails an investment of USD 5 billion, thus taking the total to USD 100 billion. As per the report, a gigafactory is a factory that is representative of Tesla’s battery manufacturing facility in Nevada, USA which has a total manufacturing capacity of 35Gwh per annum and required an investment of USD 5 billion.

 

It estimates that India can capture 25-40% of total economic opportunity represented by EV battery manufacturing under a scenario where India imports lithium-ion cells and assembles these cells into battery packs.

 

Going forward, as the country’s EV battery manufacturing matures and starts producing both cells and packs, while importing only the cathode or its raw materials, the report said India stands to capture nearly 80% (USD 240 billion) of the economic opportunity over time.

 

Stocks to benefit from the EV adoption

OEMs: Mahindra & Mahindra Limited is the first player to launch fully electric cars in India and will certainly gain with the EV boom. Tata Motors Limited has also manufactured electric Tiago and has supplied first 500 cars to EESL. The commercial launch is expected in 2019. Suzuki Motor has also decided to set up lithium-ion battery plant in Gujarat with Toshiba Corporation and Denso. Ashok Leyland introduced the first ‘Made in India’ electric bus “Circuit” last year. It has also formed a strategic alliance with SUN Mobility to develop electric mobility solutions. JBM Auto is in a sweet spot to reap benefits from the government’s push on electric vehicles. The company is in a JV with Polish firm Solaris Bus to make electric buses. The JV should start yielding results from FY19.

 

Battery manufacturers: BHEL is finalizing a memorandum of understanding with The Indian Space Research Organisation (ISRO) to help develop low-cost lithium-ion batteries for electric vehicles. IOCL is developing batteries and other technology for energy storage applications. As per ET, while IOCL is mainly focusing on lead-acid, it is also working on lithium-ion battery chemistries. Exide Industries and Sydney-based Ecoult are also setting up a new manufacturing plant in East India for Ecoult’s lead-acid hybrid product, named UltraBattery.

 Battery component makers: Hindalco, Vedanta and Nalco have good potential going forward irrespective of the fact whether Aluminum Batteries are made or not because aluminum is lightweight and will be used to make the car’s body. HEG and Graphite India should benefit as it is into graphite electrodes and its one of the main components in batteries. Manganese is a critical component in Nickel-Manganese-Cobalt (NMC) Li-ion batteries used in electric vehicles and hence MOIL should gain from the EV boom.

 

 

 

 

 

 

The post is contributed by Sneha Prashant, Investment Adviser, Moneybee Investment Advisors Private Limited. For more information you can email on sneha@moneybeeadvisors.com or call on +91 22 4030 2052

 

 

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